The Energy Information Administration (EIA) just released another study on a Clean Energy Standard proposed by Senator Bingaman,[i] the Chairman of the Senate Committee on Energy and Natural Resources. The result is the same as before—a “Clean Energy Standard” drives up the cost of electricity.[ii] A Clean Energy Standard is a mandate that a specified share of electricity be generated from qualified energy resources. This EIA study evaluated the Clean Energy Standard Act of 2012[iii]; while EIA’s earlier study evaluated a previous version of the bill. Due to the Clean Energy Standard, average national electricity prices in 2035 are 18 percent higher than in the corresponding reference case in 2035 due to the building of higher cost nuclear and non-hydroelectric renewable units to mainly replace coal-fired units forced to retire because of the standard.
The Clean Energy Standard (CES) of 2012
Senator Bingaman’s proposal requires 24 percent of electricity generation in 2015 to be from qualified “clean” sources of energy increasing to 84 percent in 2035 and remaining constant thereafter. The bill uses a byzantine description of what is “clean” energy. For example, all existing and new wind, solar, geothermal, municipal solid waste, and landfill gas electric generating plants get full credit. Also, all hydroelectric and nuclear plants or additions to existing plants placed in service after 1991 get full credit (apparently plants placed in service before 1991 are not considered “clean”).
Generation from hydroelectric and nuclear units operating before 1992, while not receiving any credit are also not required to purchase credits to cover the generation they produce as non-qualifying fossil fuel plants must do. Coal and natural gas plants receive partial credits based on their carbon intensity, that is, the amount of carbon dioxide emitted per unit of generation.
Biomass generators are assumed in the EIA study to be carbon-neutral and receive full credit. However, the bill specifies that the carbon intensity of biomass will be based on a required study undertaken by the National Academy of Sciences. Also qualifying for credits based on their carbon intensity are combined heat and power units that have a system efficiency greater than 50 percent.
Small electricity sellers with sales of 2,000,000 megawatt-hours or less in 2015 are exempt, but that ceiling declines linearly to 1,000,000 megawatt-hours by 2025 and later. Electricity retailers may comply by paying 3 cents per kilowatt-hour in 2015, increasing by 5 percent per year, inflation-adjusted. Clean energy credits can be traded among electricity retailers.