Role of Renewable Energy and Implication of RPS in a Sustainable Electric Generation Portfolio NARUC Electricity Committee 2007 Annual Conference New York, New York July 16, 2007 Thomas Key EPRI Renewable and Hydropower

2 © 2007 Electric Power Research Institute, Inc. All rights reserved. Changing Mix of World’s Electricity to Stabilize CO 2 Concentrations at 550 ppm Non-Emitting – Renewable, Hydropower and Nuclear GenerationNon-Emitting – Renewable, Hydropower and Nuclear Generation Low-Emitting – Fossil-Fueled Distributed and Central Plant with CO 2 CaptureLow-Emitting – Fossil-Fueled Distributed and Central Plant with CO 2 Capture From T. Wilson, EPRI, etal, “Electrification of the Economy and CO2 Emissions Mitigation,” Journal of Environmental Economics and Policy Studies, Vol. 7/No. 5, 2005

3 © 2007 Electric Power Research Institute, Inc. All rights reserved. Technologies for Utility Industry CO 2 Reductions: Technically Feasible Targets TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by GWe by 2030 Nuclear Generation12.5 GWe by GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020– GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030 EIA Base Case 2007

4 © 2007 Electric Power Research Institute, Inc. All rights reserved. Different viewpoints on how much renewable energy, by when? Source of Estimate Description of Estimate Target Year Renewable Capacity (GW) Renewable Energy (TW-hr) Different Methods, Assumptions and Conditions EIA AEO 2007 NEMS model Detailed economic model Business-as-usual scenario EPRI CO2 Prism Technical Feasibility Estimated technical potential to reduce CO 2 EPRI RE Scenarios NESSIE model Detailed economic model High NG and High CO2 scenario EIA AEO 2007 Federal RPS 20% RPS (20%) times estimated metered electricity sales ACORE Outlook Resource Availability Assumes significant renewable deployment, with incentives to bridge cost gaps

5 © 2007 Electric Power Research Institute, Inc. All rights reserved. Renewable technologies at various stages of development and deployment

6 © 2007 Electric Power Research Institute, Inc. All rights reserved. EPRI Analysis Approach National Energy Modeling System (NEMS) feeds EPRI’s capacity expansion model Scenarios developed based on technologies, fuels, emissions cost expectations and related incentives. Simulation yields generation mix, capacity, energy, fuels, emissions, LCOE, etc. Details provided for 13 NERC regions, supply-side only … includes reserves but not other costs of integration. SERC 2006CapacityEnergyTW-hours Coal33%51%457 Nuclear15%38%253 Hydro8.5%6%94 Renewable1.5%1%9 Gas/other42%14%127 Total100%100%896

7 © 2007 Electric Power Research Institute, Inc. All rights reserved Regional Distribution of Electric Generation (Total Estimate is 4,828 TWhr, 15% is 674 TWhr) Regions 1ECAR 2ERCOT 3MAAC 4MAIN 5MAPP 6NPCC/NY 7NPCC/NE 8SERC/FL 9SERC/STV 10SPP 11WSCC/NWP 12WSCC/RA 13WSCC/CNV ECARERCOTMAACMAINMAPP NPCC/ NY NPCC/ NE SERC/ FL SERC/ STV SPP WSCC/ NWP WSCC/ RA WSCC/ CNV 13.9%7.9%7.2%6.7%4.1%3.6%3.3%6.7%23.3%5.1%6.1%5.0%7.2% 669 TWh

8 © 2007 Electric Power Research Institute, Inc. All rights reserved. Base Case Assumptions – 15%, 2020 Federal RPS along lines of “Bingaman ARP07513” –3.75% (2010), 7.5% (2015), 15% (2020) Incentives (production tax credits) are applied to drive renewable deployment to levels required. Alternative compliance payment is $20/MWh No CO2 emission allowance….other allowances are: $470/ton increasing at ~4%/year $1931/ton increasing at ~4%/year $18,000/lb increasing at ~9%/year Natural gas varies from $4.50 to $5.75/MMBtu by season/region Demand growth is ~1.4%/year

9 © 2007 Electric Power Research Institute, Inc. All rights reserved. Different quantities and mix of renewable energy across the country – 15%, 2020 Shown here as a % of regional electric generation

10 © 2007 Electric Power Research Institute, Inc. All rights reserved. Differences between required and available renewable energy by region – 15%, 2020 Results show importance of regional flexibility

11 © 2007 Electric Power Research Institute, Inc. All rights reserved. What is the cost of a Federal RPS? Several key questions in analyzing RPS cost impact: How are federal PTC incentives handled …continuing, tax payers sharing of RPS cost? Should CO 2 credits be considered…..as adder to relative cost of fossil generation options? What is relative cost to build other, non-renewable, plants? Uncertainty in the demand for, and price elasticity of, natural gas. Limit to wholesale supply-side cost or include demand-side and retail. How will existing State RPS be counted?

12 © 2007 Electric Power Research Institute, Inc. All rights reserved. Potential effect of State RPS on Federal States with aggressive RPS….. –California ~86 TWHr by 2020 –Texas ~18 TWHr by 2015 –Northeast ~30 TWHr, –PA, NJ, MD ~55 TWHr by 2020 Estimated total of state RPS by 2020 is >300 TWHr A 15% federal RPS in 2020 is ~ 675 TWHr Regions w/o RPS….SERC, FL, ECAR, MAPP, SPP State RPS will play a major role in cost and achievement of Federal RPS goals

13 © 2007 Electric Power Research Institute, Inc. All rights reserved. Impact of federal RPS on wholesale electricity cost – 15%, 2020 Assumptions on federal PTC and state RPS US- All Regions (%) Variation over 13 NERC Regions (%) 1. RPS cost without federal PTC (assumes incentive by ratepayer) 12.2%From 5.4 to 24.6% 2. RPS cost with a PTC of $18/MWh (by federal taxpayers) 6.4%From 1.4 to 12.9% 3. RPS cost with support from federal PTC and state RPS incentives 3.4%From -1.2 to 10.9% Reduction in CO 2 based on changes in generation mix 7.4%From 3.6 to 16.3% ….depends on assumptions and region

14 © 2007 Electric Power Research Institute, Inc. All rights reserved. Some points the electric industry can bank on Demand for electricity will continue to grow Pressure to reduce green house gasses will continue Most of low and non-emitting generation technologies will be less controllable and change how the power system is operated Advances in electric generation technology will occur, and affect the relative cost/performance All electric generation technologies will be needed in the future