1. Renewable Energy and Natural Gas: from Crisis to Opportunity

2. Natural Gas Crisis? Today’s tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon –Alan Greenspan, Federal Reserve Chairman, Testimony at Senate hearing, July 10, 2003

3. Renewable Energy & Natural Gas Studies WSeries of scenarios examined by US Energy Information (EIA) and Union of Concerned Scientists WRenewable electricity (portfolio) standards–10% or 20% by 2020 –Different penetrations based on target level, exclusions (e.g., munis, coops, small utilities, baseline deductions (e.g., hydro, MSW) WAs important for what they say about the penetration of renewables as the policies to get there WSimilarities –National Energy Modeling System (NEMS) –Same demand forecasts, fossil technology costs, fuel price assumptions –Examine wind, geothermal, solar, biomass technologies –No ocean, incremental hydro WDifferences –EIA: pessimistic renewable energy costs, performance –UCS: realistic renewable energy costs (similar to national energy labs Scenarios for a Clean Energy Future study (2000) WRenewable electricity displaces ~60% gas, 40% coal

4. Renewable Energy Saves Natural Gas (2020) - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 -2004006008001,000 Increase in Renewable Energy Generation (Billion kilowatt-hours) Natural Gas Displaced (Quadrillion Btus) 20% RE Penetration (EIA McIntosh AEO 2001 - 20% by 2020 RES) 19.7% RE Penetration (UCS AEO 2001 - 20% by 2020 RES) 9.8% RE Penetration (EIA McIntosh AEO 2001 - 10% by 2020 RES) 9.4% RE Penetration (EIA Murkowski AEO 2002 - 10% by 2020 RES no sunset) 9.4% RE Penetration (UCS AEO 2001 - 10% by 2020 RES) 7% RE Penetration (EIA Bingaman AEO 2003 - 10% by 2020 RES inflation adjusted) 6.5% RE Penetration (UCS AEO 2002 - 10% by 2020 Senate RES) 20% renewables = 11% of 2020 gas use, or ¾ of 2001 residential consumption

5. Renewable Energy Reduces Natural Gas Prices (2020) (0.05) - 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 -2004006008001,000 Increase in Renewable Energy Generation (Billion kilowatt-hours) Reduction in Natural Gas Prices (Dollars per million Btu) 20% RE Penetration (EIA McIntosh AEO 2001 - 20% by 2020 RES) 19.7% RE Penetration (UCS AEO 2001 - 20% by 2020 RES) 9.8% RE Penetration (EIA McIntosh AEO 2001 - 10% by 2020 RES) 9.4% RE Penetration (EIA Murkowski AEO 2002 - 10% by 2020 RES no sunset) 9.4% RE Penetration (UCS AEO 2001 - 10% by 2020 RES) 7% RE Penetration (EIA Bingaman AEO 2003 - 10% by 2020 RES inflation adjusted) 6.5% RE Penetration (UCS AEO 2002 - 10% by 2020 Senate RES) 20% renewables = 9% lower gas price Next 2 slides

6. Renewable Energy Lowers Gas Bills for All Consumers Cumulative US Natural Gas Bill Savings, 2000-2020* (EIA 10% by 2020 RPS no sunset) Total = $9.1 Billion $2.4 $1.8 $4.9 Industrial Residential Commercial *Net present value using an 8% real discount rate. Source: EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February 2002.

7. Natural Gas Use in Indiana by Sector, 2001 Commercial 16% Industrial 53% Residential 31% Total = 477 Billion Cubic Feet Source: EIA.

8. Natural Gas Expenditures in Indiana by Sector, 2000 (billion $) Commercial $0.5 Residential $1.0 Industrial $1.5 Total = $3 Billion 10% savings = $300 million/year Source: EIA.

9. Lower Natural Gas Prices Benefit Farmers WNatural gas is primary feedstock in production of nitrogen fertilizers WGas = 90% of total cash cost of producing ammonia W11 ammonia plants representing 21% of US capacity closed since 2000 due to high gas prices WHas caused nitrogen fertilizer prices to double over the last few years WFertilizer prices increased 1/3 this year, raising cost to a typical farmer by $10-15/acre –US Dept. of Agriculture

10. Renewable Energy Can Lower Natural Gas and Electricity Bills Source: EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February 2002. $9.1 billion Natural Gas Bill Savings $4.4 billion Electricity Bill Savings $13.2 billion total Consumer Energy Bill Savings* *Cumulative net present value using an 8% real discount rate. Not including transportation.

11. EIA: 20% RPS has Modest Impact on Consumer Energy Bills Source: EIA, Analysis of Strategies for Reducing Multiple Emissions from Electric Power Plants, July 2001, Tables E2 and E3, not including transportation.

12. High EIA gas price well below today’s & many analyst projections Sources: UCS, Renewing Where We Live. September 2002. EIA, Short-term Energy Outlook---2003, July 8, 2003.

13. Higher Natural Gas Prices Mean Greater Energy Bill Savings Total Annual Consumer Energy Bills Savings* 3.8 8.3 0 2 4 6 8 10 2020 Billion 2000$ 10% by 2020 Senate RES compared to BAU ($2.91/Mcf Avg. Wellhead Gas Prices) 10% by 2020 Senate RES compared to BAU - "High Gas" ($3.31/Mcf Avg. Wellhead Gas Prices) Source: UCS, Renewing Where We Live. September 2002. *Not including transportation.

14. EIA Wellhead Gas Price Forecasts 1997 - 2003 (2000$/Mcf)

15. EIA: RPS Lowers Cost of 4-Pollutant Reductions Source: EIA, Strategies for Reducing Multiple Emissions from Electric Power Plants, July 2001, Table H3.

16. How quickly can renewables make a difference? WAmerican Wind Energy Association –6,000 MW by end of 2003 = 0.5 Bcf/day = 15% of 3-4 Bcf/day shortage –Transmission plans proposed for 30,000 MW by end of 2007 = ~3 Bcf/day –100,000 MW by 2013 –600,000 MW competitive @$4/mmBTU gas –Needs »Extend PTC for 5 years »RPS »Transmission tariff reform to increase capacity »Tran-prairie and Inter-Mountain transmission “pipelines” WSolar Energy Industries Association –Could alleviate 1/3 of gas shortage (I.e., 1-1.3 Bcf/day) by 2005 »Investment tax credit »Production tax credit »Rebate WRepeated short-term crises because ignore mid- and long-term –RPS has been filed in Congress since 1997

17. Renewable Energy Mix Clean Energy Blueprint

18. Conclusions WRenewable electricity saves natural gas (up to 11%) WRenewable electricity restrains growth in gas prices (up to 9%) WNatural gas bill savings (at least up to 10% and possibly up to 20%) offsets higher renewable electricity cost for all consumers –Even with high estimates of renewable costs –Even with low gas prices WRenewable electricity provides hedge against higher gas prices and emission reduction costs WAND renewable electricity creates jobs, keeps revenues in local economy, reduces need for gas imports, reduces emissions WVoluntary programs will not make a dent – 1-2% of 2020 sales WRenewable electricity standard benefits economy and environment WEfficiency AND renewables = best combination. UCS Clean Energy Blueprint: up to 31% less natural gas; 27% reduction in gas price