Considerations for Modeling Renewable Energy in the National Energy Modeling System Steve Clemmer Research Director, Clean Energy Program Union of Concerned.

Considerations for Modeling Renewable Energy in the National Energy Modeling System

Steve ClemmerResearch Director, Clean Energy Program

Union of Concerned [email protected]://www.ucsusa.org

NESCAUM NE-MARKAL Stakeholder MeetingBoston, MA

December 18, 2003

Unique Aspects ofModeling Renewables

High capital/low operating costs Dispersed resources Small but rapidly growing industry Variable output of wind and solar Alternative uses for biomass resources Benefits

– environmental

– modular

– domestic resource

– inexhaustible resource

How Renewables Are Modeled in NEMS Electricity Module

Costs and performance for 7 utility scale renewable technologies

Renewable energy costs, potential, and production for 13 electricity reliability (NERC) regions

Technology learning and optimism factors Electricity planning based on lowest net present value

cost of competing plants over 20-year period Electricity dispatch based on variable operating, fuel,

and environmental costs Constraints applied as renewable penetration grows

Key Renewable Energy Constraints in NEMS

Short-term growth rate constraints– 0.5% increase in capital cost for every 1% increase in annual growth rate

above 50%

Long-term capital cost multipliers: increase of up to 200% to reflect resource degradation, transmission network upgrades, and environmental factors.

Regional annual build limits for certain resources Cap on regional penetration of variable output resources

(wind and solar) -- recently raised from 15% to 20% Capacity credit for wind -- was fixed at 75% of capacity

factor now declines as penetration increases Limits on building in one region to serve another Biomass cofiring in coal plants limited to 3-5%

EIA’s Long-Term Capital Cost Multipliers for Wind

28 41 81 88

2,223

0

500

1,000

1,500

2,000

2,500

1 1.2 1.5 2 3Wind Capital Cost Multiplier

Gig

awat

ts

90% of total US class 4-6 wind resource faces highest cost

penalty

Source: EIA, “Modeling Costs of U.S. Wind Supply,” Issues in Midterm Analysis and Forecasting, 1999.

NEMS Limitations& Areas of Improvement

Limited empirical support for long-term cost multipliers and penetration constraints

Multiple constraints can produce unintended results Limited flexibility in changing underlying structure Electricity planning based on regulated industry International growth has limited effect on technology learning Modeling variable output renewables (wind and solar) Modeling wind and transmission issues Need to update certain renewable energy assumptions Natural gas price projections are low; don’t capture volatility

UCS Approach to Modeling Renewables in NEMS

Identified modeling issues as reviewer on EIA RPS and power plant multi-pollutant reduction reports and by testing the model

Modified certain renewable assumptions based on input from renewables experts familiar with NEMS and new research

– including DOE, NREL, ORNL, LBL, consultants

Used modified version of NEMS developed for AEO 2001 and AEO 2002 to analyze national renewable electricity standards and other clean energy policies

General technology assumptionsUCS model modifications - policy cases only

Replaced EIA’s pessimistic cost and performance assumptions for renewables with assumptions from EPRI/DOE and Clean Energy Future Studies

– except for higher capital costs for wind and reduced NEMS site-specific capital costs for geothermal

Costs are lower than EIAs for all technologies except biomass gasification

Hard-wired capital costs instead of using EIAs learning function that lowers costs as domestic capacity increases

– EIA underestimates impacts of international development and assumes wind is a mature technology

Renewable Energy Cost Trends:R&D and Market Growth Lower Costs

BiomassGeothermal

PV

Solar thermal

Levelized cents/kWh in constant $2000

1980 1990 2000 2010 2020

1980 1990 2000 2010 2020 1980 1990 2000 2010 2020

CO

E c

en

ts/k

Wh

100

80

60

40

20

10

8

6

4

2

70

60

50

40

30

20

10

12

9

6

3

Source: NREL Energy Analysis OfficeUpdated: June 2002

1980 1990 2000 2010 2020

Wind

1980 1990 2000 2010 2020

CO

E c

en

ts/k

Wh

40

30

20

10

0

WindUCS model modifications

Regional penetration constraint raised from 15% to 30%– Regions in Germany, Denmark and Spain over 20%

Reduced windy land area in each region to account for additional siting constraints as more wind is developed

– 35% reduction in mountainous regions; 17% reduction in other regions

– Original data already excludes 100% of urban and environmentally sensitive land, 50% of forested land, 30% of ag land, 10% of rangeland, and land further than 20 miles from existing transmission lines

– EIA uses old data from early 1990s, new data is available from NREL

Replaced EIA regional capital cost multipliers of up to 3x with maximum increase of 40%

– Included cost of backup power from natural gas CT as regional wind penetration increases

– Additional 20% cost increase as best sites are used based on CEF study

– Extra transmission costs already included for wind

BiomassUCS model modifications

Increased cofiring from a max of 3-5% per region with no capital costs to up to 10% with capital costs of $200/kW

Removed regional capital cost multipliers of up to 100% for new gasification plants as more biomass is used

Reduced forestry residues by half to provide extra margin against using unsustainable sources

Excluded 5 percent of C&D debris, on top of existing 75% exclusion, to provide extra margin against using contaminated materials

Removed regional annual build limits

EIA has consistently underestimated gas prices

0

1

2

3

4

5

1993 1997 2001 2005 2009 2013 2017 2021 2025

AEO 1997AEO 1998AEO 1999AEO 2000AEO 2001AEO 2002AEO 2003bAEO 2003aAEO 2004

Wellhead Natural Gas Prices (2002$/Mcf)

UCS Uses of NEMS

Renewable Portfolio Standards Production Tax Credit extension/expansion Increases in renewable energy R&D programs Net Metering Energy efficiency investments Emissions cap & trade Impact of higher natural gas prices Testing changes to key renewables assumptions

For more information see: UCS, Renewing Where We Live, 2002 and UCS, Clean Energy Blueprint, 2001, online at http://www.ucsusa.org/energy/0renewable.html and UCS NEMS 2002 Conference presentation, “How Much Does Renewable Energy Really Cost?” at http://www.eia.doe.gov/oiaf/aeo/conf/handouts.html

Senate 10% by 2020 RPS & PTCWould Benefit US Economy

80,000 MW of renewable capacity– 3.7 times more new renewable generation than existing state standards and funds

$18 billion in new capital investment $1.2 billion in property tax revenues for local communities $430 million in lease payments to farmers and rural

landowners from wind power $17.8 billion in consumer energy bill savings Competition from renewables lowers natural gas and

electricity prices 38 million metric tons reduction in power plant carbon

emission by 2020

*Results are in net present value 2000$ using an 8 percent real discount rate. Source: UCS, Renewing Where We Live, updated Sept. 2003.

Renewable Energy Mix under Senate 10% RPS & PTC

Sources: UCS, Renewing Where We Live, updated October 2003

Wind61%Geothermal

13%

Biomass20%

Landfill Gas5%

Solar1%

EIA: RPS is Affordable Total Consumer Energy Bills (excluding transportation)

396 413441

474

396416

444474470

443413

395

0

100

200

300

400

500

600

2005 2010 2015 2020

Bil

lion

199

9$

Business As Usual10% by 2020 RPS20% by 2020 RPS

Source: EIA, Strategies for Reducing Multiple Emissions from Electric Power Plants, July 2001, Table E3.

EIA: 10% RPS Can Lower Natural Gas and Electricity Bills

Source: EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February 2002.

• $9.1 billion Natural Gas Bill Savings• $4.4 billion Electricity Bill Savings• $13.2 billion total Consumer Energy Bill Savings*

*Cumulative net present value using an 8% real discount rate. Not including transportation.

National 10% by 2020 RPSCould Benefit New England

*Results are in net present value 2000$ using an 8 percent real discount rate. Source: UCS, Renewing Where We Live, updated Sept. 2003.

4500 MW of non-hydro renewable capacity– 14% of regional electricity sales

$802 million in new capital investment $54 million for rural communities $15 million in lease payments from wind power $630 million in consumer energy bill savings 2.5% reduction in consumer electricity prices 1.5% reduction in consumer natural gas prices 9% reduction in power plant carbon emissions

Conclusions

There are unique aspects of renewables that should be considered in models

NEMS is capable of modeling many of these unique aspects, but not all

EIA’s renewables assumptions and constraints are pessimistic and artificially raise renewable costs

Much work is needed to improve the modeling of renewables in NEMS

A strong national renewable electricity standard is feasible and affordable, even with EIA’s pessimistic assumptions