Hats off to this carbon cap plan
If global warming is driving generating capacity additions, and energy politics is driving global warming legislation, then it's nice to know that one of the proposals in Congress for carbon management is realistic, according to Peltier. The proposal, by Sen. Jeff Bingaman (D.-N.M.), calls for a framework based on tons of CO2 per dollar increment of GDP. This approach, Peltier says, distributes costs for mitigating global warming across the entire economy. The bill, which is now in draft form, estimates that GHG emissions could be cut 14% by 2030. It also includes a "safety valve" to maintain the ability to buy carbon allowances at a fixed price. Essentially, this plan fixes the price of carbon at $7/ton of CO2, which would keep coal a competitive plant-fueling option.
Another factor in this debate, suggested by the panel, is more subtle. State industry oversight regimes have largely returned to a regulated or contractual rate of return model for capacity additions. In such environments, independents likely won't build baseload capacity without a long-term power-purchase agreement, and utilities won't build unless they're assured of capital cost recovery. As an industry executive, it's much easier to accept the additional costs—whether for excess wind capacity to compensate for a wind farm's intermittent output, for sequestering CO2 from traditional or IGCC plants, for environmental retrofits, or to build nuclear reactors—if there is a measure of certainty in cost recovery before groundbreaking.
Turner made this point clear with an example. In his company's five-state territory, customers enjoy low rates relative to the national average. Ohio is the exception, where a rate stabilization plan remains in effect through 2008, and where Turner says "no one is building, no one is talking about baseload capacity," until cost recovery is decided. Turner emphasized that Ohio is now about 1,500 MW short of the capacity needed for an adequate reserve margin. Gorney noted that, despite Illinois consumers' outcry over the high bid prices in last fall's rate freeze–ending reverse capacity auction, we "can't make any money at $60/MWh." All of Midwest Gen's capacity is contracted.
Of course, nothing is ever certain, except perhaps that someone will have to pay the piper. Ultimately, that someone is the ratepayer. Saggau noted that "consumers will demand cheap power and green power—they will not choose." That may be true in Great River's service territory. If that's the case for the rest of the country, then it looks like we'll have to be careful how we define "cheap" or "green."
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