Basic assumptions are in italics:

• “The WM Draft would drive the clean energy transformation of the US economy.”
  • There is very little dispute among proponents or opponents that this bill, if enacted in its entirety, would dramatically alter and transform the total (not just clean) US energy industry and have a major international impact.
  • This point is reinforced by the comments recently made by Jim Rogers (Duke Energy Chairman, President & CEO) at a Renewable Energy Conference in Raleigh, NC where he indicated that he had recently extended his tenure for another 5 years as he expected more to happen in these upcoming years than in all the previous decades of his professional career.
• Energy efficiency gains and reduced demand will lower consumption levels so that by 2050, the US will be at energy consumption levels currently expected to be attained in 2015.
  • The EPA also assumes that the “cost” of the WM Draft to households over the next 40 years will be modest as the bulk of the allowance value will be returned to households.  In addition, the EPA estimates that there will be almost no change in the growth rate of household demand for electricity with or without the WM Draft.
  • While there has been much discussion on the use of auction proceeds (including the % of allowances that will initially be auctioned) and how they can offset the WM Draft bill’s increased compliance costs to the end customer, there has been very little discussion on how to change the end user’s energy consumption behavior.  It follows that if there is no cost impact to the end consumer, then there is no reason to believe that they will reduce their usage.
  • A simple example that comes to mind was during the California energy crisis when end customers had no cost incentive to reduce their electricity demand (turn down their air conditioners) as the utilities were assuming all of the price risk.  As a result, utilities paid exceptionally high prices for power and/or had to shed massive demand through deenergization of parts of the grid (black/brownout).
• GHG allowance prices are assumed to range from $13-$17 in 2015 and increase by 5% per year.  Offsets (domestic and international) are critical to maintaining manageable carbon prices and without international opportunities, allowance prices would double.
  • There are any number of estimates on the initial prices for carbon, and the EPA range is well within these ranges.  However, what is interesting is that the US must rely on international carbon offset programs in order to keep carbon prices from doubling.
  • The EPA also estimates that with carbon prices so low and new coal technology so high, retirements of coal generation will be modest.  The bottom line is that coal is here to stay, even under the WM Draft.  Carbon Capture & Sequestration (CCS) technology for coal plants is expected to be implemented before 2020.
  • Industry estimates that clean coal technologies and carbon sequestration are still years away from being cost competitive.
• Emission reductions from the electricity sector will come from reduced electricity demand and the movement to low or zero emitting electricity generation including nuclear, renewables and coal with CCS.
  • The EPA is not specific on how a reduction in demand or increased efficiency will be achieved, but the chart above clearly shows that the amount of reduced demand being approximately equal to the total amount of nuclear generation.  This means that there will need to be demand destruction (as referenced to total US consumption) equal to almost 20% between 2015 and 2020.
  • The chart also illustrates that energy from renewables and nuclear will increase, while natural gas and coal will decrease.  While the figures are not provided, it appears that the rate of increase in nuclear generation will be at least if not greater than the increases in energy reduction.
  • In the table below, the EPA estimates the source of electricity generation capacity additions through 2025 with or without the passing of the WM Draft bill.  The most significant capacity increase is a doubling of nuclear (over the base line: w/o WM) with only a 16% increase in renewables.  The most significant absolute change is in reduced demand, which from a capacity perspective dwarfs all other sources.

  • • • Cumulative New Capacity (GW)
        Source	2025 w/o WM	2025 w/ WM
        Coal	17	0
        Adv Coal w/ CCS	0	7
        Natural Gas	79	46
        Nuclear	6	13
        Renewables	31	36
        Reduced Demand		-31
        Total	133	102

  • To fully comprehend the second and third bullet above, it is important to understand the term capacity factor.  Capacity factor is the amount of electricity generated over a set period divided by the amount of electricity that could have been generated if the plant ran at 100% capacity for all hours during that period.  The DOE’s Energy Information Administration (EIA) reports that in 2007 (last year for Annual Report), all renewables achieved an aggregate capacity factor of 40%.  This includes wind (23.8%), solar (13.9%), wood and wood derived (66.4%… and likely not 100% included within “new” definitions of renewable), geothermal (75.5%) and other biomass (40%). Nuclear achieved a capacity factor of 92% with coal at 74% and natural gas/combined cycle at 42%.
  • Interpreting the table with this understanding means that a 7 GW increase in nuclear capacity provides almost 2.5 times more energy than a comparable increase in renewables.  Even with the estimated 5 GW increase in renewables (from the base “w/o WM Draft”), new nuclear will still provide 320% more energy than from new renewables. If most of the new renewables come from wind and solar then new nuclear could account for more than 500% of reduced emission generation.