Potential Impacts of an Advanced Energy Portfolio Standard in Pennsylvania Ryan Pletka, P.E. Black & Veatch April 12, 2004 Supported by: Heinz Endowments Community Foundation for the Alleghenies E I A M i d t e r m E n e r g y O u t l o o k a n d M o d e l l i n g C o n f e r e n c e

- 2 Study Objective 1. Identify most cost effective mix of resources built in response to AEPS 2. Identify economic benefits or costs Assess the Potential Economic Impacts of a 20 Percent Advanced Energy Portfolio Standard (AEPS) in Pennsylvania

- 3 General AEPS Assumptions l Timeframe n 2006 – 6% n Increases 2%/year n 2014 – 20% l Evenly split in two-tiers: n Tier I – RE & EE n Tier II – waste coal, greenhouse gas, advanced technologies l No imports or exports (simplification for analysis) l Production Tax Credit through Tier I Baseline 2004 Tier II Baseline

- 4 AEPS Resource Assessment Methodology l Screen Technologies l Characterize Resources l Estimate Cost to Generate and Transmit Electricity l Apply Avoided Cost of Power Model l Develop Supply Curves l Develop Least-Cost Portfolio of Projects

- 5 AEPS Eligible Resources Tier I l Wind l Low-impact hydro l Biogas and coal mine methane l Biomass l Solar photovoltaics l “Energy conservation” – demand side, ie, consumers l “Energy efficiency” – supply side, ie, power plants l Solar thermal l Ocean and lake energy l Solid waste (non combustion) l Fuel cells fueled by Tier I resources Tier II Resources l Waste Coal n New facilities n Air pollution controls at existing facilities l Integrated gasification combined cycle l Fuel cells fueled by non-Tier I resources l Greenhouse gas (GHG) reductions

- 6 Wind Assessment l Pennsylvania wind resources relatively modest l GIS analysis based on latest NREL data l Capital Cost: n Base: $1,175-$1,275/kW n Transmission: +$20-$110/kW n “Expensive” resources: +$500/kW (50% of total) l Included 300 MW, class 5, offshore wind farm in Lake Erie

- 7 Biomass Cofiring Assessment l Pennsylvania has good biomass resources and lots of coal plants l Focused on cofiring at 38 existing coal units n Capital cost: $100-$700/kW l Biomass resources n Only sustainable and clean resources identified n Assessment based on ORNL database n Biomass collected from 75 mile radius around plants

- 8 Energy Conservation / Efficiency Assessment l Good opportunity for energy conservation/efficiency in PA l Analysis Based on B&V, ACEEE assessments n Residential measures n Commercial & Industrial measures l Over 16,000 GWh of potential identified over 20 years n About 10% of PA consumption n Wide range of costs and payback potential n Consumers won’t necessarily implement measures even if economical

- 9 Waste Coal Combustion l Excellent waste coal resource in Pennsylvania l To be eligible for AEPS, waste coal projects must be low emissions l Analysis Based on PA DEP waste coal assessments n 3 Planned New Site Developments n 15 Environmental control upgrades at existing plants l Environmental control upgrade projects also receive substantial revenue from emissions credit markets

- 10 Properly Characterizing Resource Cost l One of the largest modeling differences between renewables and fossil fuels is that costs vary tremendously based on renewable resource quality l There are a limited number of very good renewable / advanced project sites l Costs rise as “low-hanging” projects are developed l Supply curves capture these effects

- 11 Biogas Supply Curve 2006 Premium over Avoided Costs ~60 MW ~70 MW ~30 MW

- 12 Aggregate Tier I Supply Curve 2010 Tier I 2010 requirement Biomass Cofiring and Energy Efficiency / Conservation add Significant Flexibility Premium

- 13 Aggregate Tier II Supply Curve 2010 Tier II 2010 requirement Premium

- 14 Tier I Cost Premium Supply Curves

- 15 Tier II Cost Premium Supply Curves

- 16 Optimum Mix of Resources to Meet the AEPS Requirements Tier I Energy Mix Tier II Energy Mix

- 17 Tier I Least Cost Mix l Wind, biomass cofiring, and energy conservation comprise about 80 percent of mix l Some solar (4 MW) assumed to be built, even though not economical

- 18 Economic Impacts Assessment l Compared building a 20% AEPS portfolio to building the “Business As Usual” (BAU) portfolio n Cost of electricity n Economic impacts (Jobs, Output, Earnings) n Fossil fuel prices l BAU Portfolio: 50% coal, 40% combined cycle, 10% simple cycle l Portfolios equated on an equivalent energy production basis n RPS portfolio: 6,470 MW n BAU portfolio: 2,460 MW l Environmental externalities purposely not assessed

- 19 Cumulative Economic Impacts l Economic Benefits of the AEPS Portfolio compared to Business as Usual n Cost of electricity: reduced by $2.7 billion (cumulative present value), about 1% when spread over all consumption n Employment: Creates over 70,000 additional job-years over 20 years (average of new 3,500 jobs) n State output: Creates about $7 billion in increased state output n Personal Income: Creates about $2.5 billion in additional earnings

- 20 Pennsylvania Employment Impacts, “Job-years” per MW RPS portfolio: 6,470 MW BAU portfolio: 2,460 MW Impacts proportional to the percent of project expenditures made in PA in various industries

- 21 AEPS Enacted into Law in Late 2004 l Our model does not match what was finally signed into law n Solar PV Standard - 0.5% of electricity demand in 15 years (~680 MW) l Implementation Challenges n Ensuring new projects are deployed to meet the requirements of Tier I s Geographic Scope s Definition of Low-Impact Hydro s Long-Term Contracts n Encouraging demand-side management s Tier II over-subscription s Developing rules

- 22 Conclusions and Acknowledgements l Acknowledgements n Community Foundation for the Alleghenies – Mike Kane n Heinz Endowments n PA DEP n REPP n Industry l Contact Ryan Pletka Black & Veatch