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Powering the Future – Colorado’s New Energy Economy Denver, Colorado – October 20 th , 2009

CHALLENGES AND OPPORTUNITIES IN THE COLORADO’s NEW ENERGY ECONOMY – A View From Washington. Susan Tierney. Powering the Future – Colorado’s New Energy Economy Denver, Colorado – October 20 th , 2009. Introduction and Overview:.

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Powering the Future – Colorado’s New Energy Economy Denver, Colorado – October 20 th , 2009

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  1. CHALLENGES AND OPPORTUNITIES IN THE COLORADO’s NEW ENERGY ECONOMY – A View From Washington Susan Tierney Powering the Future – Colorado’s New Energy Economy Denver, Colorado – October 20th, 2009 BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON

  2. Introduction and Overview: • From the outside, looking in: Initiatives in the states and regions, circa early 2009 • Looking at Washington, D.C. – 4th Q 2009: Overview of the energy/climate policy landscape • Critical challenges for the “new energy economy”: In Colorado and elsewhere

  3. The states: Driving the transformation of new energy systems/technology • Renewable energy development • Energy efficiency deployment • Low carbon strategies • Centers of innovation for clean energy jobs

  4. Initiatives in the States and Regions: c. 2009 • Renewables Development – other approaches: • Renewable Portfolio Standards (29 states, “2nd chapter”) • Solar investment support – e.g., rate basing utility ownership of rooftop solar systems (e.g., CT, MA); rebates (CO); loans repaid through property tax (e.g., Boulder’s ClimateSmart Loan Program) 29 States with an RPS http://www.ferc.gov/market-oversight/mkt-electric/overview/2009/04-2009-elec-ovr-archive.pdf

  5. Wind development in the states Colorado ranks 8th in wind projects Megawatts of wind capacity http://www.awea.org/projects/ - most recent data (as of July 27, 2009)

  6. Cost Recovery Only Incentives & Cost Recovery Decoupling & Cost Recovery Incentive, Cost & Lost Revenue Recovery Initiatives in the States and Regions: c. 2009 • Energy Efficiency and Demand-Side Policies • Requirements for utilities to pursue “all cost-effective energy efficiency” (e.g., CA, MA, CT, RI) • Ratemaking policies to support the utility’s role in implementing energy efficiency measures (e.g., revenue decoupling; shareholder incentives) (e.g., CA, MA, CT) • States’ appliance efficiency codes, model building codes (e.g., NJ) • RTOs’ purchase of Demand Response as capacity resource (e.g., PJM) 27 6 10

  7. Initiatives in the States and Regions: c. 2009State action on CO2 controls “Regional Greenhouse Gas Initiative: power plants California: economy-wide Western Climate Initiative: economy-wide Dale Bryk, NRDC, “Progress on Global Warming and Clean Energy: Facts on the Ground,” Environmental Entrepreneurs, Sept 2007

  8. Innovative activities to spur clean energy:Research, manufacturing, collaboration, investment, jobs • Colorado: New Energy Economy • Vestas wind blade manufacturing center in Brighton • Colorado’s SB 07100 & HB 07-1281: expanded RPS and transmission zones • Colorado’s HB 1001 and SB 171 – economic development and jobs • Colorado Clean Energy Fund; CO Clean Energy Development Authority • The Colorado Renewable Energy Collaboratory: • Center • Colorado C • Center for Rese • Carbon Management Center • Energy Efficiency and Management Center

  9. Initiatives to spur clean energy development:Transmission High Plains Express NREL Western Wind & Solar Integration Study (GE) -WestConnect WGA Preliminary WREZ http://www.rmao.com/wtpp/HPX/HPX%20Stage%202%20Stakeholder%20Kickoff%204%2017%2009%20Complete%20Final.pdf

  10. Initiatives in the States and Regions: As of a year ago • Outcomes for “green energy” • Major push for energy efficiency initiatives • Jockeying by states for green jobs • Substantial increase in solar, wind, biomass for electricity • Collaboration among states for RE transmission projects • Weakening support for coal-fired power plants • Tough challenges for nuclear

  11. Critical success factors for clean energy?As of a year ago • Conditions that enable an energy transformation: • State policies – push and pull for clean energy (e.g., RPS) • High natural gas prices • An expectation of a carbon price signal in the future • Growing support for transmission for renewables • Job training – retooling for new energy economy

  12. Shift the focus to Washington: What kind of support for “green energy”? The Obama electoral map - 2008 Congressional electoral map – 2008

  13. National policy landscape • Executive branch – a strong initial push for clean energy • The new White House team – old and new offices: • White House Energy and Climate Policy Office, National Security Council, National Economic Council, Council on Env’l Quality, Office of Mgmt & Budget • Early White House initiatives – e.g., • Low-carbon vehicle standards, appliance efficiency standards, clean energy economic recovery program, clean energy budget priorities • Agency action: DOE; EPA; DOI; USDA; FERC; NRC; Treasury; State Dept. http://wonkroom.thinkprogress.org/wp-content/uploads/2008/12/green_team.jpg

  14. Build up in favor of action on green energyStart of 2009 2008 2009 2010 The ARRA is signed Mass. v. EPA Democrats take control of Senate, House and White House The picture is more mixed… Financial and economic crisis erupts Clean energy, climate, transmission, smart grid issues are high on the agenda November elections

  15. Good start: Energy programs in American Recovery and Reinvestment Act (ARRA): ~$55 billion (over 2 years) • Big push on: • Energy Efficiency • Renewables • Transmission • Carbon Capture & Sequestration (CCS) For Colorado: $332.5 million (EE, RE, Science, electric delivery) http://www.energy.gov/recovery/documents/DOE_Weekly_Report_03202009.xls

  16. Collapse of the Commodity Price Bubble:Price of fuels for electric generation: 2005 – 2010 actual forecasted 2005 2006 2007 2008 2009 2010

  17. Sources of natural gas:What a difference 2 years makes…. ~ 2015-2020: Lower demand forecast, Much higher forecasts of gas supply, in the 2009 EIA forecast v. 2007 EIA forecast

  18. EIA’s point of view: • Shale gas currently provides a small % of total US gas production. • As conventional gas declines, shale production will rise substantially to meet higher demand, as will imports. Shale gas plays But questions about implications for water, land use…

  19. Advanced Energy Technologies – still quite elusive • EPACT 2005 subsidies for low-carbon resources – very difficult to unleash: • IGCC – coal (loan guarantees, R&D $) • Advanced nuclear (risk insurance, loan guarantees, production tax credit) • Renewable fuels & technologies (PTC, ITC, advanced technology R&D)

  20. Renewables and transmission – A major push from DC during the 1st half of 2009 “One of … the most important infrastructure projects that we need is a whole new electricity grid. Because if we’re going to be serious about renewable energy, I want to be able to get wind power from North Dakota to population centers like Chicago.” – Barack Obama “We cannot let 231 state [utility] regulators hold up progress.” He argued that states should be given every opportunity to participate, but “there may come a time when the federal government will have to step in.” – Harry Reid [Hebert, Josef, “Placement of Power Grid is Debated,” Boston Globe, 2/24/09, p. A9] “Chairman Waxman and Rep. Inslee clearly appreciate the critical role transmission plays in facilitating the achievement of the energy policy goals and objectives of the legislation, including the development of renewable, emissions free resources. Unfortunately, they were unable in the limited time available to craft the needed provisions to be included in the bill.” – Joseph L. Welch, ITC http://sev.prnewswire.com/null/20090626/NY3898826062009-1.html U.S. DOE – Financial Assistance Funding Opportunity Announcement Recovery Act-Resource Assessment and Interconnection-Level Transmission Analysis & Planning, 2009 Source: “Solar Energy Industry Forecast: Perspectives on U.S. Solar Market Trajectory,” Presentation by the U.S. Department of Energy Solar Energy Technologies Program, May 27, 2008; solar radiation map, Western Gov. Assn.

  21. Continuing sources of uncertainty for technology…. Wide array of significant uncertainties • Demand-side measures and strategies – aggressive push • e.g., EE, solar, DG • Penetration of electro-technology • Generation capacity additions • e.g., wind, NGCC, IGCC, CT, nuclear, CCS • Pollution control investments • e.g, post-CAIR, CO2 • Transmission & Distribution • Reliability & economic upgrades • Smart grid • Aging infrastructure Carbon Policy (and Price)? Natural Gas Prices? Economic Recovery? Impacts of Energy Efficiency Policies? Regulatory Risk? Inflation? Capital Market Conditions? States’ Competitive Procurement Policies? Transmission Cost Allocation Policy? Technology challenges? Construction Costs? Other natural resource and environmental constraints?

  22. The more things change, …. • …. the more they remain the same 2008 2009 2010 Copenhagen climate meeting The ARRA is signed Health care takes over the airwaves Mass. v. EPA Democrats take control of Senate, House and White House Senate action on a climate/ energy bill? House passes Waxman-Markey Bill Financial and economic crisis erupts Congress returns from summer recess Clean energy, climate, transmission, smart grid issues are high on the agenda EPA endangerment determination November elections Mid-term Congressional election year

  23. Geopolitics of U.S. energy policy/politics:Three maps say a lot… 6.4¢ Coal basins 9.81 cents 5.8¢ 16.5¢ Regions that produce coal and use it for power have low prices, more carbon; regions relying heavily on natural gas have higher prices, less carbon. 15.0¢ EIA maps for coal and retail electricity prices; http://powermag.com/coal/Map-of-Coal-fired-Power-Plants-in-the-United-States_1446.html Price of Electricity

  24. The Climate/Energy Bill – Prospects & Challenges SENATE No single bill for climate and energy • Challenges of Senate rules and structure • Multiple committees of jurisdiction • Debate and cloture • HOUSE: • Waxman-Markey Bill – climate and energy policy combined • June 26, 2009 vote: 219-212 • Significance of House rules and structure: • One key committee • Floor action control Implications of: • the health care debate • party discipline • geo-politics Colorado votes on Waxman/Markey: Yes No Dem 4 1 Repub 0 2

  25. Waxman-Markey Bill – “ACES”(American Clean Energy and Security Act of 2009, H.R.2454) • Energy: • Renewable Energy Portfolio Standard • National energy efficiency resource standard • Funding for clean energy research (including CCS, PHEV, storage) • Transmission planning requirements in the West (not in Texas or the East) • Climate: • National GHG cap and trade program, with emissions reductions: • 3% below their 2005 levels in 2012; 83% below 2005 levels in 2050 • Presumed pre-emption of state programs • Preempts CAAA regulation of greenhouse gases • Allows offsets as principal cost-containment, with allowance reserve • Special assistance for trade-sensitive, energy-intensive industries • GHG allowance price collar: $10/ton floor - $28/ton (minimum for reserve) • By 2020: • 20% from RE, or 15% RE and 5% EE. • A governor may show that the state can’t meet RE targets: 8% EE, 12% RE Sources: “Electric Market Overview: Renewable Portfolio Standards ,” FERC, Updated July 8, 2009; Electric Market Overview: Energy Efficiency Resource Standards (EERS) and Goals,” FERC, Updated July 8, 2009; and Pew Center for Global Climate Change, http://www.pewclimate.org/acesa

  26. Boxer-Kerry “discussion draft” (September 2009) • Includes only climate provisions – still many placeholders • National GHG cap and trade program, with emissions reductions: • Same targets as in Waxman/Markey (except tighter % in 2020) • Presumed pre-emption of state programs (e.g., RGGI) • But retains CAAA authority to regulate GHG emissions • Similar offsets; price collar; trade-sensitive, energy-intensive industries • Draft bill has placeholder for allowance allocations • Bingamin’s energy bill (June 2009): • Federal RPS (15% by 2021 – waived if transmission constraints exist) • Stronger energy efficiency (appliance standards, state grants (retrofits)) • Expands FERC authority for high-priority national transmission projects • Oil, natural gas and nuclear provisions Sources: “Electric Market Overview: Renewable Portfolio Standards ,” FERC, Updated July 8, 2009; Electric Market Overview: Energy Efficiency Resource Standards (EERS) and Goals,” FERC, Updated July 8, 2009; and Pew Center for Global Climate Change, http://www.pewclimate.org/acesa

  27. Estimated impact of ACES on retail rates* Colorado Note that these impacts do not take into account the various costs of uncertainty, or an EPA-only strategy, or the implications of new prospects for nuisance lawsuits in the absence of a new national law * This assumes that the free allocations to various entities are monetized in allowance markets. Bernstein Research, “U.S. Utilities: The Climate Warms for CO2 Regulation,” January 22, 2009.

  28. Tough politics on clean energy and carbon controls STATES WITH SIGNIFICANT COAL Membership on an appropriations or authorization Committee: Senate D R House D R Congressional electoral map – 2008

  29. Action in the Administration….2009 • White House: • Highly focused on health care; limited action on climate now • Optimistic scenario – go to Copenhagen with: • ACES in House, and Senate committee bills on floor, and • EPA actions underway • EPA: • Spring: endangerment findings, triggering further action: • Summer: mobile source GHG regulations • Fall: draft CO2 regulations for big stationery emitters • But: specter of uncertain regulations, state implementation of provisions under CAAA framework, nuisance lawsuits

  30. Different technology portfoliosAnd their implications for the next few decades EPRI’s view – 2009 Assumes: • no CCS • no new nuclear • no electric technologies

  31. Uncertainty about Cost of Future CO2 Allowances: CO2 Allowances Prices in Main ACESA Cases, 2012-2030 (2007$ / mtCO2e) Range of ~ $23 to ~ $190 per ton in 2030 Range of ~ $16 to ~ $93 per ton in 2020 Source: Energy Information Administration, “Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009,” August 2009, SR/OIAF/2009-05, Figure ES-3.

  32. Washington energy policy (& politics): Final observations – 1 • Early focus of Obama Administration on clean energy: • But had to morph given economy, health care, Afghanistan. • Partisan politics, the economy and energy geopolitics continue to shape Congressional debates on clean energy and climate issues. • ACES passed in the House by a small margin. • Senate prospects remain very uncertain at present. • Still need to build upon the shaky consensus with regard to the details of “climate change era” energy policy. • Challenge in discussing economic impacts of carbon bill, as compared to what: do-nothing (fiction)? EPA action? lawsuits?

  33. Washington energy policy (& politics): Final observations – 2 • Outlook for low natural gas prices challenges clean energy. • Absence of comprehensive climate & energy policy (with pricing effects) will further sustain energy market uncertainty. • Major investment challenges will remain – with continuing advantages for certain technologies in the near term: • Natural gas • Wind, solar and energy efficiency • A much wider technological toolkit is needed – but elusive. • The states will continue to be the key actors in the near term. • Keep up the good work, Colorado!

  34. Susan TierneyAnalysis Group111 Huntington Avenue, 10th FloorBoston, MA 20199617-425-8114stierney@analysisgroup.comContact in Analysis Group’s Denver office:Janis CareyAnalysis Group225 Union Boulevard, Suite 600Lakewood, CO  80228720-963-5330jcarey@analysisgroup.com

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