California GHG policy and implications for the power sector

APEX Sydney ConferenceOctober 13, 2008

Anjali Sheffrin, PhD.

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California taking leadership in limiting greenhouse gas emissions

A. Renewable Portfolio Standard

California 20% State Renewable Portfolio Standard (RPS) by 2010; support building for 33% RPS (and beyond)

B. Once-Through Cooling/Older Thermal Plant Retirement/Repowering

Draft proposed schedule sets targets from 2015-2021

C. Greenhouse Gas (GHG) Policy

California Legislative target from AB 32 to reduce GHG emissions to 1990 levels by 2020

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California Generation mix by fuel type

Year 2007 46,563 MW

Year 202071,436 MW

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Reliance on older and inefficient generation has been steadily declining.

Units built before 1979 ran on average 26% of the time.

California environmental policies and the age of these facilities will require a long-term plan for phasing them out.

26%34%38%

50%49%

58%

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Percent of Hours Running - Units Built Before 1979

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2002-2004 California GHG emissions were 469 MMTCO2E

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The challenge is to achieve 169 The challenge is to achieve 169 MMTCO2E of reduction by 2020

ARB Emissions Inventory

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1990 Emission Baseline

~169 MMT CO2e Reduction

80% Reduction ~341 MMT CO2e

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Majority of reductions to come from capped sectors: transportation, electricity, and natural gas

Total GHG Reductions from Capped sectors

2020 Capped Sector GHG emissions limit

2020 Capped Sector Business as Usual

GHG emissionsGHG reductions

from recommended measures in

capped sectors

Additional GHG reductions from capped sectors

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Business as Usual Total GHG emissions

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Electricity sector contributes 25% of GHG emissions but will be required to achieve 50% of the reduction

Cap and Trade

Electric Sector

Transportation

Other

Mandates

20% 80%

37%

45%

18%

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Strategy to combine market mechanisms, regulations, voluntary measures, and fees for the electricity and natural gas sectors

1. Increase utility-based energy efficiency programs

2. Achieve 33 percent renewables for all utilities

3. More stringent building and appliance standards

4. Million Solar Roofs Program (California Solar Initiative)

5. Residential solar water heaters

6. Encourage combined heat & power

7. California cap and trade program linked to WCI

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Use of market mechanisms coordinated with other regional and global efforts

California emissions greatly influenced by other sources and states in the regionWestern Climate Initiative can result in lower cost reductionsNeed to preserve states as laboratories of innovation California and regional leadership can pave the way

nationally

International participation is crucial for global success International Carbon Action Partnership

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Western Climate Initiative membership

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California cap and trade to be linked to regional market under the Western Climate Initiative

Partners: 7 US states, 4 Canadian provinces; Observers include 6 US states, 1 Canadian province, 6 Mexican states

Multi-sector cap-and-trade is central component

Specific Partner allowance budget under cap not yet defined

Point of regulation in electric power will be generation sources and imports (called “first jurisdictional deliverer”)

Different from the eastern US Regional Greenhouse Gas Initiative (RGGI), which does not regulate imports

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WCI – First Jurisdictional Deliverer

“Deliverer” refers to the first entity that delivers power into a WCI Partner: either a generator within the Partner territory or the entity that schedules an import (i.e., first jurisdiction that the import from a non-Partner crosses)

Will require the first jurisdictional WCI Partner to be responsible for assigning the obligation to retire a GHG allowance to imports

A number of WCI boundary utilities (some with territory in member states and non-member states) are concerned over regulatory burden

WCI is evaluating whether membership is sufficient to allow regulation of point sources only (i.e., ignore imports)

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California cap and trade to be linked to regional market

Enforceable cap over GHG emissions from sources beginning in 2012Cap declines over time to meet 2020 targets; can be adjusted for 2050 targetState distributes “allowances” equal to total emissions allowed in the capLimited use of offsetsStrong enforcement and monitoringMust include safeguards for regional and local co-pollutants

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Free Allocation Auction: Historical Basis Auction: Sales Basis

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Key elements of California cap and trade program for the electricity sector

1. Allowance Allocation and Auction within the Electricity Sector

Large part to be allocations. Grants based on historical portfolio emissions to sales basis by 2020 to allow transition time for retail providers with high emissions. Allocation changes over time.

Starts with 10% being auctioned

Retail providers required to sell allowances in an independent, centralized auction

2. Use of Auction Revenues

• Revenue from allowances auctioned by retail providers should be used to support investments in renewable energy, efficiency, new energy technology, infrastructure, bill relief for consumers

• Retain small portion of revenues for statewide energy sector programs

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Challenges of integrating California’s renewable portfolio standards

Case GWh Avg. Mw Nameplate Mw

20% RPS 55,657 6,353 13,614

33% RPS ~ 93,000 10,500 26,000

Achieving 33% requires us to meet two times load growth with renewables between now and 2020

The increase in need for capacity, ramping, and regulation to achieve 33% RPS is not linear – it is much greater

Regional diversification is important technically and economically

Key questions are:

Can we retain and invest in more non base-load facilities?

Does retirement of older plants or replacement make sense?

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Organized power markets are uniquely situated to offer the products and services required to efficiently meet emission reductions

Capability to define market products such as new ancillary services required to integrate renewable.

Transparent locational marginal prices that provide revenues tailored for new technologies (DR, storage)

CAISO strives to provide the policy, reliability and planning analysis to support State goals