Research Firm: Federal Clean Energy Standard Unlikely in Near Future
Passage of the a federal Clean Energy Standard (CES) or Renewable Energy Standard (RES) in the near future is highly unlikely given the current political climate and upcoming election cycle, an analysis from research consulting firm Wood Mackenzie shows.
The Clean Energy Standard Act of 2012 (CESA 2012) proposed on March 1, for example, seems unlikely to pass, but its proposal “underscores the continuous policymaking efforts to impose renewable-promoting or carbon-reducing measures on the power sector,” the analysis says. The proposal by Sen. Jeff Bingaman (D-N.M.) could require some utilities across the nation to ensure that at least 24% of all power sold in 2015 could be defined as “clean energy.” Under the bill, by 2020, that percentage would grow to 39%; by 2025, to 54%; and by 2035, to 84%.
“The latest proposal follows numerous previous attempts by Congress, including Senator Bingaman, to pass a national renewable or clean energy standard, all of which met the same fate,” explains Brett Blankenship, senior analyst for North American Power Research at Wood Mackenzie. “The difficult political climate that has beset Washington suggests that passage of the latest incarnation remains highly unlikely, particularly in a key presidential election year in which energy policy could well prove to be an important issue.”
Proposing a sweeping national standard applicable to an estimated 82% to 89% share of the power sector could be seen as wasted political energy as the potential expiration of the federal wind production tax credit (PTC) looms at the end of 2012, according to Wood Mackenzie. “If promotion of renewables is desired, political capital is better spent on extending the PTC, which will have a more immediate and tangible impact on renewable energy development. Renewable project developers have already been anticipating a slowdown in response to the potential PTC expiration,” notes Blankenship.
Wood Mackenzie’s analysis shows that a RES or CES entails unique challenges, especially with a CES’s inclusion of other zero- or low-carbon generating sources such as nuclear and natural gas, changing regional compliance prospects with the wide variation in regional power generation profiles.
“Similar to cap-and-trade emission reduction programs, federal RES/CES are touted as an efficient economic means to promoting clean energy as they should ideally allocate capital in the most efficient technologies and locations,” the firm says. “However, this can result in regional wealth transfer as regions with sparse renewable resources must ultimately subsidize generation and transmission infrastructure development in regions rich in such resources.”
Nearly 60% of all current generation is located in states east of the Mississippi River, while 75% of non-hydro renewables are located to the west. A relative lack of renewable generating potential in regions such as the Southeast makes a federal renewable standard challenging politically, Blankenship added.
Wood Mackenzie’s analysis also suggests that near- and mid-term compliance with the proposed CESA 2012 is possible given other fundamental and regulatory drivers. However, the escalating clean energy requirements soon outpace current expectations for clean generation additions. Beyond 2024 the previously accumulated bank of credits would have been exhausted, pushing annual balances under the proposed targets. Wood Mackenzie estimates that the alternative compliance payment (ACP) cost for the 2024-2033 period under CESA 2012 could exceed $450 billion.
The combination of declining natural gas prices, environmental policy initiatives, and renewable energy policy and incentives indicates that future generating capacity additions will primarily be qualifying clean gas-fired and renewable generators. Still, compliance with CESA 2012 remains a challenge in the long term.
“Compliance ultimately hinges upon removing significant levels of coal generation from the supply mix as it is still relied on for a sizable amount of energy but provides zero clean credits. Despite generating approximately 45 percent of current energy needs, coal simply cannot exceed 16 percent of the portfolio by 2035,” concludes Blankenship. “The resource mix would need to transition resiliently to carbon-free sources like renewables and nuclear, which are characterized by high fixed capital costs and low variable costs. The efficiency of the deregulated electricity markets in facilitating such a scenario remains in question, particularly as the clean credit pricing necessary to help finance these projects would be capped by a possibly less than sufficient alternative compliance payment.”
Sources: Wood Mackenzie, POWERnews