Electricity Generation missing markets with co2 emission constraints 4/1/2015 Electricity Generation missing markets with co2 emission constraints Donald Hanson, Argonne National Laboratory David Schmalzer, Argonne National Laboratory Peter Balash, National Energy Technology Laboratory Christopher Nichols, National Energy Technology Laboratory Presented at the 33rd USAEE/IAEE North American Conference Pittsburgh, Pennsylvania October, 2015 Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

4/1/2015 acknowledgements Don Hanson and Dave Schmalzer want to thank NETL for support. Disclaimer: The work shown does not necessarily reflect the views of Argonne National Laboratory, the University of Chicago, the National Energy Technology Laboratory, or the U.S. Government Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

4/1/2015 overview We describe the model and solution concept for achieving least-cost CO2 emission reductions An integrated electric utility will operated its plants to minimize costs (including present value of future costs) But the introduction of gas-fired generators in competitive markets neglects the cycling costs that they may impose on existing coal-fired power plants (CFPP) Gas units tend to be dispatched before existing CFPP under a carbon tax regime, driving down capacity factors (i.e., utilization) of existing CFPPs Cycling damages to older coal units will be discussed in Dave Schmalzer’s presentation. Implications for economic “theory of the firm.” Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

4/1/2015 Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

Load Duration Curve (LDC) shape and net unit dispatch area: Year 2025 4/1/2015 Load Duration Curve (LDC) shape and net unit dispatch area: Year 2025 Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

4/1/2015 Linear approximation to Scenario shifts in gas supply function in the ESIM model Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

General Equilibrium Gas price 4/1/2015 General Equilibrium Gas price Rising dependence on gas for power generation drives up gas price. The year 2022 start of CO2 emissions reduction shocks gas price Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

Emissions target: CO2 from all electricity Generation 4/1/2015 Emissions target: CO2 from all electricity Generation Better to set a target and minimize costs than to set a price on emissions with unknown adjustment costs due to CFPP cycling damages. 2022 start Difficult reductions Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

Shadow Price on emissions achieving target 4/1/2015 Shadow Price on emissions achieving target Supports advanced technologies CFPP retirements Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

4/1/2015 Total variable costs of units dispatched and their resulting capacity factors As shown in the figure, the increasing variable cost curve is flatter than the decreasing CF curve. The latter is constrained by the slope of the load curve. Under a high carbon tax, the gas units have lower variable costs and are dispatched before the coal units with higher variable costs 11/24/2018 Argonne National Laboratory

4/1/2015 Sources of electricity generation with no correction for high gas and Renewable penetration driving CFPP retirements Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

Capital expenditures are dominated by renewables 4/1/2015 Capital expenditures are dominated by renewables Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory

Spending on fuel is dominated by gas 4/1/2015 Spending on fuel is dominated by gas Lowering cycling damages on CFPP would lower both gas consumption and, in general equilibrium, gas prices and expenditures. Powerplant dispatch, which is near knife-edge, plays a key role in determining the costs of CO2 reductions. Go to "Insert | Header & Footer" to update this text 11/24/2018 Argonne National Laboratory