1. Electricity Technologies in a Carbon-Constrained World Rural Electric Statewide Managers’ Association January 18, 2008 Bryan Hannegan Vice President, Environment

2. 2 © 2007 Electric Power Research Institute, Inc. All rights reserved. About EPRI Founded in 1973 as an independent, nonprofit center for public interest energy and environmental research. Objective, tax-exempt, collaborative electricity research organization Science and technology focus--development, integration, demonstration and applications Broad technology portfolio ranging from near- term solutions to long-term strategic research Together…Shaping the Future of Electricity

3. 3 © 2007 Electric Power Research Institute, Inc. All rights reserved. Large and Successful R&D Collaboration More than 450 participants in over 40 countries –Over 90% of North American electricity generated 66 technical programs –Generation –Power Delivery and Markets –Nuclear –Environment –Technology Innovation 1600+ R&D projects annually 10 to 1 average funding leverage Research is directed to the public benefit Limited regulatory, judicial and legislative participation

4. 4 © 2007 Electric Power Research Institute, Inc. All rights reserved. EPRI’s Role Depends Upon The Specific Technology or Discipline National Laboratories Universities Suppliers Vendors EPRI Basic Research & Development Technology Commercialization Collaborative Technology Development Integration Application

5. 5 © 2007 Electric Power Research Institute, Inc. All rights reserved. Context Growing scientific and public opinion that CO 2 emissions are contributing to climate change… Priority of 110th Congress … U.S. responsible for 1/4 of global CO 2 emissions… Electricity sector responsible for 1/3 of U.S. CO 2 emissions… General agreement that technology solutions are needed… How can the electricity industry respond?

6. 6 © 2007 Electric Power Research Institute, Inc. All rights reserved. With accelerated deployment of advanced electricity technologies, how quickly could the U.S. electric sector cut its CO 2 emissions?

7. 7 © 2007 Electric Power Research Institute, Inc. All rights reserved. U.S. Electricity Sector CO 2 Emissions Base case from EIA “Annual Energy Outlook 2007” –includes some efficiency, new renewables, new nuclear –assumes no CO 2 capture or storage due to high costs  Using EPRI deployment assumptions, calculate change in CO 2 relative to EIA base case

8. 8 © 2007 Electric Power Research Institute, Inc. All rights reserved. Technology Deployment Targets TechnologyEIA 2007 Base CaseEPRI Analysis Target* EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 Carbon Capture and Storage (CCS) None Widely Available and Deployed After 2020 Plug-in Hybrid Electric Vehicles (PHEV) None 10% of New Vehicle Sales by 2017; +2%/yr Thereafter Distributed Energy Resources (DER) (including distributed solar) < 0.1% of Base Load in 20305% of Base Load in 2030 EPRI analysis targets do not reflect economic considerations, or potential regulatory and siting constraints.

9. 9 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 9% reduction in base load by 2030 Benefit of Achieving Efficiency Target TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

10. 10 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Benefit of Achieving Renewables Target 50 GWe new renewables by 2020; +2 GWe/yr thereafter TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

11. 11 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Benefit of Achieving Nuclear Generation Target 24 GWe new nuclear by 2020; +4 GWe/yr thereafter TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

12. 12 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Benefit of Achieving Advanced Coal Target 46% efficiency by 2020, 49% efficiency by 2030 TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

13. 13 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Benefit of Achieving CCS Target After 2020, all new coal plants capture and store 90% of their CO 2 emissions TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

14. 14 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Benefit of Achieving PHEV and DER Targets 5% shift to DER from base load in 2030 PHEV sales = 10% by 2017; 30% by 2027 TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030

15. 15 © 2007 Electric Power Research Institute, Inc. All rights reserved. EIA Base Case 2007 Electric Sector CO 2 Reduction Potential TechnologyEIA 2007 ReferenceTarget EfficiencyLoad Growth ~ +1.5%/yrLoad Growth ~ +1.1%/yr Renewables30 GWe by 203070 GWe by 2030 Nuclear Generation12.5 GWe by 203064 GWe by 2030 Advanced Coal Generation No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCSNoneWidely Deployed After 2020 PHEVNone 10% of New Vehicle Sales by 2017; +2%/yr Thereafter DER< 0.1% of Base Load in 20305% of Base Load in 2030 * Achieving all targets is very aggressive, but potentially feasible.

16. 16 © 2007 Electric Power Research Institute, Inc. All rights reserved. Key Technology Challenges Smart grids and communications infrastructures to enable end-use efficiency and demand response, distributed generation, and PHEVs. Transmission grids and associated energy storage infrastructures with the capacity and reliability to operate with 20–30% intermittent renewables in specific regions. New advanced light-water nuclear reactors combined with continued safe and economic operation of the existing nuclear fleet and a viable strategy for managing spent fuel. Coal-based generation units with CCS operating with 90+% CO 2 capture and with the associated infrastructure to transport and permanently store CO 2.

17. 17 © 2007 Electric Power Research Institute, Inc. All rights reserved. “Smart” Grid for Efficiency and Renewables Efficient Building Systems Utility Communications Dynamic Systems Control Data Management Distribution Operations Distributed Generation and Storage Plug-In Hybrids Smart End-Use Devices Control Interface Advanced Metering Consumer Portal and Building EMS Internet Renewables PV

18. 18 © 2007 Electric Power Research Institute, Inc. All rights reserved. *Westinghouse AP1000 (1115 MWe) GE ESBWR (1535 MWe) AREVA US EPR (1600 MWe) *ABWR (1371 MWe) Near-Term Nuclear Plant Deployment MHI APWR (1700 MWe ) * Design Certified Current Status of Announced Intentions TechnologyUnits AP100010 TBD10 EPR5 ESBWR3 ABWR2 APWR2

19. 19 © 2007 Electric Power Research Institute, Inc. All rights reserved. Coal with CCS Development Timeline 2005201020152020 20072010201520252020 Chilled Ammonia Pilot Other Pilots ● Pilots Demonstration Integration Other Demonstrations AEP Mountaineer Southern/SSEB Ph 3 Basin Electric ● ● ● UltraGen I UltraGen II ● ● FutureGen ● Need Multiple Pilots and Demonstrations in Parallel

20. 20 © 2007 Electric Power Research Institute, Inc. All rights reserved. What is the potential value of these advanced electricity technologies to the U.S. economy and to consumers?

21. 21 © 2007 Electric Power Research Institute, Inc. All rights reserved. Future CO 2 Emissions Scenarios A C B Policy Scenario A: -2%/yr decline beginning in 2010 Policy Scenario B: -Flat between 2010 - 2020 -3%/yr decline beginning in 2020 -Results in “prism”-like CO 2 constraint on electric sector Policy Scenario C: -Flat between 2010 - 2020 -2%/yr decline beginning in 2020 Suppose the U.S. and other industrialized nations adopt one of the following CO 2 emissions constraints: 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 200020102020203020402050 U.S. Economy CO 2 Emissions (million metric tons)

22. 22 © 2007 Electric Power Research Institute, Inc. All rights reserved. Electricity Technology Scenarios Supply-Side Carbon Capture and Storage (CCS) UnavailableAvailable New Nuclear Existing Production Levels Production Can Expand Renewables Costs DeclineCosts Decline Further New Coal and Gas Improvements Plug-in Hybrid Electric Vehicles (PHEV) UnavailableAvailable End-Use Efficiency Improvements Accelerated Improvements Demand-Side Limited Portfolio Full Portfolio

23. 23 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B Emissions are reduced in two ways: Carbon penalty drives price up, demand down Supply shifts to less carbon- intensive technologies U.S. Electric Generation: Limited Portfolio Coal w/CCS Gas w/CCSNuclear Hydro Wind SolarOil Demand Reduction Demand with No Policy Biomass

24. 24 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B U.S. Electric Generation: Full Portfolio Demand reduction is limited, preserving market and managing cost to economy Availability of CCS and expanded nuclear allow large- scale low-carbon generation Coal w/CCS Gas w/CCSNuclear Hydro Wind SolarOil Demand Reduction Demand with No Policy Biomass

25. 25 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B Carbon Price Projections Carbon Price Full Limited $/ton CO2 ($2000)

26. 26 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B Wholesale Electricity Price Full Limited $/MWh* Index Relative to Year 2000 *Real (inflation-adjusted) 2000$ +250%+50%

27. 27 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B U.S. Electric Generation in 2030 Limited Portfolio Total: 4,500 TWh Full Portfolio Total: 5,125 TWh 27% 43% 17% 22% 12% 28% 30% 13% 8% Coal w/CCS Gas w/CCS Hydro Other Renewables

28. 28 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B Natural Gas Markets Limited PortfolioFull Portfolio

29. 29 © 2007 Electric Power Research Institute, Inc. All rights reserved. Policy Scenario B -1.5 -0.5 0.0 Impact on U.S. Economy Change in GDP Discounted through 2050 ($Trillions) Avoided Policy Costs Due to Advanced Technology Cost of Policy Full Portfolio Limited Portfolio + PHEV Only + Renewables Only + Efficiency Only + Nuclear Only + CCS Only Value of R&D Investment $1 Trillion

30. 30 © 2007 Electric Power Research Institute, Inc. All rights reserved. Economic Cost Sensitivity Change in GDP Discounted through 2050 ($Trillions) Policy Scenario A: 2010 – 2% Policy Scenario C: 2020 – 2% Policy Scenario B: 2020 – 3% Cost of Policy Loss of “when” flexibility increases policy cost, but increases technology value Full Limited Full Limited Full Limited Avoided Policy Costs Due to Advanced Technology

31. 31 © 2007 Electric Power Research Institute, Inc. All rights reserved. Summary of Economic Analysis Absent advanced electricity technologies, CO 2 constraints result in: Price-induced “demand reduction” Fuel switching to natural gas Higher electricity prices High cost to U.S. economy With advanced electricity technologies, CO 2 constraints result in: Growth in electrification Expanded use of coal (w/CCS) and nuclear Lower, more stable electricity prices Reduced cost to U.S. economy

32. 32 © 2007 Electric Power Research Institute, Inc. All rights reserved. How might the specific details of climate policy design make a difference? With a nod of thanks to Anne and CRA …

33. 33 © 2007 Electric Power Research Institute, Inc. All rights reserved. EPRI/CRA Analysis of CA Climate Policy California has set ambitious climate policy goals Governor: GHG emission reductions of 80% below 1990 levels by 2050 AB 32: 6 GHGs; 1990 levels by 2020; uncertain post-2020 Early economic studies show net benefit to state Climate Action Team Report – March 2006 +$4 billion and +83,000 jobs UC Berkeley Report – January 2006 +$60 billion and +20,000 jobs Center for Clean Air Policy – January 2006 no net cost to consumers Later criticism of early studies: Omit key cost components of some GHG reduction options Overestimate savings of some GHG reduction options Ignore difficulty of enacting policies required for some GHG options

34. 34 © 2007 Electric Power Research Institute, Inc. All rights reserved. MS-MRT EPPA Global Trade Models MRN State-level macroeconomic model NEEM National electricity model Scenario Definition Electricity prices Coal prices Electricity gas use Electricity demand Carbon price Industrial coal use NEEM Output Electricity prices Allowance prices Coal prices Unit-level environmental retrofits New capacity Models included in iterative process Our Approach Integrated Electricity Modeling System

35. 35 © 2007 Electric Power Research Institute, Inc. All rights reserved. Implementation Scenarios Total of 20 scenarios reviewed that represent the full range of implementation possibilities, e.g. –Pure Trade – Comprehensive cap-and-trade program with standard assumptions about technology, except no new nuclear and renewables-only imports –LCA –low-cost-assumptions: high end energy efficiency, lowest capital costs for renewables, rapid introduction rate of non-emitting transportation backstop, doubling DSM benefits of “DSM Benefit” case –SV-LCA – Same as Pure Trade but with price safety-valve set at CO 2 price in scenario with low-cost-assumptions (LCA) –Trgt40 – In 2050, achieve 40% emissions reduction below 1990 levels, with no new nuclear and renewables-only imports –Trgt80 – In 2050, achieve 80% emissions reduction below 1990 levels, with no new nuclear and renewables-only imports –Nuclear80 – Same as Trgt80, but allow unrestricted imports of nuclear –RPS 20 – Meet State Renewable Portfolio Standard (RPS) of 20% renewable energy by 2020, but don’t impose an overall emissions cap

36. 36 © 2007 Electric Power Research Institute, Inc. All rights reserved. Projected California CO 2 Emissions

37. 37 © 2007 Electric Power Research Institute, Inc. All rights reserved. California CO 2 Permit Prices

38. 38 © 2007 Electric Power Research Institute, Inc. All rights reserved. Wholesale Electricity Prices Increase Higher electricity prices are a direct result of carbon constraint: +62% by 2020 under Pure_Trade scenario

39. 39 © 2007 Electric Power Research Institute, Inc. All rights reserved. Higher Prices Reduce Electricity Demand …

40. 40 © 2007 Electric Power Research Institute, Inc. All rights reserved. … and Regional Generation Mix Changes Wind and geothermal increase in-State… Out-of-state coal capacity doesn’t get built Gas-fired power plants move out of state

41. 41 © 2007 Electric Power Research Institute, Inc. All rights reserved. CA Electric Sector Response Under the Pure_Trade scenario, electric- related CO 2 cuts fall into 3 “buckets”: Reductions in short-term purchases of imported power Changes in longer-term contracts for imported power: coal contracts go to zero Changes in instate generation mix, including out of state plants wholly owned by CA LSEs

42. 42 © 2007 Electric Power Research Institute, Inc. All rights reserved. But Electricity Grows as Share of Total Energy kWh/ Total Final Energy

43. 43 © 2007 Electric Power Research Institute, Inc. All rights reserved. New Investments … But Consumers Spend Less Pure_Trade Scenario

44. 44 © 2007 Electric Power Research Institute, Inc. All rights reserved. Cost to California Depends on Implementation

45. 45 © 2007 Electric Power Research Institute, Inc. All rights reserved. Summary of Findings All policies analyzed showed real economic costs to state Costs ranged from -0.24% to -1.17% through 2050 Broad, market-based cap-and-trade policies are most cost-effective Command-and-control or sector-specific caps are more costly An allowance price “safety valve” would limit costs, but fewer CO 2 reductions Electric sector plays a pivotal role in achieving CO 2 targets Changes in power imports, in-state generation mix result Electrification of other sectors enables them to meet their CO 2 goals Cost estimates do not include “system stability” costs Offsets can play an important role in reducing the costs CAT estimates of in-state forestry offsets  $33 billion savings Role of out-of-state electricity generation needs careful examination Stronger rules to prevent “leakage” would drive up costs to California

46. 46 © 2007 Electric Power Research Institute, Inc. All rights reserved. EPRI Study Conclusions The technical potential exists for the U.S. electricity sector to significantly reduce its CO 2 emissions over the next several decades. No one technology will be a silver bullet – a portfolio of technologies will be needed. Much of the needed technology isn’t available yet – substantial R&D, demonstration is required. A low-cost, low-carbon portfolio of electricity technologies can significantly reduce the costs of climate policy. Flexible, market-based climate policies offer significant economic advantage over sector-specific approaches