Uncertainties

As with any long-term projections there are considerable uncertainties in these results. Among the key uncertainties are projections of the growth in the demand for electricity, future fuel prices, and the cost and performance of new generating equipment – renewable and nonrenewable. In addition, the design of the RPS program analyzed could provide some incentives that are counter-productive to the goal of increasing renewable generation. In the 1990s, the demand for electricity grew 2.3 percent per year. However, because of efficiency improvements in new appliances and equipment and the reduced energy intensity of the US economy, the demand for electricity is projected to grow 1.8 percent per year between 2000 and 2025 in the Reference case. If the historical growth rate were to continue, the need for new capacity – both renewable and nonrenewable – would be larger and it could be more difficult to comply with the RPS.

Since natural gas plants are expected to account for much of the new capacity added over the next 20 years, future natural gas prices are important in determining the credit price needed to make new renewable plants competitive with other generation options. If natural gas prices turn out to be lower than are projected in this report, the renewable credit needed to make renewables competitive would be larger. Conversely, it would be lower if natural gas prices turn out to be higher than expected.

Projections of the future cost and performance of new generating equipment are always difficult, particularly for technologies that currently have little or no market experience. Non-hydroelectric renewable technologies currently produce about 2 percent of the power generated in the United States. Spurring the market penetration of these technologies with an RPS might allow developers – through mass production techniques and learning by doing – to make reductions in their costs and improve their performance. These types of improvements are assumed to occur and are incorporated in the NEMS. However, it could turn out that the current relatively low market shares for these technologies are due to high costs that cannot be easily reduced. In addition, even if renewable technology developers are successful in improving the cost and performance of their technologies their ability to penetrate the market will depend on what happens to the costs and performance of nonrenewable technologies. If renewable and nonrenewable technologies improve by similar amounts, the relative advantage that nonrenewable technologies have today would likely remain.

For both wind and biomass the level of development called for in the RPS comes with some uncertainty. The RPS case shows wind capacity increasing from approximately 4.3 gigawatts in 2001 to 41 gigawatts in 2020 – about a 900 percent increase. While data suggest that sufficient wind resources exist to support this level of development, it is difficult to predict how the costs of development might change as developers move from the best sites to those that are less economically attractive. In some cases, developers may have to forego building on economically attractive sites because of public resistance. Elsewhere, developers or grid operators may have to pay to build or upgrade long transmission lines from the remote areas with ample wind resources to the cities with significant demand. In this analysis, costs are assumed to increase as developers turn to more costly sites such as those with higher interconnection costs, higher land costs, or more difficult terrain. However, there is significant uncertainty about the actual cost increases that might occur.

Wind power development may also be constrained by its intermittent nature which leads to the need for backup capacity to ensure that consumers’ needs for electricity can be met at all times. In this analysis, wind and other intermittent resources (primarily solar) are limited to accounting for 20 percent of a region's total generation. As this limit is approached, the ability of wind capacity to contribute to regional reliability requirements, already low compared with most other generation resources, gets progressively smaller, requiring additional backup capacity and other mitigating technologies (energy storage, improved grid monitoring and control, and improved power conversion on the wind turbine). At these high penetration levels, significant wind generation, especially in off-peak hours, may have to be curtailed to avoid the expensive shut-down and restart cycling of coal or nuclear plants. Because such penetration levels have not been achieved on power systems of comparable size and function as modeled by EIA¹¹, the magnitude of these effects is still somewhat uncertain.

As with wind, data suggest that there are sufficient biomass resources to fuel the increased biomass generation projected in the RPS case. However, currently there are very few coal plants that cofire with biomass. To achieve the level of biomass cofiring called for in the RPS case, the infrastructure to reliably gather, process and deliver the available biomass to coal plants would have to be developed. This analysis includes estimates of the costs of building this infrastructure, but given the low level of biomass cofiring occurring today, these costs are highly uncertain. In addition, if power sector carbon emissions reductions were required, the potential for cofiring in coal plants would be much lower because coal generation would likely be much lower. Substituting additional wind or dedicated biomass technology for the biomass cofiring would either result in higher costs or more payments to the government to ensure compliance with the cap.

Notes and Sources