EIA Analysis Shows the EPA's Clean Power Plan Is Affordable, Renewable Energy Makes a Key Contribution

June 3, 2015 | 4:17 pm
Steve Clemmer
Director of Energy Research & Analysis

A new Energy Information Administration (EIA) analysis shows that renewable energy sources make the biggest contribution to achieving the EPA’s proposed emission reduction targets for existing power plants across a wide range of scenarios, while avoiding an overreliance on natural gas. Despite using pessimistic and outdated assumptions for energy efficiency and many renewables, EIA’s analysis also shows that the EPA’s emission reduction targets can be achieved at modest costs. Updating these assumptions and accounting for the public health and environment benefits of reducing carbon and other emissions would result in net savings and support even stronger emission reduction targets.

Key Findings

1)  Renewables make the biggest contribution to Clean Power Plan (CPP) compliance

After a short-term increase in natural gas use to replace retiring coal plants, EIA’s analysis shows a big shift to renewable energy—mostly wind and solar—to comply with the CPP (see Figure 4).  By 2030, EIA projects non-hydro renewables will provide 19 percent of U.S. electricity generation under its base CPP policy case. That’s more than twice as high as what the EPA projected for renewables in its CPP modeling last year and more than triple today’s levels.

Figure 4

Wind and solar provided the vast majority of new capacity additions in nearly every case (see Figure 8). EIA’s base CPP policy case that achieved carbon reductions of 34% below 2005 levels by 2030 resulted in an additional 170 gigawatts (GW) of wind and solar capacity through 2040, or double the levels projected in EIA’s reference case without the CPP. EIA’s scenario extending the CPP to achieve national emissions reductions of 45% below 2005 levels by 2040 (CPPEXT) resulted in the most additional wind and solar capacity (248 GW), followed by EIA’s high economic growth scenario (CPPHEG).

Even under EIA’s optimistic high oil and gas resource scenario (CPPHOGR) with significantly lower natural gas prices, wind and solar provided more than half of new capacity. And under EIA’s optimistic nuclear scenario (CPPNUC), wind and solar provided 7.6 times more new capacity and nearly three times more new generation than nuclear.

Figure 8

2) Renewables and efficiency make the Clean Power Plan affordable

EIA’s analysis shows that the overall electricity price impacts from the CPP are modest and decline significantly over time as the shift to renewables takes hold.

National average retail electricity prices are 4.9% percent higher in 2020, 4% higher in 2030, and 2.6% higher in 2040 under the base CPP policy scenario compared to EIA’s reference case. The impact on consumer electricity bills is even smaller primarily because of the benefits energy efficiency provides in reducing electricity demand. In fact, electricity bills nationwide are only 1.3% higher by 2030 and slightly lower (0.3%) by 2040. That’s a tremendous long-term value for curbing power plant carbon emissions by 34 percent below 2005 levels by 2030.

Higher natural gas use and prices due to coal-to-gas fuel switching appears to be driving near-term electricity price increases in EIA’s analysis (see Figure 27). CPP scenarios with more renewables, lower natural gas use, and lower natural gas prices–like the high economic growth (CPPHEG) case and the high oil and natural gas resource (CPPHOGR) case—had much lower prices.

Figure 27

EIA noted that if states shift to renewables sooner, it could keep electricity prices down even more earlier on by reducing the need for natural gas fuel switching. Energy efficiency can also be deployed much more quickly and extensively than EIA assumes (see more below).

3) Greater national cooperation results in more renewables and lower costs

EIA’s analysis also showed that giving regions more flexibility to trade and cooperate with other regions would result in more renewable energy and lower compliance costs. Under this scenario, national average retail electricity prices are only 2.8% higher in 2020 and 2.7% higher in 2030, while electricity bills are only 0.9% higher in 2030 and 1.7% lower by 2040 compared to the reference case.

With more zero-carbon renewables and less natural gas generation compared with the base CPP policy case, there were also 12 GW fewer coal plant retirements in this case by 2030.  Because renewables like wind and solar do not emit carbon, they achieve twice the emission reductions per unit of electricity than natural gas in replacing coal. This is also true for energy efficiency.

Using and expanding on existing regional renewable energy credit tracking systems for state compliance would also prevent double counting and lower compliance costs, as discussed in our technical comments to the EPA.

Shortcomings in EIA’s Analysis

1) EIA overestimates the cost of complying with the CPP

EIA has historically overestimated the costs and underestimated the potential contribution of renewables and efficiency, as discussed in a recent UCS blog and elsewhere. EIA’s cost for renewables are often much higher than real-world data and lag a few years behind market trends. With the cost of generating electricity from wind and the capital cost of solar falling by more than 60% since 2009, a few years lag can make a big difference.

While it appears EIA made some improvements in wind and solar costs for the version of the model used in this analysis (see slides 8 and 9 here), they have not published their Annual Energy Outlook 2015 assumptions document, so it’s not entirely clear what they assumed. However, EIA’s capital costs appear to be 10-20% higher for onshore wind and utility-scale solar PV costs than used in DOE’s recent Wind Vision study and other recent estimates by Lazard, Bloomberg New Energy Finance (BNEF), and the Solar Energy Industries Association (SEIA).

EIA also uses pessimistic assumptions for potential cost reductions and increases in wind capacity factors over time assuming its mature technology. In fact, EIA increases wind capital costs by up to 100% as the best wind sites are used up over time. In contrast, the DOE Wind Vision study estimates that technology innovations and economies of scale will lower the all-in (levelized) cost of generating electricity from wind power by an additional 24% by 2020 and 33% by 2030.

And EIA uses outdated wind resource potential estimates that don’t fully capture advanced technologies such as taller towers, longer blades, and improved electronics that will open up vast new areas in the Southeast and other parts of the U.S. to potential development according to DOE.

Using updated assumptions would increase the contribution from renewables and lower the costs of compliance. For example, the DOE wind vision study found that producing 20% of U.S. electricity from wind power by 2030 would increase average consumer electricity prices by 0.3%. Using similar assumptions, a 2014 UCS analysis found that strengthening of EPA’s renewable building block to provide 23 percent of U.S. electricity sales from renewables by 2030 would increase electricity prices by a maximum of 0.3%, while lowering power sector natural gas prices by 9%.

2) EIA greatly underestimates the potential for energy efficiency

EIA’s base CPP policy case only included 81 terawatt-hours (TWh) of savings from efficiency programs by 2030. In contrast, the EPA’s assumption that states could ramp up investments in efficiency to achieve an annual 1.5% reduction in electricity use per year based on what’s already being achieved in leading states resulted in 5 times more efficiency (424 TWh). Analyses by UCS, ACEEE, and NRDC all show that even higher levels of efficiency—ranging from 600 to 925 TWh by 2030—are achievable while significantly lowering consumer electricity bills.

Lawrence Berkeley National Laboratory (LBNL) data on the costs of implementing energy efficiency programs in 36 states show considerably lower costs than what EIA assumes in their analysis.

3) EIA overestimates electricity price impacts in certain states

EIA’s outdated assumptions for renewables and efficiency result in particularly misleading price increases in certain states and regions that EIA’s analysis says will rely almost entirely on coal to gas fuel switching for CPP compliance.

This is especially true in the Southeast, which has huge untapped potential for efficiency and renewable energy. EIA also greatly underestimates the near-term potential to minimize price increases in states like Texas, Oklahoma, New Mexico, and Arizona that could deploy more of their excellent, low-cost wind and solar resources, instead of further increasing their reliance on natural gas.

Policy implications

1) The EPA should adopt stronger emission reduction targets

EIA’s analysis found that the U.S. could affordably achieve carbon reductions of at least 36 percent below 2005 levels by 2030. These levels could be even higher if the EIA included updated assumptions for efficiency and renewables. EIA also doesn’t include public health or environmental benefits from reducing carbon and other emissions, which EPA estimated at $49-$84 billion in 2030. These benefits greatly exceed compliance costs and justify much higher targets.

2) States should prioritize renewables and efficiency in their compliance plans

States can keep rate increases to a minimum and help avoid an over-reliance on natural gas by implementing or strengthening policies to ramp up renewables and efficiency in the near-term, such as renewable electricity standards, energy efficiency resource standards, and carbon caps.

3) Congress should pass a multi-year extension of federal tax credits to allow renewables to continue its recent momentum, drive down costs even further, and help states meet their CPP targets.

Luckily, doing these three things would mean we tackle climate change faster too.