Michigan Energy Forum - May 1, 2014 - Renewable Portfolio Standard

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Michigan Energy Forum - May 1, 2014 - Renewable Portfolio Standard

  1. 1. Michigan Energy Forum: Renewable Portfolio Standards May 1, 2013
  2. 2. Renewable Power and Electricity Prices: Historical Evidence from the U.S. Professor Thomas Lyon Ross School of Business School of Natural Resources and Environment University of Michigan Energy Institute
  3. 3. 12 States w/ 25% RPS or More 1. Hawaii 40% 2. California 33% 3. Colorado 30% 4. Maine 30% 5. New York 29% 6. Connecticut 27% 7. Minnesota 25% 8. Oregon 25% 9. Nevada 25% 10.Illinois 25% 11.W. Virginia 25% 12.Delaware 25%
  4. 4. Michigan’s Proposal 3: 25% by 2025
  5. 5. For a customer paying $200/month, this comes to $1/month or $12/year.
  6. 6. This Research Project • Studied all U.S. electric utilities over the period 1990-2012 • Instead of trying to measure the stringency of an RPS, we simply measure the percentage of power that comes from renewables • We focus on how price responds to increase in renewable fuel mix • We control for – Fixed utility-specific factors – Fuel mix: coal, gas, oil, nuke, hydro, renewable – Fuel prices: coal, gas, oil – Number of customers of each class
  7. 7. Average Prices (Total, Residential, Commercial and Industrial) 1990-2012 Up!
  8. 8. Average Fuel Mix 1990-2012 Coal Oil Gas Hydro & Nukes Renewables
  9. 9. Nominal Fuel Costs 1990-2012 Up!
  10. 10. WE GET THE RESULTS…. After lots of data collection and econometric analysis…
  11. 11. Effects of a 10% Increase in Renewable Fuel Mix on Prices (cents/kwh) Average Residential Commercial Industrial Average .87*** 1.43*** .82*** .97*** Municipal 8.33 5.99 -4.00 11.00** Private .92*** 1.47*** .97*** 1.12*** *** Significant at the 1% confidence level ** Significant at the 5% confidence level
  12. 12. Key Findings • Effects at investor-owned utilities (IOUs) and municipal utilities are very different. • When the percentage of renewable power rises 10% – For IOUs, average electricity prices rise by roughly 0.9 ¢/kwh • Impact is about 50% higher for residential customers – For munis, the only significant impact is on industrial customers, where the estimated effect is a huge 11 ¢/kwh. • Caveat: The cost of renewables has been falling steeply over time, so these results are conservative, i.e. they may overstate the impact of further increases.
  13. 13. Incremental cost above first block = 13.26 ¢/kwh
  14. 14. Estimating the Effects of 25x25 • Based on historical US experience, what would be the impact on prices if Michigan went from 10% to 25% RPS? • Average for IOUs would be 1.35 ¢/kwh, with an increase of 2.145 ¢/kwh for residential customers. • Current average price for DTE residential customers is 13.26 ¢/kwh, so the RPS would raise marginal rates by 16.2%. • The average customer’s bill is $100/month, so a 16.2% increase would be $16/month or $192/year.
  15. 15. Conclusions • 20 years of US experience suggests that a 10% RPS raises prices by about 0.9 ¢/kwh. • If this holds in Michigan, 25x25 would cost the average residential customer about $192/year. • Caveats – This is likely to overstate the impact of new wind power, which is coming in at around 6 ¢/kwh, less than DTE’s current power supply rate. – Analysis does not account for unique aspects of Michigan’s setting, i.e. excess capacity, slow load growth, heavy reliance on coal, and sunk costs of air pollution equipment on existing coal units.
  16. 16. Evaluating Options for Michigan’s Renewable Portfolio Standard May 1, 2014 Jeremiah Johnson, PhD Asst. Research Scientist Center for Sustainable Systems
  17. 17. Michigan’s Renewable Portfolio Standard • Under the Clean, Renewable, and Efficient Energy Act of 2008, Michigan’s load serving entities are responsible for generating 10% of their retail electricity sales from renewable sources by 2015. • Through new utility-owned generation, existing generation, and power purchase agreements, it is expected that this target will be met. • In 2012, groups advocating for higher targets failed to pass Proposition 3, which would have added a constitutional amendment mandating higher penetrations of renewable energy.
  18. 18. Objectives • This research project will employ and advance power systems modeling to evaluate design considerations for an updated Renewable Portfolio Standard for Michigan. • In addition to methodological development, the project will provide an objective analysis on the impact on emissions and costs of RPS designs to better inform stakeholders across the state.
  19. 19. Understanding Electricity “Products” Data: MISO Example Daily Electricity Demand (1) Energy Generation to meet demand (2) Capacity Size of power plants to meet highest hour of demand [Reserve margin] (3) Ancillary Services Reliably matching demand and supply (4) Energy Delivery Transmission and distribution
  20. 20. Dispatch Model • 35 zones • Inter-zonal transmission interface limits • ~10,000 generators with detailed operational constraints • Environmental control equipment • Zonal fuel prices • Hourly load
  21. 21. Sample Model Outputs Sample Week: Michigan Generation in 2013 0 2500 5000 7500 10000 12500 15000 17500 20000 22500 MW Hydro Wind Gas Coal Nuclear
  22. 22. Calculating the Cost of Renewable Energy Options Wind Project Costs Investment Costs 58 Net Taxes 4 Operations & Maint 13 Wind Project Revenues -36 Energy Market Revenues $19/MWh Above Market Cost Sample Wind Site Evaluation Total: $75/MWh -20 Subsidies Wind Subsidies All Values in $/MWh
  23. 23. $- $50 $100 $150 $200 $250 $300 $350 - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 RenewableRevenue Requirement($/MWh) Cumulation Resource Potential (GWh) Wind Biomass Utility-Scale Solar Distributed Solar Michigan Renewable Supply and Costs (Including Federal Incentives) Total Michigan Demand
  24. 24. Zooming in… $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 RenewableRevenue Requirement($/MWh) Cumulation Resource Potential (GWh) RPS 10% 20% 30% 40% (All onshore wind)
  25. 25. Work is ongoing, but estimates can be made • Envision a 25% RPS met by the least cost wind resources. • Assume 10% renewables will already be in place in 2015. • Assume the energy displaced by this wind is valued at $25/MWh. • The additional costs of going from 10% to 25% renewables would be $600 million per year across the state… • …or a 3-4% increase in retail rates… • …or $35 per year for my household. • Without the federal subsidy, the costs become $950 million per year, 6% increase, or $54 per year for a typical household.
  26. 26. Work is ongoing, but estimates can be made • That scenario would reduce CO2 emissions by 11-17 million tons per year. • That equates to $35/ton to $85/ton CO2 reduced.
  27. 27. RPS Scenarios, Policy Variations, and Sensitivities Scenarios Policy Variations Sensitivities 10% by 2015 (BAU) 15% by 2020 25% by 2025 40% by 2035 Base Case Energy Efficiency Out of State Resources Alternative Compliance CO2 Tax Natural Gas Price Coal Price Load Growth Installed Cost of Renewables Alternative MATS compliance strategy Offshore Wind Carve-Out Solar Carve-Out
  28. 28. Michigan Energy Forum Michael Delaney Manager, Strategic Initiatives, Corporate & Government Affairs May 1, 2014
  29. 29. 32 DTE Energy’s Renewable Energy Projects April 2014
  30. 30. 33 DTE Energy’s Michigan-based supply led to over $1.6 billion in new spending in 2012 and 2013 ~5,000 jobs Estimated jobs supported by DTE spend
  31. 31. 34 DTE Electric’s Projected Emissions Reductions 2007-2018
  32. 32. 35 A flexible energy policy enables us to utilize the most cost-effective technologies and minimize the financial impact on customers.
  33. 33. 36 Michigan’s energy future requires significant infrastructure investment. A stable, responsible regulatory construct attracts new investment in reliability.
  34. 34. 37 There are numerous factors that drive generation costs to fluctuate. A diverse energy portfolio enables us to be responsive to market changes.
  35. 35. 38 Guided by the right policies, Michigan’s energy future looks bright. DTE Energy is committed to working with legislators and regulators to deliver affordable and reliable energy.
  36. 36. Next Michigan Energy Forum Program: Energy/Water Nexus Moderator: Liesl Clark

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