Comparison With Earlier EIA RPS Analysis

In February, 2002, EIA released a report analyzing a proposed 10 percent RPS, in response to a December, 2001, request by Senator Frank Murkowski, then Ranking Minority Member of the Senate Committee on Energy and Natural Resources. That report is entitled, “Impacts of a 10-Percent Renewable Portfolio Standard” (SR/OIAF/2002-03). The assumptions in the two proposed bills are different and thus the projected impacts are somewhat different although the directions of results are generally the same.

In the 2002 analysis, the RPS target was similar, 2.5 percent in 2005, increasing to 10 percent by 2020. The earlier study’s lower exemption cutoff – exempting utilities with sales below 0.5 billion kilowatthours per year - combined with inclusion of new hydroelectric power, raised the effective requirement in 2020 to 9.5 percent of sales rather than the 8.8 percent target that results under the Bingaman request. The earlier analysis also included double credits for new renewable energy facilities built on Indian lands and inclusion of credits for customer-sited qualifying generators providing power to the grid. Also, rather than capping the credit price at 1.5 cents per kilowatthour (nominal), the earlier request set a real 3.0 cent per kilowatthour credit cap. In real terms, this compares a credit price cap of 3.0 cents per kilowatthour in 2020 with one that is slightly less than 1 cent. While the Bingaman request includes extension of the PTC, the earlier analysis assumed the PTC to end on December 31, 2003. The RPS had a sunset date of December 31, 2020 in the earlier request, much sooner than the 2030 sunset date in the Bingaman request. The earlier analysis was based on the assumptions used for the Annual Energy Outlook 2002 (AEO2002) rather than the Annual Energy Outlook 2003 used for the response to Senator Bingaman.

Overall, the results of the 2 analyses reflect the differences in RPS assumptions. In both cases, the sunset and civil penalty provisions have a significant impact on the amount of renewables stimulated. As the sunset date approaches, generators prefer paying penalties to building additional renewable energy capacity for which they would not get credits beyond the sunset date. As a result, in the earlier analysis, by 2020 utilities reach 8.4 percent of sales provided by qualified new renewables, 88 percent of the targeted 9.5 percent, a larger share than projected in the current analysis. In the analysis done for Senator Murkowski, wind, biomass, and to a much lesser extent, geothermal resources increase to meet the RPS. Geothermal resources are less responsive to the RPS program analyzed in this report since fewer renewables are needed to meet the target. Both analyses see reductions in natural gas generation and consequently lower natural gas prices. Cumulative resource costs to the industry from 2000 to 2020 are $7 billion ($2000) in the earlier analysis, compared with $3.6 billion ($2001) through 2025 in the Bingaman analysis. Similarly the total value of credits under the earlier proposed RPS reach approximately $12 billion ($2000), compared with $2.5 billion ($2001) under the recent work, reflecting the much higher cap on credit costs specified in the earlier proposal.