Renewable portfolio standards have shown net benefits running into the billions of dollars, according to a new study from the Lawrence Berekley National Laboratory (LBNL).
While the numbers are significant in themselves, they also illustrate what new policies that align the goals of renewable energy mandates and the Obama administration's Clean Power Plan could do.
“This work presents something of the magnitude of the benefits associated with avoided air pollution and avoided greenhouse gas emissions resulting from the renewable electricity used to meet the RPS targets in the year 2013,” said Galen Barbose, a research scientist with LBNL and one of the authors of the study.
The new study evaluates three net benefits of RPSs in dollar terms: Greenhouse gas reductions, air pollution reductions, and water use reductions. It also assesses three impacts considered "net transfers," and are therefore excluded in the cost-benefit calucation: wholesale electricity markets effects, natural gas use and job impacts.
Reductions in greenhouse gases and air pollution resulted in about $7.4 billion in net benefits in 2013, according to Barbose, significantly higher than the $1 billion in annual RPS costs to U.S. utilties estimated in a previous LBNL report.
“We were able to monetize only GHG reductions and air pollution reductions but we didn’t have a way to put a dollar value on water use reductions,” Barbose said. “The two benefits came to about $7.4 billion in 2013.”
One of the study’s purposes “is to inform lawmakers and policymakers reconsidering or refining or extending the nation’s RPSs about costs and benefits beyond the narrow confines of a rate case or an IRP [integrated resource planning] process.”
The study does not, however, compare renewables to other emission-cutting strategies “so it does not prove that renewables are the only or the best or the least-cost approach.”
Breaking down the benefits
Benefits from air pollution reduction were shown to be significantly larger than benefits from GHG reduction in the LBNL survey, Barbose pointed out.
“They were both large, $2.2 billion and $5.2 billion [respectively], but the air pollution reduction benefits were so much greater," he said.
That was somewhat surprising, Barbose continued, because GHG reduction benefits would be global whereas air pollution reduction benefits would be more local.
“There are big ranges for both numbers but benefits from reduced air pollution come from reduced mortality and human lives have the relatively higher value," he said.
In 2013, as the result of renewable energy generation tied to RPSs, greenhouse gas emissions were cut by 59 million metric tons, alongside major cuts in sulfur dioxide (77,400 metric tons), nitrogen oxides (43,900 metric tons), and particulate matter (4,800 tons). Water withdrawals were reduced by 830 billion gallons with water consumption cut by 27 billion gallons.
The $7.4 billion in net benefits came from 2013 numbers when renewable energy made up 2.4% of the U.S. electrical supply. But now, with renewables accounting for about 4.8% of the fuel mix, benefits would likely be significantly greater, Barbose added.
“The benefits would not necessarily have a direct linear relationship but the benefits might have, roughly speaking, doubled," he said.
Effects on both electricity markets and natural gas prices come from renewable generation displacing gas and coal plants, Barbose said.
“Once renewables capacity is built, it is cheap to run. In a wholesale electricity market, more low marginal cost generation like renewables reduces the market clearing prices,” Barbose said. “But for non-renewable generators, this is a cost. That is why these are impacts rather than benefits: they are really transfers from producers to consumers.”
Low electricity market prices benefit consumers, but harm generators, the LBNL analyst said. And when more reneawble generation comes online, it decreases the demand for natural gas, driving those prices lower as well.
“It is a wealth transfer with both winners and losers," Barbose said.
Utilities: Winners or losers in RPS states?
“The amount of renewable electricity used to meet RPS programs in 2013 reduced natural gas consumption by about 0.42 quads, which resulted in the reduction of natural gas prices of between $0.05/mmBTU and $0.14/mmBTU,” Barbose said.
Across all U.S. natural gas consuming sectors, including residential and industrial consumers as well as electricity generators, that price drop resulted in between $1.3 billion and $3.7 billion in consumer savings, he added.
With renewables now twice the amount of U.S. electricity generation than they were in 2013, “those numbers are probably significantly bigger, though it depends on what fossil generators are being displaced by the renewable generation,” Barbose said.
Utilities can be winners or losers, he pointed out, because utilities can be both buyers and sellers of electricity. “The real losers are the generation owners and in many markets that is not the same as utilities.”
Utilities in deregulated markets, as electricity buyers, would benefit from the wholesale electricity price effect and the reduced natural gas prices.
But deregulated utilities are often owned by holding companies that also have regulated utilities owning generation, Barbose noted. Those utilities earn less for their generation, which can significantly reduce revenues for the overall holding company.
The parent companies are therefore on both the winning and losing side of the equations, which means a deregulated arm of a regulated utility is something of a hedge play in RPS states.
Finally, Barbose pointed out, there are important regional implications to the natural gas impacts.
“Natural gas producers are not evenly distributed across the country," he said, "so the impact is very different in Texas than in Massachusetts.”
The study did not monetize its job impacts analysis because it only considered gross renewables jobs and excluded job losses in fossil fuel and other competing industries, Barbose said.
“The vast majority of renewables jobs are in construction, so job impacts will vary a lot from year to year because they depend on where, how much, and what type of new capacity is being built.”
The future of RPS policies
Renewable portfolio standards are evolving as a policy group, observed V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies (CEERT).
"It will continue to be a benchmark and an accounting mechanism to ensure there is a minimum amount of renewables in the portfolio," he said. But the LBNL work shows a diverse generation portfolio and greater greenhouse gas reductions will require “thinking more deeply than just checking the box on the RPS and buying whatever is cheapest to meet the mandate."
Renewables integration is no longer the central challenge, White said. Instead, “it is about running the system with renewables. If we can figure out how to mix and match them, we can run the grid on renewables and greatly minimize our reliance on natural gas.”
Smart renewables with advanced, system-supporting electronics can make wind and solar sources of reliability and flexibility, he added, “especially if they are matched with demand response and large scale storage and strategic use of natural gas generation that can be turned on and off quickly.”
Duke Energy Carolinas and Arizona Public Service are utilities responding to their states’ renewables mandate by building more utility-scale solar while continuing to pursue regulatory approval of new natural gas generation for reliability.
But in Colorado, White said, “wind is going head to head with cheap natural gas and winning. Xcel is choosing to build wind instead of gas and then using the wind to balance the load because they can turn it down and turn it back up.”
In the Midwest, the significant renewable potential in wind and distributed solar can be maximized through the geographically expansive Midcontinent Independent System Operator (MISO), White said. It is an opportunity California’s ISO is beginning to develop through expansion of the electricity imbalance market, a multi-state Western balancing authority.
“The question around the country is, ‘what will the vast amount of retiring coal generation be replaced with?’” he said. “The data we are seeing in terms of costs and benefits and values of renewables shows it is possible to have a serious conversation about buying renewables instead of natural gas to replace the coal.”
The Clean Power Plan is a “first step” because it begins to use renewables as the means, with the end being air pollution reductions and GHG reductions.
Wind and solar become tools in the toolbox, along with large-scale energy storage, demand response, and, in specific places, renewable bioenergy or geothermal energy, White said. “Eventually, there will be hybrid policies with something like the Clean Power Plan to drive greenhouse gas and pollution reductions combined with an RPS mechanism.”