Environmental Benefits of Renewable Portfolio Standards in an Age of Coal Plant Retirements

September 10th, 2015Energy Policy Research Conference

Denver, COJosh Novacheck

Jeremiah Johnson

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.

• Costs of the existing RPS were below expectations, with utilities reducing and eliminating renewable energy surcharges.

• 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.

Study: Expanding Michigan RPS

University of Michigan Energy Institute funded a study to assess the environmental impacts and costs of RPS expansion in Michigan.

3http://energy.umich.edu/news-events/news/2015/01/13/new-study-details-costs-environmental-impact-raising-michigan%E2%80%99s

Objectives of the Study

• This research project employed and advanced power systems modeling to evaluate design considerations for an updated Renewable Portfolio Standard for Michigan.

• In addition to methodological development, the project provided an objective analysis on the impact on emissions, generation mix, and costs of RPS designs to better inform stakeholders across the state.

• This part of the broader study aimed to understand the impacts of future coal plant retirements on the effectiveness of RPS emissions mitigation.

Renewables Build Plan

Wind Project Costs

($/MWh)

Debt Servicing 30

Return on Equity 24

Net Taxes 7Operations &

Maint 12

Wind Project

Revenues ($/MWh)

40 Energy Market Revenues

31 Above Market Cost

Sample Wind Site Evaluation

4 Capacity Value

Output of dispatch model, based on time of day of generation

14% capacity credit for wind

Selected projects to minimize above-market costs

Total: 74

Note: Baseline assumptions do not include PTC or ITC

Power Systems Model

Eastern Interconnection • 35 zones• Inter-zonal

transmission interface limits

• ~10,000 generators with detailed operational constraints

• Environmental control equipment

• Zonal fuel prices• Hourly load

Least cost firm capacity added to maintain reserve

requirement

Constrained by RPS Design

Study Design

Power System Representation

Dispatch Model

Renewable Resource Data

Cost of New Renewables

Operational behavior

Market Energy Prices

Renewable Revenue

Requirement Model

Renewable Build Plan

Five-year iterations; 2015-2035

Coal Retirement Scenarios

• Base Case– MATS compliance

cost– Compared to cost of

new NGCC

• High Coal Retirements– Generators older

than 50 years are retired

Coal Retirement Scenarios: Base Case

Retire

Comply with MATS

Coal Retirement Scenarios: High Retirements

~32% of MI Coal Capacity >50 years old

Michigan Generation

(1) = BaseCase

(2) = High Retirement

Displaced Generation: 20% by 2030

Displaced Generation: 25% by 2025

Displaced Generation: 40% by 2035

Michigan Emissions Rate

Base Case High Coal Retirements Retirements

Total CO2 Emissions

Discussion

• Emissions reductions from RPS heavily dependent on future energy infrastructure

• EPA’s Carbon Rule will likely instigate RPS expansions and coal retirements

• Age of coal fleet in Michigan and much of the Midwest is old

• There has been significant investment to keep the generators operational beyond there expected lifetime

Acknowledgements

This work was conducted with financial support from the University of Michigan’s Energy Institute.

The authors thank Profs. Mark Barteau and Thomas Lyon for their invaluable insights, in addition to Rachel Chalat and Nicole Ryan for their research assistance.

University of Michigan Energy Institute

Thank You!

Questions?