Energy and Capacity Market Effects of Carbon Policies in - - PowerPoint PPT Presentation

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Energy and Capacity Market Effects of Carbon Policies in - - PowerPoint PPT Presentation

Mar 26, 2023 235 likes •556 views

Energy and Capacity Market Effects of Carbon Policies in Restructured Markets Jared Moore and Jay Apt (adviser) CMU Engineering and Public Policy Carnegie Mellon Electricity Industry Center USAEE/IAEE New York June 2014 EPA to use CAA 111(d)

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Energy and Capacity Market Effects of Carbon Policies in Restructured Markets

Jared Moore and Jay Apt (adviser) CMU Engineering and Public Policy Carnegie Mellon Electricity Industry Center

USAEE/IAEE New York June 2014

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EPA to use CAA 111(d) to regulate existing power plants :

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  • EPA proposed how much each state must cut

based on feasibility

  • EPA to approve SIPS which are flexible
  • Research Question:

How will consumers in restructured markets be affected?

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Use CAA 111(d) cost-effectively for consumers:

  • White House to EPA: “…Ensure that the standards are

developed … with the continued provision of reliable and affordable electric power for consumers and businesses”

  • Former EPA Administrator Lisa Jackson: We will

“…implement the most cost-effective measures that do not burden small businesses and nonprofit

  • rganizations”.
  • EPA estimates ~$8B cost and consumers savings of 9%

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Carbon Price Wealth Transfer Payments

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$25/t CO2 Tax

Carbon Price Wealth Transfer Payments

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Economic Dispatch with Renewable Portfolio Standard

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Renewables Shift Supply Curve to the right

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Economic Dispatch with Renewable Portfolio Standard

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Decreased Market Clearing Prices

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Decreased Market Clearing Prices Cost of renewables to LSE’s including variability and transmission

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Economic Dispatch with Renewable Portfolio Standard

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Assumptions for dispatch models:

  • No new builds or retirements of capacity (ELCC)
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Capacity additions in U.S.

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Assumptions:

  • No new builds or retirements of power plants

(with the exception of renewables)

  • Model one year of hourly economic dispatch for

existing generators in PJM, ERCOT, and MISO

  • Vary price of gas from $4 to $7/MMBTU
  • No transmission constraints
  • No price elasticity of demand
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Results in PJM (no capacity reaction)

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$4 Gas $7 Gas Cost Effectiveness of Carbon Price

Marginal Abatement Costs of Carbon Policies: PJM (Economist’s Perspective: Wealth Transfers Neutral)

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$4 Gas $7 Gas Cost Effectiveness of RPS (wind at $100/MWh) Cost Effectiveness of Carbon Price

Marginal Abatement Costs of Carbon Policies: PJM (Economist’s Perspective: Wealth Transfers Neutral)

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$4 Gas $7 Gas Cost Effectiveness of RPS (wind at $100/MWh) Cost Effectiveness of Carbon Price

Marginal Abatement Costs of Carbon Policies: PJM (Consumer Perspective)

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Results in ERCOT

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Cost Effectiveness of RPS (wind at $100/MWh) $4 Gas $7 Gas Cost Effectiveness

  • f Carbon Price

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Capacity Market Reaction

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Capacity bids are the difference between fixed costs and profits earned in energy markets

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New NGCC plant Existing Sub-Critical Coal Plant in PJM (class average) PJM RTO market clearing price range (2007-2016)

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New NGCC plant Existing Sub-Critical Coal Plant in PJM (class average) PJM RTO market clearing price range (2007-2016)

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New NGCC plant Existing Sub-Critical Coal Plant in PJM (class average) PJM RTO market clearing price range (2007-2016)

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Conclusions

  • Rational consumer in restructured market

may prefer RPS over a carbon price if:

– Gas is expensive – And capacity supply remains long – And nuclear generators continue to operate – And it is fair/legal for fossil producers to pay for mitigation

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Thank You

This work was supported by grants from the Doris Duke Charitable Foundation, the R.K. Mellon Foundation, and the Heinz Endowments to the RenewElec program at Carnegie Mellon University, and the U.S. National Science Foundation under Award no. SES-0949710 to the Climate and Energy Decision Making Center.

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PJM $4 Gas

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PJM $4 Gas $7 Gas

New NGCC induced New Wind induced ($85/MWh)

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ERCOT PJM MISO $4 Gas $7 Gas

Carbon Mitigation Due to Fuel Switching

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Cost Effectiveness of RPS (wind at $100/MWh) $4 Gas $7 Gas Cost Effectiveness

  • f Carbon Price
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$4 Gas $7 Gas Cost Effectiveness of RPS (consumer perspective, wind at $100/MWh) Cost Effectiveness of Carbon Price (consumer perspective) Cost Effectiveness of Carbon Price (wealth transfers neutral)

Marginal Abatement Costs of Carbon Policies: PJM

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Capacity Market Bids in PJM (2014/2015)

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Market Clearing Price (2014/2015)

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Classification of Costs in Restructured Markets

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