Carbon Limits and Texas

8 Now there arose a new king over Egypt, who did not know Joseph. 9 And he said to his people, “Behold, the people of Israel are too many and too mighty for us. 10 Come, let us deal shrewdly with them, lest they multiply, and, if war breaks out, they join our enemies and fight against us and escape from the land.” 11 Therefore they set taskmasters over them to afflict them with heavy burdens. They built for Pharaoh store cities, Pithom and Raamses. 12 But the more they were oppressed, the more they multiplied and the more they spread abroad. And the Egyptians were in dread of the people of Israel. 13 So they ruthlessly made the people of Israel work as slaves 14 and made their lives bitter with hard service, in mortar and brick, and in all kinds of work in the field. In all their work they ruthlessly made them work as slaves.

ERCOT

Analysis of Potential Impacts of

CO2 Emissions Limits on

Electric Power Costs in the ERCOT Region

May 12, 2009

Executive Summary

The Electric Reliability Council of Texas (ERCOT) was requested by Public Utility

Commission of Texas (PUCT) leadership to conduct an “analysis of the likely effects of

proposed climate change legislation on electricity prices in the ERCOT market.”

Consistent with a similar study conducted by the PJM Interconnection, ERCOT focused

on the near-term impacts of this potential legislation. Longer-term effects, such as

changes in the installed generation capacity as a result of the impacts of the legislation,

were not studied. Changes to the transmission system and related costs that might be

warranted due to changes in generation dispatch as a result of the imposition of carbon

allowance costs or decreases in system load were not evaluated or included. The

analysis assumes that the goals of the legislation must be met directly by reductions in

carbon emissions by ERCOT-region generation. ERCOT has not attempted to determine

the equilibrium price of allowances or the appropriate level of tax to result in the level

of reduction targeted in proposed climate-change legislation.

ERCOT performed this analysis by simulating the cost-based, hourly dispatch of all

existing and committed generation in ERCOT region to serve the electric load in the

region for the year 2013. The generation was dispatched according to its variable cost,

including carbon emissions allowance costs, while adhering to the limitations of the

transmission system and other reliability requirements. Because the economic dispatch

used in the simulations performed for this study is cost-based, it does not include any

market-driven bidding behavior or scarcity pricing, and the wholesale prices and

wholesale market costs reported from the simulations are also cost-based as a result.

The simulations were performed for several scenarios defined by: 1) the level of natural

gas prices ($7 and $10 per MMBtu); 2) the size of potential reduction in energy use as

compared to the forecasted load for 2013 (0%, 2% , 5% and 10% reductions); and, 3)

the amount of installed wind generation (the approximately 9,400 MW of existing and

committed wind generation capacity and the 18,456 MW of total wind generation

capacity for which the PUCT has ordered a transmission plan to be constructed in the

Competitive Renewable Energy Zones (CREZ) Docket 33672). For each scenario,

simulations were performed at increasing carbon allowance costs of $0, $10, $25, $40,

$60 and $100 per ton of CO2.

The change in total annual wholesale power costs (the costs paid by consumers) and

wholesale prices (expressed as load-weighted average locational marginal prices or

LMPs), production costs, total CO2 emissions and similar output variables were noted for

each scenario. The following insights can be obtained from the results of this analysis:

• In the reference case, with $7/MMBtu natural gas prices, expected load levels and the existing and committed level of wind and other generation, the carbon

allowance costs must rise to between $40 and $60 per ton in order to reduce

carbon emissions from electric generation in ERCOT to 2005 levels by 2013. This

level of allowance costs would result in an annual increase in wholesale power costs of approximately $10 billion and would increase a typical consumer’s
monthly bill by $27;

• At higher natural gas prices, brought about by increased demand for natural gas
due to carbon dioxide emission limitations or other reasons, allowances would rise
to a higher cost (well over $60/ton in the case of $10/MMBtu natural gas prices) in
order to achieve the desired reductions. At this higher gas price, the annual
increase in wholesale power costs to meet the 2005 level of emissions through
reductions by generators in the ERCOT region would be in the range of $20
billion;
• Increases in wholesale power costs due to carbon emissions limits may result in
lower energy demand. These reductions in system energy use have the potential
to allow the emission reduction targets to be met at a lower allowance cost. Total
CO2 emissions are reduced below 2005 levels at a carbon allowance price between
$40 and $60 per ton for expected load levels at $7/MMBtu natural gas, but fall
below 2005 levels between $25 and $40 per ton if total energy use was reduced
by 10%. This level of allowance costs would result in an annual increase in
wholesale power costs of approximately $7 billion, a savings of $3 billion over the
cost of meeting the 2005 levels of CO2 emissions in the reference case. At this
allowance cost, a typical consumer’s monthly bill would increase by $17, a
monthly savings of $10 over the reference case;
• The additional wind generation envisioned by the CREZ plan (up to a total of
18,456 MW) reduces carbon emissions by 17.6 million tons above the reduction
due to existing and committed wind generation even with no carbon emissions
limits imposed by climate-change legislation;

• The additional CREZ wind generation allows the targeted emissions reductions to
be met at a lower allowance cost. At $7/MMBtu gas, the 2005 carbon emissions
levels are met at an increase in annual wholesale power costs of approximately $7
billion, which is a $3 billion savings compared to the reference case. At this
allowance cost, the increase in a typical consumer’s monthly bill would be $22;
• The combination of additional CREZ wind and lower energy usage results in
smaller increases due to CO2 emissions limits in both wholesale power costs and
the typical consumer’s monthly bill at a $7/MMBtu gas price, as compared to the
reference case;
• The combination of additional CREZ wind generation and 2% lower energy usage
does not offset the impact of an increase of natural gas prices from $7/MMBtu to
$10/MMBtu on the level of allowance costs at which emissions reductions targets
would be met.

Earl Killian and the Texas Grid

Earl Killian, a chronic renewables advocate, and anti-nuk fanatic, complained yesterday in a Climate Progress comment about the autonomy of the Texas grid.  For those of you who don't know, the Texas grid, managed by the Electricity  Reliability Council of Texas (ERCOT),  is not hooked up to the rest of the country.   ERCOR was set up during World War II, to insure that Gulf Cost refineries and other industries had enough electrical power.  There was enough electrical generation capacity in Texas to insure that this was the case.  ERCOT has been well managed, and has worked well for Texas, which has significant electrical needs, especially in the summer, that are not well matched to other parts of the country.

Killian, however, thinks that it is an "issue" that the Texas grid is not connected to the rest of the country, because, "[t]hat makes it difficult for it to export its wind energy, or to import other renewable energy from other states."

I responded to Killian:

Earl you should ask T. Boone Pickens to pay you for your support. The Texas grid is stable, and Texas has enough peak generating capacity to take care of needs. Wh have not had system wide blackouts, or rolling blackouts, so interconnection with the rest of the country would not make our system reliability. Texas utilities are beginning to replace fossil fuel technology with reliable nuclear plants.

Texas wind generators tend to produce power when it is not needed, and not produce it when it is needed.. Wind speed drops all over Texas, during the summer. During summer days it drop even more. The Texas wind capacity factor during the summer is under 17%,, but at mid day during July and August is is significantly lower. Mid-day is when people start turning on their air-conditioners. In Texas the unreliability of wind generated electricity is used to argue the case of who want to keep fossil fuel plants running for a long time to come. The wind generation people are in cahoots with the coal interests.

Interconnection would not then benefit Texas rate payers. It would be in the interest of wealthy investors like oil man T. Boone Pickens, who would love to be able to export his unneeded wind generated electricity out of state on connections paid for by Texas rate payers. Let Pickens pay for the wires he uses to export electricity, not me.

Killian's optimism concerning the future of renewables may not be entirely realistic. Renewables are at present a very limited and expensive stopgap solution to the control of CO2 emissions. Solar electrical generation provides power on average five and a half hours a day. Wind power, even in Texas, offers limited and irregular power production, and is least productive, during typical periods of peak electrical demand. Thus renewables can never be more than a fully replace fossil fuel generating capacity.

In other to stop producing CO2 during the generation of electricity, we must replace fossil fueled plants with nuclear generators.

In addition, the price of basic construction materials including steel, concrete and copper is rising rapidly. The use per MW of generating capacity by renewables of these materials is far more intensive than the use in the construction of nuclear facilities. Thus the future costs of increasing renewable generation facilities is likely to rise more quickly than the future cost of building nuclear facilities. This problem is compounded by the lower capacity factor of renewables, which necessitates the installation of up to 5 times the generation capacity of a nuclear plant in order to equal its output.

bigTom, I am far less optimistic about renewables than I was two years ago. Even without energy storage, building renewable generating facilities is going to be at least as expensive as nuclear plants, while the facilities will produce between 25% and 45% of electricity of that the nuclear plant will. The most significant cost of solar power in not the price of PV modules, it is the cost of installation.

A PV facility, recently completed in Spain officially cost130 million euros, but unofficial cost estimates places the cost closer to a quarter billion Euros with cost over runs. 400 workers worked for 11 months to build the facility, which is officially rated at 20MWs. In fact the facility can be expected to produce 4MWh per day, on the basis of the power output of other PV facilities in southern Spain. Hence the capitol cost of PV facilities can be expected to run as high as $18.5 billion per name plate GW, with capacity factors running around 20%.

TVA has recently stated that it expects to pay no more than $3 billion each for its first two new 1 GW+ AP-1000 reactors. Even taking the most pessimistic estimates of $8 billion per GW costs with reactors, the cost of nuclear power seems positively bargain basement compared to the cost of PV installations. If we look at the cost by capacity factor, rather than name plate power, wind is also far more expensive than nuclear power.

The world's largest PV installation will typically generate as much electricity as much electricity in a year as an AP-1000 can generated in a day.

The advocates of renewable energy need to take a long hard look at cost and performance in the real world.