Impact of Sen. Bingaman's Clean Energy Standard

One of the stated goals of Senator Jeff Bingaman, Chairman of the Energy and Natural Resources Committee, is to pass a “clean energy” standard (CES) that would require electric retailers to generate a certain percentage of their electricity sales from qualified “clean” energy sources. As such, he requested the Energy Information Administration (EIA) to analyze the impact of a CES, using the assumptions that he supplied.

Bingaman’s “clean energy” mandate requires 45 percent of electricity sales in 2015 to come from qualifying clean sources of energy, extending to 95 percent by 2050.[i] Eligible sources include natural gas-fired plants, nuclear plants, renewable plants (hydroelectric, wind, solar, biomass, geothermal), and fossil plants with carbon capture and sequestration (CCS) technology. Fossil fuel plants receive only partial credit towards meeting the target because they still emit some carbon dioxide emissions.

His CES eventually raises the price of electricity to consumers, nationally by 21 percent, and regionally by as much as 69 percent, in 2035. Regional increases are as much as 5.2 cents per kilowatt hour higher in 2035, an increase that is about half of what electricity prices average today.

Bingaman’s CES

With the demise of the Renewable Energy Standard under the last Congress, some politicians are now leaning toward a CES which also permits nuclear plants and fossil fuel plants having lower carbon intensity than a new supercritical coal plant to contribute towards the target. While all existing plants that fulfill these criteria (e.g. renewable, nuclear, and some fossil) contribute toward the targets specified (45 percent in 2015 and 95 percent in 2050), not all of these existing generators are allowed to receive credits that can be used in the future or sold to others that cannot achieve the goal. Under the Bingaman proposal, credits are given as follows:

• Non-hydroelectric renewable generation receives full credits
• Incremental hydroelectric and nuclear generation from new capacity receives full credit, but existing hydroelectric and nuclear generation only contribute to the target
• Generation from

1) Coal plants that capture and sequester their carbon dioxide emissions receives 0.9 credits,

2) Natural gas plants that sequester their carbon dioxide emissions, 0.95  credits,

3) Existing natural gas combined-cycle units, 0.48 credits,

4) New gas combined-cycle units, 0.59 credits,

5) Existing gas combustion turbines, 0.16  credits,

6) New natural gas combustion turbines, 0.45 credits, and

7) Integrated gasification combined-cycle coal plants without carbon capture, 0.15 credits.

Impacts of the Bingaman CES

EIA estimates electricity prices increase nationally in 2035 by an average of 21 percent as a result of the CES specified by Chairman Bingaman. Regionally, electricity prices are as much as 69 percent higher in 2035 in a portion of the Southeast Electric Reliability Council and 62 percent higher in a portion of the Northwest Power Pool. Quantitatively, the increase in electricity prices is highest on Long Island, 5.2 cents per kilowatt hour (2009 dollars). Nationally, average household electricity expenditures are $170 higher under the Bingaman CES than they are projected to be in the reference case.

As expected, under Senator Bingaman’s standard, the generation mix changes with coal technologies losing market share and non-hydroelectric renewable, natural gas, and nuclear technologies increasing market share. Natural gas-fired generation is 53 percent higher in 2035 than in the reference case and non-hydroelectric generation is 75 percent higher. Wind generation is more than double its 2035 reference case level and biomass generation increases due to co-firing.

Because of the different incentives given to existing versus new nuclear power, between 2009 and 2035, 65 gigawatts of new nuclear capacity are installed and 14 gigawatts are retired under the Bingaman CES compared to 6 gigawatts of new capacity and 2 gigawatts of retirements in the reference case.

Coal-fired generation, which is expected to increase 23 percent between 2009 and 2035 in the reference case, declines by 41 percent over that time period under the Bingaman CES. The Bingaman CES spurs retrofits of existing coal-fired capacity with carbon capture and sequestration (CCS) equipment—about 47 gigawatts, mostly installed between 2025 and 2035.

Due to the increase in natural-gas fired generation, particularly early in the projection period, natural gas prices increase. In 2016, they are 12 percent higher under the Bingaman CES than in the reference case.

Senator Bingaman apparently expects U.S. electricity and natural gas consumers to pay the higher prices due to what he perceives as benefits of his “clean energy” standard. According to EIA projections, the Bingaman CES would reduce carbon dioxide emissions from power plants by 43 percent in 2035, or 20 percent cumulatively between 2009 and 2035.

Alternative Bingaman CES Scenarios

Chairman Bingaman also requested several alternative scenarios be analyzed. These cases evaluated:

1) Existing hydroelectric and nuclear generation receiving credits that can be sold or used in the future,

2) Existing hydroelectric and nuclear plants receiving one-tenth of a credit, natural gas combined cycle receiving half a credit, natural gas turbines and coal without CCS equipment receiving no credit,

3) Small utilities with annual sales less than 4 million megawatt hours would be exempt from the CES,

4) Capping the price of a credit at 2.1 cents per kilowatt hour in 2015 and allowing that cap to increase 5 percent a year over the rate of inflation thereafter,

5) Capping the credit price at 3.0 cents per kilowatt hour and allowing that cap to increase 5 percent a year over the rate of inflation thereafter, and

6) Higher efficiency standards for technologies.

Each of the alternative cases shows reductions in coal generation and increases in natural gas, renewable and nuclear generation, but the levels vary based on the scenario. In the cases that provide some credit to existing nuclear generation, nuclear generation is higher and coal-fired generation is lower than in Bingaman’s baseline case. The highest nuclear generation occurs in case 2) above where existing nuclear plants get a tenth of a credit but many existing coal and natural gas plants are excluded. In this case, nuclear generation is 62 percent higher than in the Bingaman baseline case and 46 percent higher than in the reference case in 2035.

The shift away from coal is smaller in the cases with credit price caps since in those cases compliance can be achieved by making compliance payments. This is particularly true in the case where the credit cap begins at 2.1 cents per kilowatt hour. In this case, renewable generation is the smallest among the alternative cases. In this case and the case where small utilities are exempt from the CES, coal-fired generation is the largest because utilities have the ability to comply without needing as much “clean” generation. The role played by fossil-fueled technologies that sequester carbon emissions also varies across the cases with larger amounts in the cases with the higher credit prices because they spur the use of higher-cost technologies.

Non-hydroelectric renewable generation increases relative to the reference case in all of the alternative cases with the lowest level in the case where the credit price is capped at 2.1 cents per kilowatt hour because utilities rely on making compliance payments rather than using the “clean” generation options. The highest level of non-hydroelectric generation occurs in the case where credit prices are capped at 3.0 cents per kilowatt hour because the credit price levels are not high enough to support the high levels of new nuclear capacity found in the other alternative cases, leading to a slightly higher level of non-hydro renewable generation than occurs in those cases.

While all alternative cases achieve carbon dioxide emissions reductions in the electric power sector relative to the reference case, there are significant differences across cases.  By 2035, in the cases where existing hydroelectric and nuclear capacity receive partial credit, electricity sector carbon dioxide emissions fall to levels 60 percent to 63 percent below the reference case, much larger than the 43 percent reduction seen in the Bingaman baseline case. The larger emissions reductions in these cases occur because of the incentives to continue operating existing nuclear plants while retiring additional coal plants. The opposite occurs in the cases where small utilities are exempt and where the credit price is capped because those scenarios reduce the amount of “clean energy” needed for compliance.

Each of the alternative cases causes average end-use electricity prices to increase relative to the reference case by 2035, but there is a wide range of price changes. Average electricity prices range between 9 and 27 percent higher than the reference case in 2035. The cases with the highest percentage increase in 2035 prices are the case where existing nuclear and hydroelectric capacity receive credits and the case with higher standards and codes. The electricity price in the latter case, however, does not reflect the higher level of expenditures needed for structures and equipment to meet more stringent codes and standards.

Regional electricity prices also vary widely across cases. As with the national prices, the magnitude of the regional price impacts compared to the reference case depends on the overall stringency of the targets and whether or not the compliance costs are capped. Generally, the largest price increases in percentage terms occur in regions where reference case prices are relatively low (e.g. Northwest Power Pool) or where prices are below the national average in regions that are heavily dependent on coal. The   greatest number of regions (15 out of 22) experience price increases of more than 25 percent in 2035 in the codes and standards case. However, in that case, electricity expenditure impacts are somewhat ameliorated by lower levels of electricity use.

Conclusion

Once a renewable energy standard failed, some legislators turned to a “clean energy” standard as a means to reduce carbon dioxide emissions. But, to meet that standard, consumers must eventually pay more for electricity because of the standard. The purpose of the “clean energy” standard is to reduce the amount of coal-fired generation in the United States in favor of renewable, nuclear, and natural gas-fired generation.  Senator Bingaman has devised a number of scenarios that achieve that goal with varying levels of electricity and natural gas price increases, carbon dioxide emissions reductions, and mixes of generation types. In each case, however, economic output is lower and consumers pay more for energy.

Note: This is the second request that EIA has received for a study of a CES. For a summary of the agency’s analysis from a previous request from Science, Space, and Technology Committee Chairman Ralph Hall, see  https://www.instituteforenergyresearch.org/2011/11/02/impacts-of-a-clean-energy-standard/.