1. Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations – Preliminary Results Prepared for : WRAP, AP2 Forum Prepared by: ICF Consulting; June 5, 2002 Juanita Haydel Bishal Thapa Strategic Advantage. Compelling Results.

2. 2 DRAFT June 4, 2002 Roadmap for presentation Background Business-As-Usual scenario Implications of 10/20 goals and energy efficiency Cost impacts of implementing the 10/20 goals and energy efficiency recommendations Renewable energy and energy efficiency as integrated air and energy management strategy Next steps –Regional economic modeling –Report outline

3. 3 DRAFT June 4, 2002 Background

4. 4 DRAFT June 4, 2002 Objective of Study Understand role for renewable energy and energy efficiency in integrated air and energy management strategies Analyze cost, emissions and regional economic impacts of meeting the 10/20 goals and implementing the energy efficiency recommendations Report on results of IPM ® and REMI ® modeling will serve as technical supporting document for AP2 report to WRAP

5. 5 DRAFT June 4, 2002 Integrated analytical framework WRAP/MTF Economic-Analysis AP2 Forum reviewed assumptions developed by WRAP/MTF Forum developed BAU assumptions and modeling scenarios Forum developed assumptions for energy efficiency recommendations IPM ® REMI ® State/Tribal regional economic impacts  Emission Impacts  State/Tribal Cost Impacts  Electric/steam impacts Analysis started with data, structure & assumptions developed by WRAP/MTF in 2000 You Are Here

6. 6 DRAFT June 4, 2002 Existing renewable energy capacity in US and GCVTC GCVTC Region 1990 1998 US 10 GW 4 GW 15 GW 6 GW Source: 1990 - EIA Form 860 and EIA Form 867; 1998 - EIA Form 860A and EIA Form 860B (Some capacity in 1990 not included, withheld to avoid disclosure of proprietary company data.)

7. 7 DRAFT June 4, 2002 Business As Usual Scenario

8. 8 DRAFT June 4, 2002 Business-As-Usual incorporates current and/or known information Assumptions for BAU developed by AP2 Forum Includes SO 2 Annex milestones with all states and tribes participating in the regional trading program No additional policy efforts to promote renewable energy or energy efficiency assumed under BAU Technology cost for renewable energy unlikely to change significantly over time without additional efforts to promote renewable energy –Other factor influencing new renewable energy capacity such as transmission access, reliability problems with intermittency and resource quality may continue to hinder growth in electricity generation from renewable energy

9. 9 DRAFT June 4, 2002 Further penetration of renewable energy unlikely under BAU Significant additional penetration of renewable energy capacity is unlikely without pro-active renewable energy policies –BAU incorporates information about know future firm builds in the GCVTC region 1 –About 700 MW of future firm wind capacity Though future firm builds may be dispersed over time, under BAU modeled as coming on line by 2005 1 Source: New builds in WSCC reported by California Energy Commission, 2001

10. 10 DRAFT June 4, 2002 Emissions under BAU - 200 400 600 800 20052007201020152018 SO2 ('000 tons) Because of the trading program, there will be no changes in SO 2 emissions under the 10/20 goals or EE Emissions limited through the regional SO 2 trading program

11. 11 DRAFT June 4, 2002 Emissions under BAU - 200 400 600 800 20052007201020152018 NOx ('000 tons) Avg. rate for Coal: 4.3 lbs/MWh Existing oil/gas capacity is either repowered or retired Avg. rate for oil/gas: 0.2 lbs/MWh Avg. rate for oil/gas: 0.05 lbs/MWh

12. 12 DRAFT June 4, 2002 Emissions under BAU - 200 400 600 800 20052007201020152018 CO2 (Million Metric Tonnes) 19% increase between 2005 – 2018 due to increased fossil fuel use

13. 13 DRAFT June 4, 2002 Most of the generation growth will come from gas 2005 Generation Mix Total: 484 billion kWh 2018 Generation Mix Total: 638 billion kWh

14. 14 DRAFT June 4, 2002 Significant new additions to RE capacity not expected under BAU BAU includes assumption that without additional regulatory efforts unlikely to see future decline in cost of developing new wind Projected under BAU scenario Includes generation from known future firm capacity Historic: Based on EIA reported data No penetration beyond future firm capacity projected if cost for new wind remains at current levels, as assumed under BAU

15. 15 DRAFT June 4, 2002 Implications of 10/20 goals and energy efficiency recommendations

16. 16 DRAFT June 4, 2002 10/20 goals will specify targets for generation from renewable energy - 40,000 80,000 120,000 160,000 2005201020152018 GWh 10/20 Goals RE Under BAU 10 % of regional load 20 % of regional load Additional generation from renewable energy required to meet 10/20 targets

17. 17 DRAFT June 4, 2002 Targets may affect underlying cost factors important to promoting RE 10/20 targets May accelerate learning by doing May create stronger incentives to seek improvements in technology and performance May ease other regulatory or economic barriers to entry Decline in cost reflects improvements in technology cost & performance Production cost for Class 6 Wind Source: AP2 Forum and Walter Short, NREL 0 10 20 30 40 2000200520102015 $2001/MWh Held to current levels (BAU)Under 10/20 goals

18. 18 DRAFT June 4, 2002 Certain cost types unique to RE will remain under 10/20 goals Transmission access Wind resources often located in remote areas with no easy transmission access Problems in transmission access acute in interior west Production cost for class 6 wind Source: AP2 Forum and Walter Short, NREL Resource quality Production cost for wind will vary across areas with different wind speeds (i.e., wind class) Production cost

19. 19 DRAFT June 4, 2002 Certain cost types unique to RE will remain under 10/20 goals Supply Curve for Wind in 2010 Intermittent generation Production cost assumed to increase as higher levels of intermittent generation (i.e., wind generation) are supplied Increasing production cost reflects backup cost Backup cost applies after generation from wind energy exceeds 10% of a region’s load or reaches 10% of resource potential Backup cost increases from 10% to 60% as higher levels of wind generation are supplied Source: AP2 Forum and Walter Short, NREL

20. 20 DRAFT June 4, 2002 Load reduction from EE assumed to increase to 8% by 2018 2005 2018 Source: AP2 Forum

21. 21 DRAFT June 4, 2002 Cost impacts of implementing the 10/20 goals and energy efficiency recommendations

22. 22 DRAFT June 4, 2002 10/20 goals likely to increase annual production cost by 2% - 5% Levelized Annual Production Cost (2005 –2022) Production cost would increase by $ 255 million annually If cost for wind remains at current level (BAU) Production cost would increase by $ 818 million annually

23. 23 DRAFT June 4, 2002 Gas capacity is displaced under 10/20 goals Changes in Fossil Fuel Capacity from BAU Under 10/20 by 2018

24. 24 DRAFT June 4, 2002 Increase in RE generation mostly affects gas generation BAU – Generation Mix in 2018 With 10/20 goals – Generation Mix in 2018 With 10/20 goals – Renewable Generation Mix in 2018

25. 25 DRAFT June 4, 2002 Wind accounts for most of the growth in RE generation Generation Mix in 2018Renewable Energy Generation Mix in 2018

26. 26 DRAFT June 4, 2002 Levelized $6.5/MWh REC converted to energy price Impact of 10/20 goals on wholesale energy prices Wholesale energy prices under 10/20 goals 29.43

27. 27 DRAFT June 4, 2002 Impact of 10/20 goals on wholesale electricity prices will be 1% - 2% 28.10 28.86 29.33 28.43 28.64 29.43 - 5.00 10.00 15.00 20.00 25.00 30.00 35.00 CNVWSCPWSCR 1997 $/MWh BAUWith 10/20 Goals Levelized Wholesale Electricity Prices in the GCVTC Region Prices under the 10/20 goals includes a levelized $6.37/MWh renewable energy credit price

28. 28 DRAFT June 4, 2002 Annual savings with EE may range from $ 700 million - $ 1 billion Levelized Annual Production Cost (2005 –2022) Includes cost of implementing EE and avoided transmission distribution cost from EE use

29. 29 DRAFT June 4, 2002 Renewable energy and energy efficiency as integrated air and energy management strategy

30. 30 DRAFT June 4, 2002 10/20 goals and EE expected to save 1%-2% in NO x emissions

31. 31 DRAFT June 4, 2002 10/20 goals and EE expected to save 10% - 14% in CO 2 emissions

32. 32 DRAFT June 4, 2002 10/20 goals may lower compliance cost of meeting SO 2 Annex milestones Assumed SO 2 Annex milestones employed through a backstop regional trading program with all states & tribes participating in the trading program 10/20 goals could lower compliance cost of meeting SO 2 Annex milestones by approximately $ 10 million in 2018 (or 7% of the compliance cost of meeting the SO 2 Annex milestones without 10/20 goals) 1 1 Compliance cost of SO 2 Annex milestones without 10/20 goals based reported cost in “Economic Impacts of Implementing a Regional SO2 Trading Program in Grand Canyon Visibility Transport Region, Volume II” WRAP/MTF, 2000

33. 33 DRAFT June 4, 2002 10/20 and EE may reduce the need for investments in SO 2 controls Much of the scrubber installed in response to the regional SO 2 trading program 10/20 goals and EE will reduce the need for scrubber capacity by 1200 MW to 1700 MW by 2018

34. 34 DRAFT June 4, 2002 Growth in RE may provide hedge against some supply risks Levelized Annual Production Cost (2005 –2022) If gas prices increase by 50% and wind cost remain at current level (BAU), production cost will increase by $ 3 billion annually If wind cost decline over time promoted by 10/20 goals, the $3 billion annual impact of higher gas prices would be offset by $280 million annually

35. 35 DRAFT June 4, 2002 Growth in RE may provide hedge against some supply risks A 50% rise in gas prices would increase productions expenditures by 3 billion annually if cost of developing wind remains at current levels (as assumed under BAU) With declining wind cost achieved through the 10/20 goals, the $ 3 billion impact of the 50% increase in gas prices could be offset by $ 277 million (or 9%) annually

36. 36 DRAFT June 4, 2002 Next Steps

37. 37 DRAFT June 4, 2002 Regional economic impact modeling using REMI ® State/Tribal sector specific cost impacts from IPM ® modeling will serve as inputs to REMI –Current REMI model does not include Tribal areas as separate model regions and will be modeled through the states in which they are located In REMI, estimates of economic impacts derived through comparisons between a reference and policy scenario BAU will serve as the reference scenario Policy scenarios for REMI modeling –10/20 Goals –10/20 Goals and Energy Efficiency

38. 38 DRAFT June 4, 2002 Report Outline