Carbon Regulation and Resource Planning Jim Hill Western Resource Planning Forum June 21, 2010.

Carbon Regulation and Resource Planning

Jim Hill

Carbon Regulation and Resource Planning

Jim Hill

Western Resource Planning Forum

June 21, 2010

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Colorado Carbon Landscape

2004 - PUC approves PSCo IRP that proposes to include CO2 in resource acquisition decisions

Renewable Energy Standard

• 2004 - RES 10% by 2015

• 2007 - RES increased to 20% by 2020 HB 1281

• 2010 - RES increased to 30% by 2020 HB 1001

Nov 2007- Governor issues Climate Action Plan • Reduce GHG from 2005 levels by 20% by 2020 and 80% by 2050 • Increased use of energy efficiency, renewables, and clean coal.

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CO2 Applied in IRP’s

2004 IRP – $9/ton (2010, 2.5% esc) 800 MW wind, 750 MW supercritical coal, 600 MW of gas-fired

2007 IRP – 20$/ton (2010, 7% esc) 700 MW wind, 300 MW solar, 900 MW gas, 229 MW coal retired

Modeling Methodology CO2 price included planning model dispatch decisions and economy

energy market representation.

Sensitivities Least-cost plans under ‘base’ CO2 with substantially different technology

mixes are re-priced at higher and lower CO2 values to test robustness

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Evaluation of Coal Unit Retirements

Retirement date influenced by: Labor Issues Fuel contracts (both commodity and rail liquidated damages) Capacity need after retired time to build replacement capacity Transmission impacts and lead time to fix

Economics of Retirement Estimate life extension costs (O&M and capital) Estimate likely emission control requirements Determine CO2 price at which life extension is cost equivalent

combinations of CC, CT, and renewables.

Assess likelihood of resulting CO2 price Analysis of proposed federal legislation and industry estimates of

economic and political impacts

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Estimating CO2 Price Likelihood

Political climate

Economic impacts on timing

Consequences of no legislation

EPA regulates

Analysis of Waxman-Markey

$-

$50

$100

$150

$200

$250

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Nominal $/metric ton

ACCF

Heritage

EIA

NBCC/CRA

MIT

CBO

EPA-IGEM

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Planning Challenges of Carbon

Renewable Energy Standard Rate Caps Forecasting customer rate impact heavily influenced by CO2 cost Could exceed rate impact if CO2 regulation delayed Revenue from rate rider < cost of renewables

Limitations on level of Renewables Reliability (CPS1 and CPS2) Coal unit cycling

Analyzing assets over useful life Dealing with outer year escalation Can change result of PV analyses Appropriate to trade near-term rate

hike to avoid speculative future?$-

$50

$100

$150

$200

$250

$300

$350

$400

1 3 5 7 9 11 13 15 17 19 21 23 25Operating Year

$/MWh

RenewableFossil HighFossil Low

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Achieving Expected Reduction Goal

Pros of Early Action

Has put PSCo on path to achieve expected range of reduction goals

Allowed for more EE to pass cost-effectiveness tests

Captured PTC or ITC in price paid for renewables

Operators gaining experience accommodating intermittent resources

Cons of Early Action If benchmark date pushed out

from 2005 to later, could lose ability to take credit for prior CO2 reductions

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To

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Resource selections complete through 2015 in last Resource Plan

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2020 Reduction

Target

Future Resource Plans>Sales ?>Energy Efficiency ?>More Renewables ?

>Rate Impacts ?

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