1. Understanding the 2001-2003 Boom in Natural Gas Capacity in the U.S. Electricity Sector Kelly A. Stevens PhD Candidate Public Administration and International Affairs Syracuse University: Maxwell School Visiting Student at Carnegie Mellon University: Engineering & Public Policy USAEE: Pittsburgh, PA October 27, 2015 1

2. Preview Changes in natural gas capacity 1996-2009 Role of policy & policy evolution Deregulation National Ambient Air Quality Standards (NAAQS) Two main models: probit (to build or not), fixed-effects (how much to build) Results: suspension of deregulation and anticipation of non- attainment matters 2

3. Motivation Year: 2009 Natural Gas Other Fuels 3

4. 4 Natural Gas Units

5. Previous Literature Natural gas capacity boom due to: changes in technology feasibility, fuel prices, energy demand, storage capacity, transportation infrastructure, energy & environmental policies (Joskow, 2006 & 2011; Kaplan, 2010; Levi, 2013; Rao, 2013) Characteristics of the firm & ownership (Rose & Joskow, 1990) Strong link between regulation and technology adoption & diffusion (Popp, 2010) Fuel switching capability post-restructuring (Knittel et al., 2015 NBER WP ) 5

6. Research Question What is the impact of deregulation and changes in the NAAQS on the natural gas capacity boom? Policy & policy evolution Energy demand & fuel supply 6

7. Deregulation 7 Planning: adoption of deregulation Implementation: electricity markets live Suspension: state legislation Electricity prices set by competition: Spot market Averch-Johnson effect

8. 8 1997 NAAQS Changes Ozone and PM more NAAQS more stringent Need for cleaner sources

9. Policy Evolution 9

10. Method 1 if built 0 if did not build 10

11. Results: Fixed Effects 11 FE I.II.III. TotalNewExpand ln_p-25.13***-19.53***-3.33 (6.3506)(5.0844)(2.4835) pop_chng0.129***0.116***0.0301*** (0.0321)(0.0253)(0.0081) ng_area11.92***4.532*8.119*** (2.6080)(2.1469)(1.1802) dereg_plan8.358.251-1.057 (4.7123)(4.2161)(1.3520) dereg_implemented-3.3361.957-3.931* (4.5872)(3.9908)(1.8334) dereg_suspended25.31**24.96**0.882 (9.1548)(8.1495)(2.5605) pre_ozone199725.06**19.96**2.382 (9.0154)(7.5991)(2.2414) pre_pm199724.3120.133.382 (14.2327)(11.6295)(3.3438) ozone_NAA4.8918.0321.142 (5.7298)(4.5810)(2.3705) pm_NAA6.7186.5691.427 (6.6145)(6.4205)(2.1227) t17.76***14.19***3.348*** (2.5911)(2.1740)(0.8297) t_sq-0.966***-0.782***-0.180*** (0.1333)(0.1144)(0.0425) Constant0.596-1.852-0.981 (15.2964)(14.3032)(5.6932) r2 0.05570.05170.0382 N14,385 Standard errors in parentheses * p<0.05, ** p<0.01, *** p<0.001 italics indicate p > 0.05 when CA removed

12. Results: Probit 12 Probit IV.V.VI. TotalNewExpand ln_p-0.271*-0.376**-0.114 (0.1227)(0.1406)(0.1751) pop_chng0.000975***0.00102***0.000560** (0.0001) (0.0002) ng_area0.613***0.294***1.182*** (0.0540)(0.0619)(0.1000) dereg_plan0.3070.415*0.0456 (0.1694)(0.2053)(0.2137) dereg_implemented-0.04050.0239-0.216 (0.1774)(0.2072)(0.2289) dereg_suspended0.717***0.777**0.322 (0.2161)(0.2634)(0.2888) pre_ozone19970.377***0.321**0.372** (0.0877)(0.0993)(0.1285) pre_pm19970.214*0.1310.222 (0.1061)(0.1215)(0.1406) ozone_NAA0.05240.120.029 (0.0862)(0.0888)(0.1383) pm_NAA0.1650.265**0.0206 (0.0858)(0.1000)(0.1177) t0.419***0.537***0.258*** (0.0459)(0.0585)(0.0619) t_sq-0.0257***-0.0333***-0.0155*** (0.0024)(0.0033)(0.0031) Constant-3.042***-3.329***-3.667*** (0.2352)(0.3065)(0.2918) r2 N14,02213,91013,469 Standard errors in parentheses * p<0.05, ** p<0.01, *** p<0.001 italics indicate p > 0.05 when CA removed dy/dx AllNewExpand ng_area0.0461***0.0148***0.0446*** dereg_plan0.02310.0209*0.0017 dereg_implemented-0.00300.0012-0.0082 dereg_suspended0.0539***0.0392**0.0121 pre_ozone19970.0283***0.0161**0.0140** pre_pm19970.0160*0.00660.0084 ozone_NAA0.00390.00610.0011 pm_NAA0.01240.0134**0.0008 * p<0.05, ** p<0.01, *** p<0.001

13. Conclusion Deregulation does not quantitatively explain the natural gas build-out Expectation of nonattainment small, but significant Policy evolution important Clean Power Plan: Increase utilization of this capacity Future investment in new capacity Further study: focus on the role of technology 13 Contact: Kelly A. Stevens kastev01@syr.edu

14. Extra Slides 14

15. Census-based electricity zones 15

16. 16 FEProbit Capacity Build dy/dx ln_p-25.13***-0.271* (6.3506)(0.1227) pop_chng0.129***0.000975*** (0.0321)(0.0001) ng_area11.92***0.613***0.0461*** (2.6080)(0.0540) dereg_suspended25.31**0.717***0.0539** (9.1548)(0.2161)(0.0162) dereg_plan8.350.3070.0231197 (4.7123)(0.1694)(0.0127) dereg_implemented-3.336-0.0405-0.0030474 (4.5872)(0.1774)(0.0134) pre_ozone199725.06**0.377***0.0283*** (9.0154)(0.0877)(0.0067) pre_pm199724.310.214*0.0160* (14.2327)(0.1061)(0.0080) ozone_NAA4.8910.05240.0039411 (5.7298)(0.0862)(0.0065) pm_NAA6.7180.1650.0124481 (6.6145)(0.0858)(0.0064) t17.76***0.419*** (2.5911)(0.0459) t_sq-0.966***-0.0257*** (0.1333)(0.0024) Constant0.596-3.042*** (15.2964) (0.2352) r2r2 0.0557 N14,385 14,022 Standard errors in parentheses * p<0.05, ** p<0.01, *** p<0.001 italics indicate p > 0.05 when CA removed

17. Census- Based Electricity Zones 17

18. 18 Year: 2009

19. Combined Cycle Gas Turbine Cleaner Traditional pollutants CO 2 Cheaper Quicker construction Peaking 19

20. Summary Statistics 20 VariableObsMeanStd. Dev.MinMax ln_ng_cap_change15,2100.0700.584-5.8977.795 ng_build15,2100.0400.19701 all capacity16,3807541,547019,702 ng_cap16,380240836012,649 ln_p16,3661.6710.4280.2633.302 pop_chng15,53644137-1561,477 ng_area16,3800.3800.48501 dereg_suspended16,3800.0810.27301 dereg_plan16,3800.0900.28701 dereg_implmented16,3800.2190.41301 pre_ozone199716,3800.0860.28001 pre_pm199716,3800.0440.20601 ozone_NAA16,3800.1280.33501 pm_NAA16,3800.0760.26501

21. Natural Gas Overview 21

22. Capacity Model Results FEProbit I.II.III.IV.V.VI. AllNewExpand AllNewExpand ln_p-25.13***-19.53***-3.33-0.271*-0.376**-0.114 (6.3506)(5.0844)(2.4835)(0.1227)(0.1406)(0.1751) pop_chng0.129***0.116***0.0301***0.000975***0.00102***0.000560** (0.0321)(0.0253)(0.0081)(0.0001) (0.0002) ng_area11.92***4.532*8.119***0.613***0.294***1.182*** (2.6080)(2.1469)(1.1802)(0.0540)(0.0619)(0.1000) dereg_suspended25.31**24.96**0.8820.717***0.777**0.322 (9.1548)(8.1495)(2.5605)(0.2161)(0.2634)(0.2888) dereg_plan8.358.251-1.0570.3070.415*0.0456 (4.7123)(4.2161)(1.3520)(0.1694)(0.2053)(0.2137) dereg_implemented-3.3361.957-3.931*-0.04050.0239-0.216 (4.5872)(3.9908)(1.8334)(0.1774)(0.2072)(0.2289) pre_ozone199725.06**19.96**2.3820.377***0.321**0.372** (9.0154)(7.5991)(2.2414)(0.0877)(0.0993)(0.1285) pre_pm199724.3120.133.3820.214*0.1310.222 (14.2327)(11.6295)(3.3438)(0.1061)(0.1215)(0.1406) ozone_NAA4.8918.0321.1420.05240.120.029 (5.7298)(4.5810)(2.3705)(0.0862)(0.0888)(0.1383) pm_NAA6.7186.5691.4270.1650.265**0.0206 (6.6145)(6.4205)(2.1227)(0.0858)(0.1000)(0.1177) T17.76***14.19***3.348***0.419***0.537***0.258*** (2.5911)(2.1740)(0.8297)(0.0459)(0.0585)(0.0619) t_sq-0.966***-0.782***-0.180***-0.0257***-0.0333***-0.0155*** (0.1333)(0.1144)(0.0425)(0.0024)(0.0033)(0.0031) Constant0.596-1.852-0.981-3.042***-3.329***-3.667*** (15.2964)(14.3032)(5.6932) (0.2352)(0.3065)(0.2918) r2 0.05570.05170.0382 N14,385 14,02213,91013,469 Standard errors in parentheses * p<0.05, ** p<0.01, *** p<0.001 italics indicate p > 0.05 when CA removed 22

23. Compare to Coal: Cleaner, Cheaper, Smaller Pollutant % NG CC: Coal, Steam NO 2 5.19% SO 2 0.85% CO 2 28.60% Emissions Comparison Plant CharacteristicsPlant Costs (2012$) Nominal Capacity (MW) Heat Rate (Btu/kW h) Overnight Capital Cost ($/kW) Fixed O&M Cost ($/kW- yr) Variable O&M Cost ($/MWh) Coal Single Unit Advanced PC6508,800 $3,246$37.80$4.47 Natural Gas Conventional CC6207,050 $917$13.17$3.60 Cost Comparison EIA 23

24. Combined cycle plants about 30% capacity More coal generation than natural gas, almost enough natural gas capacity to match coal generation 24

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28. CC ~30% Nuclear ~85% Coal – Steam ~ 60% Intermittent renewables ~20% 28