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Clearing Up / Bearing Down

[January 5, 2017 / No. 1832]

Exploring Pathways to 2050 Deep Decarbonization for Northwest

SUMMARY: In the second part of a two-part column, guest columnist Phil Jones explores deep-decarbonization studies for the Pacific Northwest and the need for even greater energy efficiency, accelerated electric-vehicle deployment, carbon pricing and regional collaboration around the Western U.S. and Western Canada. He also advocates a broader horizon when considering decarbonization, with a focus on a robust, diverse and reasonably cost-effective mix of zero-carbon resources.

In the first segment of this two-part column (CUNo.1830 [9]), I wrote about the imperative of decarbonization for the energy sector. While there are many favorable advantages for clean-energy resources, especially falling costs, this transition requires a smart and careful approach, including flexibility of resource adequacy and maintaining resource diversity.

I also referenced deep-decarbonization studies for the Pacific Northwest, by Energy and Environmental Economics (E3) and Evolved Energy Research (EER), in which some conclusions and recommendations are not surprising, but others may spark controversy and appear counterintuitive. Remember that these analyses go 30-plus years out to 2050, compared to the shorter life of a utility integrated resource plan. While these studies do consider, to some extent, declining cost curves for certain technologies and generally assume relatively stable natural gas prices, we all know that "energy shocks" occur and can impact these analyses.

When I reviewed utility IRP's as a Washington UTC commissioner, I took the modeling, scenarios and sensitivity analysis seriously, and believed that the 20-year look provided a good "vision of the energy future." However, I was much more focused on the near-term recommendations and preferred portfolio (3-5years), and questioned some assumptions and subjective factors that resulted in certain resource choices. I believe the same sort of approach should be applied to these decarbonization studies—analyze and if possible, land, on the broad trends at a macro level, question the assumptions, and focus on the lowest reasonable-cost outcome for carbon-emissions reductions and technology and resource choices.

Deep-Decarb Study Conclusions, Recomendations

Some of the conclusions and policy recommendations in both the E3 and EER studies are not especially surprising, and make common sense. Overall, they describe a decarbonized future that is technically achievable, and including a continued focus on energy efficiency and more renewable resources (solar, wind and others). They all model the accelerated retirement of coal-fired power plants in the region. They call for adding smaller amounts of resources like biomass, incremental hydro, geothermal, and battery and pumped storage. They call for an increasing amount of demand response as well, which Puget Sound Energy's recent IRP also calls for as part of a growing consensus for more DR in the region.

But they differ on key issues, including the role of new natural gas plants (the E3 study cites a need for about 8GW of new gas over the period to 2050); cost impacts on ratepayers in terms of net-present-value revenue requirements; and both the amount of renewable energy that would be curtailed, by scenario, and the type of displacement that would occur.

First, regarding energy efficiency, we are going to have to deepen and accelerate our EE efforts in the region over the next 20-30 years. Innovative technologies are emerging to increase EE potential and to streamline the existing burdensome process of measuring and verifying the savings for compliance and target-setting purposes (for those states that have an EE target mandated by state law or rule). Utilities, state commissions (especially the staffs) and intervenors will need to develop some new models for cost-effectiveness of specific programs and measures, and to translate these measures into CO2 reductions that make sense.

The decarbonization studies call for a substantial block of "non-cost-effective EE" but are not specific about what sorts of measures. Does that mean that we wave goodbye to the utility-cost test or more commonly the total-resource-cost test? No. But we will need to develop new measures and metrics that allow these new EE technologies to be deployed in a reasonable and prudent manner, and to streamline the current evaluation, measurement and verification process to make it more real-time in both time and scale.

Second, all the studies point to a need to accelerate the deployment of electric vehicles in the transportation sector, which accounts for the largest source of emissions now in the West Coast states, and rapidly build out the EV infrastructure of charging stations and sophisticated network management systems.

For those of us in the utility sector looking at CO2 emissions for a decade or so, this is a no-brainer recommendation. Instead of merely focusing our efforts on stationary sources of emissions, which is what the Clean Power Plan tried to do, as well as Washington Gov. Jay Inslee's Clean Air Rule and most cap-and-trade systems, we should be focusing economy-wide on all sources of emissions and especially the millions of vehicles on our highways with fossil-fueled internal combustion engines that emit enormous amounts of CO2 (not to mention nitrogen and sulfur oxides).

Washington state is a leader in the transportation electrification area, having passed a bill to encourage utility involvement in this infrastructure-building along with third-party developers. The Washington UTC published in June2017 what I consider to be the most balanced, forward-leaning policy statement on electric vehicle supply equipment of any commission in the country, concerning commission regulation of EV charging services (CU No.1785[14]).

In addition, Vulcan's work on climate in general and transportation electrification specifically has been very useful, both in the region but also nationally in "smart cities" like Columbus, Ohio.

I advocated for this issue at the National Association of Regulatory Utility Commissioners Annual Meeting in Baltimore on Nov.14, by launching a new Alliance for Transportation Electrification that argues for accelerated deployment, strong utility involvement, and interoperability and open standards. Although some may now say I am biased in this area as an advocate, I think most decarbonization studies and many experts point out the urgent need to address this issue of deploying the infrastructure now, rather than waiting.

Third, each regional decarbonization study models carbon pricing and concludes that on grounds of regulatory certainty and economic rationality, we need to develop and approve a carbon price both certain and enforceable. Some will want to do this through a cap-and-trade system like that of California, administered by the California Air Resources Board and the California PUC. That appears to be the direction Oregon may go, through legislation. Washington, on the other hand, may develop a different approach through a carbon price in legislation, which Inslee proposed last year along with others, while several efforts are underway as I write this column to develop legislative bills for the 2018 session in Olympia (CU No.1831 [10]). Or we could have an initiative to our citizens on the ballot in 2018 as well.

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Fourth, we should continue to coordinate with our fellow states in the Western Interconnection, and British Columbia and Alberta, in our efforts to decarbonize. While the California ISO has faltered—I believe temporarily—in its efforts to reach out to other states, commissions, governor's offices and state energy offices, the time is coming for some sort of market for economic dispatch with a market operator in the Pacific Northwest. It is not a matter of if, in my view, but when.

But separate from markets, we have much to learn from each other in terms of decarbonization policies and better coordination of resource operations and the grid. For example, in the first part of this column I referred to a potential mutually beneficial "deal" between hydroelectric generators in the Northwest and California utilities and the ISO on a bilateral contractual basis. This could be a win-win for both regions, and would be similar to how Norway (and Switzerland) have acted as "energy storage and flexibility countries" for the more aggressive countries in Europe pursuing renewable energy, like Germany.

Broaden Horizons on Decarbonization

Finally—and I will deal with this in a future column as well—we need to broaden our horizons and outlook when we refer to decarbonization or deep decarbonization. I know some of these are controversial with some environmental advocates and regulatory officials. But if we are truly serious about removing substantial amounts of CO2 and greenhouse gases from the atmosphere, we need to focus our research and development, planning and regulatory efforts beyond how "clean energy" for electricity is produced and consumed. Especially as electrification of the transportation sector, and perhaps other end-use sectors proceed, we need to focus on ensuring a robust, diverse and reasonably cost-effective mix of zero-carbon resources.

This means, in my view, promoting the development of small modular nuclear reactors or another type of zero-carbon nuclear generation, while finally addressing the high-level nuclear waste and nonproliferation and safety issues. But it also means spending resources and time on carbon capture and sequestration efforts from the existing natural gas fleet and from any new gas plants called for in the future (like the 8GW called for in the E3 study by 2050). We need to be pragmatic and realistic in these efforts, recognizing they are expensive and not cost-effective now.

But we should all pause and remember where the costs of utility-scale wind, solar, and storage were in 2009, only eight years ago. According to Lawrence Berkeley National Laboratory's 2016 report on the wind technologies market, wind power-purchase-agreement prices fell on average over the five major geographic regions about 60 percent between 2009 and 2016. We in the Pacific Northwest were paying higher prices than wind PPA's in the Midwest/Midcontinent ISO region, and it was not unusual to see wind PPA quotes in the range of $50-$90 per MWh. Large-scale solar prices were considerably higher at the start of that period, and energy storage at scale was not competitive at all. Today, wind PPA's with good capacity factors, especially in areas like Wyoming and the Dakotas, are being offered in the $20-$35/MWh range, while solar PPA prices have dropped dramatically to the range of $45-$70/MWh. Tucson Electric Power's announcement last year that it had signed an agreement with a developer of a solar-photovoltaic-plus-storage option at all-in costs of about $45/MWh was remarkable.

Accordingly, I think we should embrace these remarkable declines in costs of renewable technologies, and hope that advances in technology and efficiencies can continue to push down the cost curve in the future. Both regulators and policymakers should factor in a certain amount of technology advancement and cost declines as they examine resource plans over a longer time period.

We will never know precisely in advance how much, and which, technologies will advance at the most rapid pace, but our tools allow us the boundaries of a reasonable zone of advancement. Therefore, we should be able to address this deep-decarbonization challenge with the right mix of smart planning, policies and regulations.

One state alone, or one utility by itself, cannot accomplish this complex task while keeping the lights on and rates affordable. Instead, we need to act together in a collaborative way to achieve these goals and realize that this will be a dynamic process in which we make adjustments and midcourse corrections along this road to decarbonization. [Phil Jones]

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