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Energy Forum Focuses on Emerging Trends in Power Sector

By Erin Smith

Monday, September 19, 2016

The Bipartisan Policy Center, Great Plains Institute, and Duke University’s Nicholas Institute for Environmental Policy Solutions hosted an expert stakeholder workshop in Atlanta, Georgia last week to discuss emerging trends in the electricity sector. The workshop, “Power Sector Trends in the Eastern Interconnect: Implications for Environmental Policies and Investments,” brought together experts, state officials, and stakeholders to explore recent modeling analyses to examine how ongoing and emerging trends in the electricity sector may impact state energy and environmental policy choices.

The event featured morning and afternoon sessions focused on power sector trends with and without the EPA’s Clean Power Plan. At the start of each session, leading experts presented their latest findings on electricity sector modeling. Following these expert presentations, respondents from industry, environmental organizations, independent experts, and state government offered remarks and reacted to the presentations in moderated discussions that included questions from the audience. In addition, the event featured keynote remarks from Howard Gruenspecht, deputy administrator for the Energy Information Administration (EIA), and Janet McCabe, acting assistant administrator for the Office of Air and Radiation at the Environmental Protection Agency (EPA).

Keynote Addresses

The morning keynote address by EIA Deputy Administrator Howard Gruenspecht highlighted recent work from the EIA, including newly available data and the administration’s efforts to model the Clean Power Plan (CPP). Gruenspecht noted that EIA now provides a state-by-state breakdown of distributed solar PV data and real-time, hourly operations data for the U.S. electric system. He explained that EIA modeling of the CPP focused on the implications of state implementation decisions and commented that the future of nuclear power will be critical in the Eastern Interconnect.

EPA officials note that allowance allocation and leakage have been the most challenging issues to address in the model rules for the Clean Power Plan.

During lunch, EPA Acting Assistant Administrator Janet McCabe spoke about the EPA’s continuing effort to finalize the Clean Energy Incentive Program and model trading rules for the CPP, noting that allowance allocation and leakage have been the most challenging issues to address in the model rules. She also highlighted EPA’s ongoing work on emission standards for aircraft, emission and fuel economy standards for heavy- and light-duty vehicles, and phasing down use of hydrofluorocarbons.

Understanding the Evolving Trends in the Eastern Interconnect

The morning session began with a presentation from Chris MacCracken, a principal at ICF International, focused on the importance of the baseline in energy sector modeling. He stressed that when thinking about carbon reduction programs such as the CPP, the starting reference point is critical in determining the amount of incremental change that must be achieved. He also pointed out that the baseline in the EIA’s Annual Energy Outlook (AEO) has changed significantly over time, noting that projected 2030 CO2 emissions in the United States have dropped 23 percent since AEO 2010, and that projected emissions in the Eastern Interconnect dropped 15 percent between AEO 2015 and AEO 2016. He identified electricity demand, natural gas prices, renewables costs, renewable tax incentives such as the Production Tax Credit and Investment Tax Credit, and nuclear lifetime assumptions as key drivers behind falling CO2 emissions projections.

Brian Murray, director of environmental economics at the Nicholas Institute, moderated the respondent panel, which included Mike Bull from the Center for Energy and Environment, John Myers from the Tennessee Valley Authority, Ted Thomas from the Arkansas Public Service Commission, Susan Tierney from Analysis Group, and Brian Toth from Southern Company.

Projected 2030 carbon dioxide emissions in the United States have dropped 23 percent since the Energy Information Administration’s Annual Energy Outlook 2010.

The group quickly reached consensus that the energy system has changed dramatically, the United States will become increasingly dependent on natural gas, and expanding pipeline infrastructure will be both important and challenging. Several panelists voiced concerns about the impacts of future environmental regulations on the natural gas industry, arguing it could raise gas prices and shift the energy mix away from what Gruenspecht and MacCracken showed in their projections. Some panelists also remarked on the gap between CO2 emissions reductions that scientists say are necessary to limit global warming to 2 degrees Celsius and the projected level of emissions in Gruenspecht and MacCracken’s baselines. This led to an exchange on the short-term nature of markets, which several panelists agreed was a challenge that impeded the long-term planning and investments necessary to maintain reliability and mitigate climate change. Panelists also discussed the value of innovation in solving problems, but acknowledged the risk of both adopting and failing to adopt new technology as well as the difficulty in predicting inflection points. Finally, the discussion concluded with recognition that market forces are driving the energy system toward lower emissions, potentially in line with the reductions required by the CPP.

Policy Implications of Emerging Trends and Analytical Results

The afternoon session began with presentations by Jennifer Macedonia, fellow and senior advisor at the Bipartisan Policy Center, and Martin Ross, senior research economist at the Nicholas Institute. The presentations highlighted recent modeling of the final CPP from the Bipartisan Policy Center and the Nicholas Institute. Macedonia highlighted some of the Bipartisan Policy Center’s results, which show that: the CPP is not binding in many states in the early years of the program; the ability to trade can hedge against uncertainty; the flexibility to bank allowances for future use increases near-term emissions reduction and reduces overall compliance cost; and including new units under a mass-based approach could delay some nuclear retirements. Ross discussed some of the Nicholas Institute’s results, which show that gas prices are an important driver of policy costs and CO2 emissions and that national CPP compliance costs are relatively low, which Macedonia also observed. He also demonstrated the importance of future conditions through multiple sensitivity analyses and how the compliance choices of neighboring states can significantly impact the effect of the CPP on other states. Both speakers presented patchwork scenarios, in which certain states are assumed to comply with the CPP using a mass-based approach while others use a rate-based approach.

Broad-based trading programs and energy efficiency can lower Clean Power Plan compliance costs. 

The afternoon panel echoed some of the points made earlier in the day—namely that the energy sector has changed and continues to evolve rapidly. Panelists also agreed with Macedonia and Ross that broad-based trading programs and energy efficiency can lower CPP compliance costs. However, they stressed the challenge of planning with limited information, especially given that the best choice for many states depends on the choices of neighboring states. With respect to mass-based compliance, the panelists also discussed how allowance allocation choices—including whether to allocate allowances for free or auction them—differ for states with different electricity market structures. With regard to long-term planning, several panelists pointed out the importance of a robust framework that can guide investment decisions and help chart the least cost path to a potentially carbon-constrained future. The conversation then shifted to the nuclear fleet and the ongoing challenges to maintaining existing nuclear units and investing in new ones.Doug Scott, vice president of strategic initiatives at the Great Plains Institute, moderated the respondent panel, which included Dallas Burtraw from Resources for the Future, Michael Dowd from the Virginia Department of Environmental Quality, Katie Dykes from RGGI and the Connecticut Department of Energy and Environmental Protection, Julie McNamara from the Union of Concerned Scientists, and Cathy Woollums from Berkshire Hathaway.

KEYWORDS: ENVIRONMENTAL PROTECTION AGENCY, SUE TIERNEY, JENNIFER MACEDONIA, CLEAN POWER PLAN