| The Western Governors'
Association North American Energy Summit this year featured
calls by New Mexico Gov. Bill Richardson and California Gov.
Arnold Schwarzenegger to boost our region's use of clean
energy technologies and energy efficiency.
Our leaders are right to be worried. By 2020,
population pressure in the Interior West is expected to drive
the demand for enough new electricity to power five new cities
the size of Denver. The question becomes not whether we will
meet this growing demand for power, but how we will do so.
Despite the governors' clarion calls, most of the proposals
on the table today would use coal and natural gas to meet
the bulk of this demand. However, such a “business-as-usual”
approach will add unnecessary risks, costs and liabilities
to the region's economic picture, and it will affect
electricity bills of the region's electricity customers.
As always, the cost impacts will fall most heavily on the
biggest users: businesses.
These pie charts show how the region would
generate electricity in 2020 under both the business-as-usual
and balanced plan scenarios. In addition to the different
resource distributions, the business-as-usual scenario is
represented by what is essentially a much bigger pie--energy
efficiency keeps power generation lower under the balanced
plan. "CHP" stands for "combined heat and power,"
where heat and electricity are generated simultaneously at
larger industrial facilities.
In some respects, a power grid based on fossil
fuels has served our region well until now by providing cheap,
reliable sources of electricity, although the environmental
and public health impacts have been high.
However, going forward, a mix relying primarily on coal and
natural gas will lose most of its advantages. Such an unbalanced
portfolio exposes the region's electricity buyers to
a growing number of risks and liabilities, almost all of them
economic in nature:
- Rising and unstable gas prices.
- Higher electricity costs from stricter air
quality and climate change regulations.
- Drought-induced hydroelectric shortages
that would require more reliance on costly natural gas.
- Adverse public health costs, including from
asthma and other respiratory disorders.
- Damage to landscapes, water and air resources
from energy extraction and production — leading to
economic decline as western quality of life loses some of
its allure.
Western Resource Advocates (WRA), a regional
conservation policy group based in Colorado, has produced
a new study, "A Balanced Energy Plan for the Interior
West," that provides the first comprehensive look at
what it would take to make a significant, regionwide energy
shift.
For the first time, some of the risks listed above —
long recognized by the power industry and by regional leaders
as generally of concern — have been quantified. WRA
framed its study in terms of three main questions:
What might a cleaner, more diversified system
for the Interior Western states of Montana, Wyoming, Colorado,
New Mexico, Arizona, Utah and Nevada look like?
What are the broader economic, risk-reduction and environmental
benefits of a more diversified system?
What are the reliability and transmission implications of
such a system?
Western Resource Advocates compared the business-as-usual
scenario with a more diversified, balanced plan that projects
20 percent of electricity as coming from renewables by 2020
and assumes the adoption of an aggressive but reasonable array
of efficiency measures.
The balanced scenario we created sought to do four things:
- Reduce and manage risk.
- Lower the cost of electricity generation.
- Reduce the environmental impact of power
generation.
- Ensure transmission and generation reliability.
Using the same PROSYM power-system model frequently
relied on by the electric power industry, we ran a side-by-side
cost and benefit analysis of the two scenarios. They were
each assessed for overall cost, risk management, transmission
implications, and environmental and public health impacts.
The report accounts for the costs of adapting to new technologies,
and even so, the Balanced Plan had significant advantages
for electricity consumers and for the region's business
community.
Given that operating from a diversified portfolio
is a common-sense approach to hedging risk, it's not
really a surprise that the Balanced Plan performed better
across the board than the business-as-usual scenario. Compared
to Business as Usual, by 2020, the Balanced Energy Plan would:
- Lower the costs of electricity production
by $2 billion per year.
- Stabilize electricity costs due to a decreased
reliance on new natural gas.
- Save the region $2.5 billion per year if
natural gas prices are higher than expected.
- Save the region $4.9 billion per year in
the event of stricter future environmental regulations,
particularly climate-change regulation.
- Reduce smog- and haze-forming pollutants
by 30 percent, and carbon emissions associated with global
warming by 40 percent. These decreases will lower risks
and costs and liabilities associated with increased health-care
expenses and liabilities, and quality of life issues that
can affect the ability to attract and retain a high-quality
workforce.
To develop its models and generate data, WRA
employed Synapse Energy Economics and the Tellus Institute.
Each is known for its high-quality consulting services in
energy, economics and the environment. In assessing the potential
for renewables and efficiency for the region, WRA relied on
two previous studies.
WRA's own Renewable Energy Atlas of the West, available
at www.energyatlas.org,
inventoried the availability of wind, solar, biomass, and
geothermal resources across the West on a state-by state basis,
after unrealistic, inaccessible, or environmentally unsuitable
sites were screened out. The Southwest Energy Efficiency Project's
report, The New Mother Lode: The Potential for More Efficient
Electricity Use in the Southwest, provided a detailed analysis
of opportunities for efficiency.
In modeling the risk of future gas prices, WRA
used conservative estimates that are lower than some of the
prices we are seeing today. Our estimates of costs associated
with future carbon regulations fall in the middle range of
recent studies projecting those costs and are in line with
those beginning to be reflected in utility planning processes
across the region. For example, PacifiCorp, one of the region's
leading utilities, now adds $8 per ton to its assessment of
the cost of coal when it plans for new energy supplies.
This graph shows the reduction in key pollutants
under the Balanced Plan, relative to both the business-as-usual
2020 scenario and today's levels. Note that carbon, the primary
contributor to global warming, would drop by about 40 % relative
to business-as-usual.
While the study focused on the impacts of a
balanced plan on the Interior West, we also used data from
existing sources to model transmission and demand in relation
to the Pacific Northwest and California. This reflects the
interconnected nature of the Western power grid, as well as
the fact that much of the electricity produced in this region
is exported, particularly to California.
The report highlights a number of positive steps
already taken in the region, in both the private and public
sectors. For example, IBM purchases energy from renewable
resources to help stabilize its electricity costs. As mentioned
above, PacifiCorp, a large regional utility, has begun to
recognize the economic risk of future environmental regulation
in its planning process. Alcoa has invested in energy efficiency
to reduce its operating costs, and PPM Energy has turned to
renewables development as a business strategy.
In addition to the statements by Govs. Richardson
and Schwarzenegger, other encouraging public initiatives include
the Renewable Energy Portfolios adopted by several states,
including Arizona, New Mexico, and Nevada, and the similar
ballot initiative that is expected to go before Colorado voters
this fall. These standards ensure that a significant percentage
of the new electricity consumed in these states will be generated
from renewable resources.
The Balanced Energy Plan will help maintain
the region's high quality of life and help secure a
stable, healthy economy. But whether the Interior West achieves
a balanced energy future depends on thousands of decisions
made by utilities, independent power producers, businesses,
utility customers, state regulators, legislators and many
others.
Western Resource Advocates hopes this report will help inform
these decisions by making clear their associated risks, costs
and environmental impacts, and that it will foster a regional
dialogue on the stakes involved in our energy future.
These decisions are more likely to coalesce and move us toward
a secure energy future if there are opportunities for regional
discussions about our energy choices. Because the region's
large businesses face the greatest risk exposure under the
business-as-usual scenario, we think they have the most to
gain by studying and advocating for a more balanced plan.
A Balanced Energy Plan for the Interior West is available
online at www.westernresourceadvocates/energy/bep.html
Claudia Putnam is communications
director for Western Resource Advocates, a solution-oriented
conservation law and policy group headquartered in Colorado.
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