A recent study by the consultant group Wood Mackenzie finds that a federal renewable portfolio standard requiring utilities to obtain 15 percent of their energy from renewables would slow the rate of carbon dioxide emissions. But would a federal RPS provide substantial enough gains to mitigate the high costs of implementation? During today's OnPoint, William Durbin, head of Global Gas and Power Research for Wood Mackenzie, discusses the study and talks about the federal RPS debate that is currently taking place on Capitol Hill. Durbin considers RPS proposals for 15 and 20 percent and discusses which would be most feasible. He also addresses industry concerns regarding a federal RPS.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is William Durbin, head of Global Gas and Power Research for Wood Mackenzie. Bill, thanks for coming on the show.
William Durbin: Thank you for having me here.
Monica Trauzzi: Bill, Wood Mackenzie recently published a study that talks about the impacts of implementing a federal renewable portfolio standard and you're in D.C. talking to lawmakers and staff members at DOE and the White House about federal RPSs. What are you telling them? Are you giving them a thumbs up or thumbs down on a federal RSP?
William Durbin: You know, we weren't going around telling people whether it was good or bad, but what we do at Wood Mackenzie is objective analysis in the gas and power sector. And one of the key issues driving the future of gas and power investments is environmental issues and what is going to happen with renewables, renewable portfolio standard, CO2 legislation. And so as the renewable portfolio standard issue gained a lot of traction in the last several years, particularly among the 23, 24 states that have already adopted it, it was pretty clear the federal government was moving in that direction as well. So we wanted to take a look at it and measure the impact of a 15 percent standard. And what we found was some very important information. The first one is natural gas prices actually come down, which is a bit of a surprise I think for some people. But it comes down because all of the renewable capacity that comes online reduces the need for gas-fired power plants, so that was a real positive. One of the other issues though was that we had to spend $134 billion to get that capacity online. But on the long run, you're saving on gas because there's no cost to the wind. So we ended up saving roughly $90 to $100 billion in fuel costs.
Monica Trauzzi: The study shows that a federal RPS would slow the rate of CO2 emissions growth in the power sector over 20 years.
William Durbin: That's correct.
Monica Trauzzi: But an RPS wouldn't significantly lower greenhouse gas emissions. So does it make sense to put so much focus on something that's not going to have a significant impact on emissions?
William Durbin: It is actually. I mean when we looked at the renewable portfolio standard we saw an overall decline in CO2 emissions of about 10 percent in 2020. That's an important number. That shows that renewables can deliver in helping to bring down CO2 emissions. But what it also showed is renewables is not the only answer, that we're going to need a portfolio approach and that's another key piece of information that comes out of this study. There is no one solution. Gas isn't going to do it. Renewables isn't going to do it. It's going to take a whole slate of options to bring down CO2 emissions.
Monica Trauzzi: And the report does say that an RPS should be part of a large and complicated puzzle.
William Durbin: Yes.
Monica Trauzzi: So talk about what some of those other things in the puzzle are.
William Durbin: Well, some of those things in the puzzle are the other types of capacity that we need to be looking at. Wind is great. Renewables are great, but we also are going to need some very large scale zero emission power plants. And what are large scale zero emission power plants? You're talking nuclear. You have to bring nuclear into the debate. You have to look at clean coal technology. Well, how do you get a zero emission clean coal plant? Well, you have to build a coal plant that has carbon capture and sequestration associated with it. Those are two very complicated technologies that are not quite ready, off-the-shelf, to deliver tomorrow on CO2 reductions. So it's going to take some time, and that's what we're finding also as we continue to do more research into this space. The timeframes that we're looking at here to try and meet 1990 levels by 2020, very aggressive. Technology's not there. And if the technology's not there that means we're going to have to find an alternative. We'll build the renewables, but what else can bring down that CO2? Energy efficiency, but that's a little longer play as well. It'll be natural gas. So all the benefits that we're seeing in an RPS standard, where I just mentioned the reduction in gas demand, reduction in gas prices associated with it, which also says reduction in power prices are offset by the fact that gas is the only fuel that can step up tomorrow and start putting out lower emissions than a coal plant. But that means a lot more gas demand is going to be consumed, not less.
Monica Trauzzi: Rick Boucher, the chairman of the House Energy and Air Quality Subcommittee has been quoted as saying, "If we're going to do climate change, I really don't see a reason to also do an RPS. An RPS is really a proxy for other means to controlling greenhouse gases. If you're going to do it directly, I don't see a need to do an RPS." If lawmakers are able to put together a piece of emissions legislation is there a need for an RPS?
William Durbin: Well, what's interesting here is what I was just talking about. We need a lot more time to develop the carbon capture and sequestration technologies. We need more time for the coal and nuclear power plants to really start to come online. That's a seven to ten year window before we start to see that capacity, online. So what can we do in the short run? Well, an RPS standard will actually help us to begin the process of bringing down CO2 emissions so it can be viewed upon as a first step, a relatively easy first step. There's a lot of wind projects being proposed, roughly 100,000 megawatts of wind is being proposed today. That's a significant amount. If we can get some of that capacity built we can start moving towards mitigating some of those CO2 increases. Not the one answer, but it will help. And when you look at other options as well, geothermal, solar, etc., those too will help contribute. So it's not a one for one issue. One doesn't replace the other. They require all in order to try and meet those goals.
Monica Trauzzi: So what's your take on Senate Energy Committee Chairman Bingaman's proposal of an RPS of 15 percent by 2020? Is it adequate or could the federal government be doing more than that?
William Durbin: Well, I think we don't look at it and try to make a determination as to whether or not it's adequate or not. What we want to look at is does it have a positive benefit? Does the RPS, in its own right, have a positive benefit or negative benefit? What is the overall issue associated with an RPS? And that's where we see you get a 10 percent reduction in CO2. You do get the reduction in gas demand, reduction in prices, reduction in electricity prices. So is it adequate? You know what, it's a piece of the puzzle.
Monica Trauzzi: Could we do 20 percent without running into problems?
William Durbin: Twenty percent would be pushing the limit on it. And the reason why is not because we can't build more than that. Wind is not that expensive to build. You're looking at $1,000 or so a KW compared to 750 kilowatt installed capacity for a gas-fired power plant. So it's not outrageously expensive. I mean nuclear, we're looking at $3,000 at this point. So we can do RPS. We can push it to 20 percent, but once you start getting to 20 percent of the portfolio being renewables you can start running into instability issues with the grid. And so you may be able to push it, but it's going to require a lot more management and oversight of the transmission grid.
Monica Trauzzi: A federal RPS faces quite a bit of opposition both on and off the Hill. Senator Pete Domenici, who's the ranking member of the Senate Energy Committee, opposes an RPS. And industry groups are saying that a federal RPS would provide a one-size-fits-all approach when one size doesn't fit all. And they're also concerned that the government would be interfering with energy markets if a federal RPS was implemented. Are these valid concerns?
William Durbin: Well, what you're describing here are some pretty serious political issues and we try to look at this whole issue outside of the political debate. So it would be hard for me to say whether or not they're valid. What we can say is there are positive benefits associated if you're looking for reductions in gas demand, reductions in CO2, and reductions in power prices. But then again, as we step off into the greenhouse gas and CO2 legislation we can run the risk of undermining that if we try to rush that process too fast.
Monica Trauzzi: Over 20 states have already adopted RPSs of their own. Is a federal standard really necessary if the states are already taking the lead in that?
William Durbin: Well, what you'll find is there's an uneven geographic distribution of those states. What a federal RPS would do would just have a national requirement here and make sure that everyone's participating in the renewables initiative.
Monica Trauzzi: What does a renewable portfolio standard do for energy costs for the consumer? That's a concern.
William Durbin: It is. It's a big concern, and that's where we were a bit surprised to be able to see such an impact on gas use. And the reason I keep coming back to the gas issue is that in many of the power markets in the United States we've gone to competitive markets. And so their gas sets the price of power in many of these markets. So if gas prices go up, power prices will go up with it. If gas prices go down, the same happens, power prices will go down. So when we saw that the renewables standard would reduce gas demand and ease pressures out of the gas market, because we have a relatively tight gas supply and demand balance, it was interesting to be able to see that we saw a softening in the gas price that then translated into a lower power price as well. So consumers should be happy.
Monica Trauzzi: You had mentioned nuclear and clean coal earlier. How would instituting a federal RPS affect these two industries?
William Durbin: It shouldn't. In the context of a CO2 legislation, it shouldn't really have an effect because it doesn't meet all of our future capacity needs. It's just a small piece and it can't meet all of the CO2 reductions that we're looking at under the CO2 legislation. So, from our perspective, we think there's plenty of room at the table for all types of capacity to participate. We're looking and we need a portfolio approach to meeting these challenging demands.
Monica Trauzzi: All right. We'll end it on that note. Thanks for coming on the show.
William Durbin: Thank you very much for having me.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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