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An economic model of the electricity and natural gas industry in California estimates that generators will switch from coal to natural gas when the price of carbon reaches $60 a ton. However, renewable power supplies would not start replacing natural gas-fired power plants until greenhouse gas emission prices hit $90/ton, an Energy and Environmental Economics consultant said May 6 during a joint energy agency workshop. The analysis, presented by E3 partner Snuller Price, found that a carbon cap-and-trade market’s only impact would be to raise the price of greenhouse gas emissions. E3, hired by the California Air Resources Board, is using only publicly available energy supply and demand data from 2008-2020 to model possible cost impacts of various strategies for the energy sector to meet its share of greenhouse gas reductions under AB 32. Price concluded that integrating the cost of carbon emissions from power production and pricing it at $120/ton would push the level of renewables to one-third of the state’s energy supply, regardless of the Renewables Portfolio Standard mandate. However, this model assumes static natural gas prices, with the default priced at $7.85/MMbtu. Also, only current technology cost assumptions, such as today’s price of solar power, are plugged in. Emerging technologies are not incorporated into the model, nor are utility scale renewable projects. The model looks at how the price of carbon will affect the underlying fuel used to create electricity, but it does not seek to determine the price of carbon dioxide. That is because it looks only at the electricity and natural gas sector while state regulators are mulling over creating a multi-sector cap-and-trade market. The price of carbon in the European Union trading market is about $30/ton. It is far lower on the Chicago Climate Exchange, at about $5.25/ton. In the power sector, the E3 model looks at two scenarios for energy supply and demand from 2008-2020. One is the business as usual case, which using California Energy Commission data assumes by 2020: 16,450 (n)GWh of energy efficiency savings, 847 MW of rooftop solar, 292 MW of combined heat and power plants, and a 20 percent RPS, which equals 6,733 MW. The other scenario assumes: double the level of energy savings from efficiency under AB 2021, 3,000 MW of rooftop solar under the state’s Million Solar Roofs, about 4,300 MW of combined heat and power, and 33 percent renewables, or 12,544 MW. This case also factors in the costs of needed transmission upgrades and expansions to meet the 33 percent renewable target. Both scenarios anticipate five percent curbs in peak demand. The model shows that energy efficiency is the most cost effective strategy, at least at the outset. In the business as usual case, efficiency measures save $98 on energy costs per ton of greenhouse gases reduced. In the aggressive case, though, the model shows that efficiency measures produce diminishing returns. In fact, rather than saving money, they wind up costing $63 per ton of carbon reduced to achieve (n)36,559 GWh. “The rate impact is bad news in the aggressive case,” Price warned. The business as usual case is estimated to drive up utility rates by 13 percent and the more aggressive efficiency and renewables goals to push up rates 28 percent by 2020. The former case estimates that total customer and utility cost will be $48.8 billion a year, and the more aggressive case $52.8 billion/year by 2020. (The figures are in 2008 dollars.) Annual emission reductions by 2020 are estimated at 8.2 million metric tons of CO2 in the business as usual case, compared to 18.4 MMtCO2e. On the customer side, the projected costs include small scale solar installations. The model is being finalized this week and will be incorporated in the California Public Utilities Commission and CEC joint docket on recommendations for achieving carbon cuts in the energy sector open for comments until May 22, said Amber Mahon, E3 consultant.

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