New Analysis Shows Fixing Illinois Clean Energy Policies Is Essential to Any “Next Generation Energy Plan”

June 1, 2016 | 3:48 pm
Renewable energy in IllinoisPhoto: tlindenbaum/Flickr
Steve Clemmer
Director of Energy Research & Analysis

Last Friday, my colleague Jessica Collingsworth identified some of the key flaws in ComEd’s and Exelon’s proposed Next Generation Energy Plan that would prevent Illinois from moving toward a truly clean energy future. New UCS analysis shows that fixing and strengthening Illinois’s renewable energy and energy efficiency policies is a cost-effective strategy for cutting carbon emissions and complying with the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP). It would also allow Illinois to capitalize on newly extended federal renewable energy tax credits, while delivering significant health and economic benefits for all the state’s residents.

Our new analysis includes three important updates to our February 2016 analysis that examined the economic benefits of strengthening Illinois clean energy policies, as proposed in the Illinois Clean Jobs Bill:

  • Extending the federal tax credits for wind and solar for five years as signed into law in December 2015
  • Fixing Illinois’s existing 25 percent by 2025 Renewable Portfolio Standard (RPS) law and adopting a stronger Energy Efficiency Portfolio Standard (EEPS) of 18.5 percent by 2025, as proposed in the ComEd/Exelon bill, except we assume all investor-owned utilities will be required to meet this efficiency target (not just ComEd)
  • A scenario assuming the Clinton and Quad Cities nuclear plants retire early (by 2020)

As with our earlier analysis, we assume Illinois will comply with the CPP under all policy scenarios. We do not include Dynegy’s recent announcement to retire 2,800 MW of existing coal capacity, but do include other announced coal plant retirements as of October 2015.

Here are five key findings from our new analysis:

1. Fixing and strengthening the RPS and EEPS provides significant benefits for Illinois’s economy and consumers

Fixing and strengthening Illinois RPS and EEPS lowers household electricity bills

Fixing the existing RPS and adopting the 18.5 percent by 2025 EEPS would generate $8.7 billion in new capital investments in wind, solar, and energy efficiency, while saving homeowners and businesses $3.8 billion on their electricity bills between 2016 and 2030.

A typical Illinois household would save an estimated $84 per year (8%) on their electricity bill by 2030. It would also result in $10 billion in public health and economic benefits by reducing CO2, SO2, and NOx pollution. Strengthening the RPS to 35 percent by 2030 and EEPS to 20 percent by 2025, as proposed in the Clean Jobs Bill, would result in even greater benefits.

2. Fixing and strengthening the RPS and EEPS would help diversify the state’s electricity mix

Renewables and efficiency increase to 27 percent of Illinois electricity generation in 2030 under the fixed RPS/stronger EEPS case and 32 percent under the Clean Jobs Bill case.

Coal and natural gas generation are lower by 2030 to comply with the CPP emission reduction targets, while nuclear generation stays flat (see more below). Both cases result in net exports of electricity from Illinois staying at or near current levels through 2030.

3. Fixing and strengthening the RPS will allow Illinois to capitalize on federal tax credits for wind and solar, creating jobs and economic benefits that would otherwise go to other states

Recent studies by UCS and others show that the federal tax credits extension could result in record-setting levels of new wind and solar development in the U.S. over the next five to seven years. The development is likely to be concentrated in states with strong renewable energy policies.

Other Midwest utilities have already announced plans to ramp up wind and solar to take advantage of the tax credits. For example, Xcel Energy in Minnesota is planing on adding 800 MW of wind and 400 MW of solar by 2020 to capture the benefits of the tax credits, which they claim will save $202 million.

In April, MidAmerican Energy announced plans to add 2,000 MW of wind in Iowa, a $3.6 billion investment that would increase wind power to over 40 percent of Iowa’s electricity. In contrast, Illinois has experienced very little wind and solar development in recent years because of the broken RPS, and only met 60 percent of its RPS target in 2014. This trend is expected to continue unless the RPS is fixed.

4. Projected increases in natural gas prices and establishing a price on carbon under the Clean Power Plan will greatly reduce the economic vulnerability of existing nuclear plants

EIA natural gas price projections

EIA projects natural gas prices to nearly double by 2025

Despite Exelon’s claims that Clinton and Quad Cities are uneconomic and will be retired early without significant subsidies from the state, our modeling shows it is economically viable to keep these and other existing nuclear plants operating through at least 2030 due primarily to projected increases in natural gas prices.

Our results are consistent with recent modeling by the Energy Information Administration (EIA). EIA’s latest Annual Energy Outlook projects wholesale natural gas prices to increase from $2.62 per million Btu in 2015 to $4.40 per million Btu by 2020 and nearly $5 per million by 2030 (see figure). Like our analysis, the increase in natural gas prices appears to provide enough of a long-term incentive to keep existing nuclear plants operating. While EIA is projecting somewhat lower natural gas prices than last year (our analysis uses EIA’s projection from last year), they still project nuclear generation to stay near current levels over time at the national level.

A price on carbon, which Exelon supports and could help reduce carbon emissions under the CPP, also increases the competitiveness of nuclear plants vs. coal and natural gas, providing an additional incentive to keep Clinton, Quad Cities, and other existing plants operating through 2030.

5. Renewables and efficiency could replace the generation from the Clinton and Quad Cities plants, while allowing Illinois to comply with the Clean Power Plan and save consumers money

Our analysis shows that new renewable generation and efficiency would exceed the retired nuclear generation by 2022 and would be nearly twice as high by 2030 under the fixed RPS/stronger EEPS case.

Electricity bill savings for a typical household are $60 per year (6%) in 2030 under the fixed RPS/stronger EEPS case with the Clinton and Quad Cities plants retired, compared to $84 (8%) without the retirements. However, this does not include Exelon’s proposed subsidies to keep the plants running. While these subsidies are still under negotiation, Exelon has publicly stated that they may need $250 million next year, and $170 million on average over the next 6 years. They claim their proposed bill would cost a typical household 25 cents per month ($3/year).  Other groups estimate the costs could be much higher.

Next steps

While the regular legislative session ended on May 31, we expect conversations will continue throughout the summer. To become a national leader in developing clean energy, our analysis shows that Illinois should at least fix the state’s current 25 percent by 2025 RPS law by transitioning to a full non-bypassable wires charge to create a stable pool of funds for renewables procurement.

Illinois should also extend the proposed increases in energy efficiency to all investor-owned utilities so that all businesses and households in the state can benefits from lower energy bills. In addition, Illinois should maintain its net metering policy and oppose efforts to adopt a mandatory residential demand charge so consumers can fully capture the benefits of installing rooftop solar and so Illinois can attract new jobs in the rapidly growing solar industry.

Update 11/16: Some small edits were made to this post to reflect updated numbers.