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It's a Wash, Says RAND Mark Ohrenschall & Bill Rudolph Con.Web, September 26, 2002

Efficiency, Renewables Could Supplant Some Future Gas-Fired Power
with Minimal Economic Impact, Study Says

A future Northwest electricity system with substantially more renewable energy and energy efficiency could be accomplished with minimal economic consequences, a new study says.

"Generating Electric Power in the Pacific Northwest: Implications of Alternative Technologies"--a report by RAND Science & Technology for the Pew Charitable Trusts--reaches this conclusion after examining three future scenarios for the region's power system.

Those involve shifting 20 percent of future gas-fired generation to efficiency and/or renewables; replacing power from four breached lower Snake River dams with a combination of natural gas plants, efficiency and wind power; and substituting power furnished to direct-service industries with energy efficiency.

"What we found," said principal author Mark Bernstein, "is that you can shift a moderate amount away from future business-as-usual expectations and have no impacts on the economy." Regional gross product would vary 0.6 percent or less under all the studied scenarios.

The report lists other reasons to pursue a more diverse Northwest energy blend: " ... hedging price uncertainty is an important policy and business factor, and a combination of efficiency measures, wind power, and solar power provides a potential reduction in fuel-price uncertainty. Shifting away a portion of the potential natural-gas generation may also have environmental benefits," the report said.

Environmental advocates hailed the report's vision of a future of clean air, saved salmon and new jobs, while others offered more skeptical views, raising questions about the study's methodology and assumptions, such as future natural gas prices. A top BPA official called the report a "combination of amateurism and advocacy," and suggested RAND try again.

The $75,000 study did not look into whether or how incorporating more renewables and efficiency into the regional energy system could be accomplished.

Critical Energy Issues
"The Pacific Northwest faces some critical energy issues over the next 20 years," the report said. "There is significant uncertainty about energy supplies, energy prices, and the implications of competitive energy markets. Therefore, as energy demands continue to rise, it is important for the states in the region to understand the risks and opportunities of different energy supply and demand options."

Hydropower is the Northwest's primary power resource, furnishing 82 percent of installed capacity in 1999, the study said. But hydro has limited expansion potential, and is subject to "significant capacity uncertainties" because of varying precipitation.

Combined-cycle gas-fired power is anticipated to grow to 22 percent of regional energy capacity by 2010, but natural gas faces uncertainties in future price and supply, the report said.

"The electricity portfolio does not need to have an equal percentage of different alternatives, but reducing the 86 percent share of hydroelectric power and natural-gas-fired combined-cycle generation on the margin could help reduce risk and uncertainty," the study said. Renewables prices are relatively predictable if generally more expensive than gas-fired resources, and efficiency can help lessen future power demand, the study noted.

Three Options
The RAND report explores three separate options to increase diversity in the Northwest's electricity mix, and concludes that any of the three would change the gross regional product by 0.6 percent or less, positive or negative. These renewables/efficiency alternatives also could hedge against volatility in natural gas price and supply, and hydro production, while offering environmental advantages, the study said.

At the same time, green energy sources pose their own risks and limitations, such as intermittency (for wind and solar) and higher capital costs (especially for solar).

Following is a summary of the three options:

• Replace 20 percent of the projected growth in natural gas-fired combined-cycle generation with wind, more energy efficiency or a combination of wind, solar and efficiency.

  Through 2020 this would change the gross regional product 0.2 percent or less, positive or negative. The combination of wind/solar/efficiency would be at the lower end, followed by wind alone and a wind/efficiency combination. Net employment would vary by 20,000 jobs, one way or another (less than one-third of 1 percent of all regional jobs). And with renewables replacing natural gas, emissions of nitrogen oxides, sulfur dioxide and carbon dioxide would be reduced by more than the amount of total emissions of those gases from Northwest fossil-fuel-powered plants in 1998.

  Among the factors influencing the economic impacts are natural gas and electricity consumption and prices, fuel imports, equipment investments, business and consumer spending, and technology costs.

• Direct-service industries paying market rates for power, or saving energy in an amount equivalent to DSI loads.

  The market rate option "appears to have no impact on economic growth or employment," according to the study. But the efficiency alternative looks to be a net positive, generating as many as 55,000 new jobs by 2020 and boosting the economy by 0.6 percent.

• Replacing the 1,250 average megawatts produced in an average year by four lower Snake River dams with natural gas combined-cycle power, efficiency, or wind and efficiency.

  The gas alternative would not make any difference to the regional economy, the study found, and the efficiency option likewise would create minimal impacts through 2020. The wind/efficiency combination would be slightly more consequential, reducing gross regional product as much as 0.3 percent by about 2011, but improving slightly in subsequent years.

In assessing regional economic effects RAND used the REMI Policy Insight Model, and made various assumptions on future technology costs and development, natural gas prices (up to $6 per million cubic feet over the study period) and efficiency costs (from 1.5 cents per kilowatt-hour to 3 cents/KWh, with average measure life of 10 years).

Reactions
Reaction to the RAND study ranged from strong support to varying levels of skepticism.

Don Sampson, executive director of the Columbia River Inter-Tribal Fish Commission, said the report verifies CRITFC's own tribal energy vision that the future lies in diversity, conservation and renewables. Sampson said there are huge economic benefits to restoring tribal fisheries that weren't mentioned in the report. "Our belief is that the river's prosperity, from our perspective, has been siphoned off and shipped away for too long."

Nancy Hirsh, policy director for the Northwest Energy Coalition, said the RAND study "helps provide a marker for the Northwest Power Planning Council as it develops the fifth electricity demand forecast and sets a new vision for the region for the next 20 years, and for Bonneville [Power Administration] as it looks at allocating federal power in the next period of 2006."

Hirsh called the study "very conservative" in its cost estimates and assessments of potential for efficiencies and renewable energy. She thinks positive economic benefits, including job growth, could be even greater if the region displaced future gas generation by more than the 20 percent modeled in the study.

"We're going to need strong proactive policies to promote renewable energy as a resource" at both state and federal levels, said Hirsh, who was cited in the report acknowledgments for providing informal review and discussion.

The study's methodology, however, has raised some questions. "I had higher expectations for the level of review," said PNGC Power's Scott Corwin. The RAND study "has little or no input from experts on Northwest power issues."

Corwin also had questions about the theoretical macroeconomic impacts. "If dams are breached, a specific set of industries will take the brunt of the hit," he said. "The links between those industries and the rest of the economy must be investigated. Just look at what has happened to the rural economy with the 50 percent [BPA wholesale] rate hike."

"BPA agrees with RAND's primary conclusion that the Northwest should diversify its resource portfolio with energy conservation and renewables," said Lynn Baker of the power agency. "We're doing that now."

But Baker said environmental claims that the report provides a "clear road map" for salmon recovery are "greatly overblown." And, she said, BPA believes the RAND assumption that replacement power from renewable sources could be on-line two years after the four Snake dams are removed is "unrealistic," especially with the increasing difficulty in siting large-scale wind projects in the region.

Baker also noted difficulties in making assumptions about future resource supply. "Many natural gas plants proposed for the region when wholesale prices soared ... have since been cancelled or postponed," she said.

Later, BPA Power Business Line senior vice president Paul Norman called the report a "combination of amateurism and advocacy," and advised RAND to try again (the report was still on RAND's Web site as of Sept. 25). "We told them it was so poorly done that we urged them to pull it back until they could do a professional job," he said.

Northwest Power Planning Council spokesman John Harrison said the report doesn't deal with a fundamental issue--whether power prices will support a substantial switch to renewables. "If you can't make money, you aren't going to get a loan to build a plant," he said.

Future natural gas prices are an important factor, Harrison said, and they are likely to be much lower than modeled in the RAND study, which uses an economic model that estimates natural gas prices will more than double in 20 years, to $6 per million cubic feet.

Related Links:
RAND's report "Generating Electric Power in the Pacific Northwest: Implications of Alternative Technologies"