3

Low Carbon Electricity Generation

The second session of the workshop focused on one of the most fundamental facilitating elements of deep decarbonization: low carbon electricity generation. Speakers discussed the challenges of bringing renewable energy onto the grid, including expansions of storage capacity and transformations of grid architecture. Panelists considered the potential of new zero-carbon generation technologies, such as the Allam-Fetvedt power cycle. In addition to technological developments, supporting a decarbonized electricity system will require new market designs, as well as new policies and regulations. This session centered on the scale and complexity of transforming the electricity system to meet the goals of decarbonization.

Eric Larson (Princeton University, moderator) introduced the three speakers: Mark Ahlstrom (NextEra Energy Resources and NextEra Analytics), Adam Goff (8 Rivers), and Abe Silverman (New Jersey State Board of Public Utilities). Larson highlighted that the panel consists of two technologists and one expert in electricity markets, as both components will be important to realize deep decarbonization of the electricity system.

RENEWABLE ELECTRICTY, STORAGE AND ELECTRIFICATION: AMAZING PROGRESS, TRANSFORMATIONS AND CHALLENGES

Mark Ahlstrom, President, Energy Systems Integration Group and Vice President, Renewable Energy Policy, NextEra Energy Resources

Mark Ahlstrom summarized industry attitudes on decarbonization by highlighting a few recent headlines that suggest renewable energy generation will be widely implemented in the coming decades: “Idaho power sets goal of 100% clean energy by 2045,”¹ “With Cincinnati on board, 100 U.S. cities now committed to 100% clean energy,”² and “Xcel Energy commits to 100% carbon-free electricity by 2050.”³ Ahlstrom quoted from the article the Xcel Energy CEO, who said that “the 80% [emissions reductions] by 2030 goal will be fairly easy and affordable to meet with currently available technologies… [and the] incremental cost of renewable energy generation is now less than the embedded cost of existing fossil fuels.” Ahlstrom pointed out that it is often cheaper today to buy new wind and solar generation plants than to operate older paid-off coal plants. Renewable energy generation is economically feasible around the world, with global capital costs around U.S. $2 billion per gigawatt, he said.

Ahlstrom suggested that drivers for deploying renewable energy generation, including solar and wind, are economics and technology. Over 130 cities—along with a growing number of states, utilities, and companies—have made pledges to integrate renewables into their energy portfolio, usually promising 80 percent carbon-free generation by 2030 and 100 percent by 2050. The CEO of NextEra Energy has said publicly that solar and wind plus storage will be cheaper than coal, oil, or nuclear, without subsidies, and will be massively disruptive to the conventional fleet by the early 2020s. Favorable economics is being driven by declining cost curves for solar power, offshore and onshore wind, and especially four-hour battery storage for which cost has fallen dramatically as learning curves are aggressively pursued for the transportation sector (see Figure 3.1).

Ahlstrom noted that, unlike traditional energy generation technologies, these new generation technologies are non-synchronous resources

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¹ Idaho Power, “Idaho Power Sets Goal for 100-Percent Clean Energy by 2045,” March 16, 2019, https://www.idahopower.com/news/idaho-power-sets-goal-for-100-percent-cleanenergy-by-2045.

² B. Lillian, “With Cincinnati On Board, 100 U.S. Cities Now Committed To 100% Clean Energy,” Solar Industry, December 6, 2018, https://solarindustrymag.com/with-cincinnation-board-100-u-s-cities-now-committed-to-100-clean-energy.

³ J. Pyper, “Xcel Energy Commits to 100% Carbon-Free Electricity by 2050,” Greentech Media, December 4, 2018, https://www.greentechmedia.com/articles/read/xcel-commitsto-100-carbon-free-electricity-by-20501.

that are electronically coupled to the grid. This represents the digital revolution finally reaching the power industry, and it will continue with the deployment of energy storage. He suggested that hybrid projects, such as tightly coupling storage with solar cells, will be particularly disruptive to the market, essentially creating a computer-controlled power plant. Ahlstrom highlighted that as we implement changes to the electric grid, we should rethink how equipment interacts with the grid and leverage our increased connectivity to optimize the response and behavior. For example, with faster detection and responsiveness of modern equipment, these new resources can start responding to events within 50 milliseconds after an electrical trip rather than seconds or tens of seconds. Ahlstrom said we should choose versatility and flexibility with respect to grid architecture design and controls. Further, he said we should eventually

redesign the electricity markets around the “more ideal” characteristics of these resources that will increasingly make up our future computer-controlled grid.

Ahlstrom believes that this is a time of change in the electrical grid transitioning from thermal and mechanical controls to electronic and digital controls, from grid following to grid forming, from valuing capacity to valuing flexibility and balancing, and from top-down controls to distributed, intelligent agents. Ahlstrom suggested that while high voltage direct current (HVDC) transmission lines would be a useful tool in decarbonizing the electrical system and would provide massive cost savings to the population, the process of planning and building transmission lines in the United States is currently very difficult, particularly for the high-voltage lines that would need to cross multiple states and regions.

NET POWER: TRULY CLEAN, CHEAPER ENERGY

Adam Goff, 8 Rivers, NET Power

Adam Goff introduced his company NET Power, a power generation company that relies on a new power cycle called the Allam-Fetvedt cycle. The Allam-Fetvedt cycle (as shown in Figure 3.2) involves burning natural gas with pure oxygen creating a stream of carbon dioxide working fluid, thereby driving an efficient carbon dioxide turbine and then cycling carbon dioxide back into the system resulting in 55 percent net efficiency. Excess carbon dioxide is removed from the system for sequestration or sale, with nearly zero marginal cost for carbon capture, as it is a natural feature of the system. The power cycle results in natural gas combustion with greater than 97 percent carbon capture, and is expected to provide power at a lower cost than a combined cycle natural gas power plant, and without pollution from nitrogen oxides, sulfur oxides, or particulate matter. The technology is currently at the commercial demonstration phase with 45Q tax credits, and NET Power plans to license their technology. Goff shared details of NET Power’s 50 MW thermal demonstration plant in La Porte, Texas, and highlighted that the company has multiple 300 MW commercial projects underway in the United States, Canada, Asia-Pacific, the Middle East, and Europe.

Goff compared projected levelized costs for first-generation Allam-Fetvedt cycle power plants against the Allam-Fetvedt cycle power plants of the future, and against combined cycle natural gas power plants with and without CCS. Goff showed that the capital costs are about double for a first-generation Allam-Fetvedt cycle plant compared to a combined cycle plant without CCS. While fuel and operations and management costs are about the same for both types of plants, the NET Power Plant

has additional costs offset by selling carbon dioxide, argon, and nitrogen (natural byproducts), and by receiving tax benefits from the federal government. Of these, the largest revenue comes from carbon dioxide from the 45Q tax credit ($50 per ton carbon dioxide). With these additional revenue streams, even the first NET Power plant can sell power below the cost of combined cycle natural gas power plants. Goff noted that for future Allam-Fetvedt cycle plants, the value of these byproducts will likely decrease once there is greater supply in the market, and the 45Q tax credits will expire. In the meantime, those byproduct revenues will act as a springboard to help the technology develop through the first plant iterations, ultimately allowing the company to get costs down through scale.

Goff suggested that Allam-Fetvedt cycle power plants, at cost parity with combined cycle natural gas power plants, will be deployed near cities around the world for climate change mitigation as well as for reduction in air pollution. In terms of market design, he suggested we consider the capital expense to operations expense ratio. In CCS systems, the capital expense costs dominate, and thus return on investment will depend on the utilization rate and longevity of the plant. For future NET Power plants, since the capital costs and fuel costs are near parity with combined cycle gas plants, both can tolerate low capacity factors and thus Net Power plants will remain competitive in the market in a future with high penetration of renewables on the grid.

Goff concluded by noting that carbon capture projects have traditionally been placed near areas with existing carbon dioxide pipelines, primarily in the Great Plains and the Southern United States, regions where electricity prices remain low. U.S. coastal regions, with higher electricity prices, have little access to carbon dioxide infrastructure. He suggested that once carbon capture technologies are more fully developed, companies can start spending on infrastructure development in adjacent regions. Policies that promote efficient and rapid approval processes for sequestration wells, as well as risk mitigation procedures to ensure that carbon dioxide does not leak, will be needed.

PERSPECTIVES ON POLICY AND ECONOMIC CONSIDERATIONS OF DEEP DECARBONIZATION

Abe Silverman, New Jersey State Board of Public Utilities

Abe Silverman presented an 80-by-50 emissions reduction projection, and suggested that we cannot meet our decarbonization targets in the electricity sector even if we replace all coal generation with efficient natural gas combined cycle power plants. In fact, under a coal-to-gas scenario, CO₂ emissions from the electric sector alone would exceed the CO₂ budget

for all emissions, economy-wide. To get within the target emissions share attributable to the electric sector, we need to convert all coal to non-CO₂ emitting resources and use renewables to meet all future demand growth. A simple plan for achieving our emissions targets would be to replace all coal generation today with renewables and/or traditional fossil fuel plants that deploy CCS, as illustrated in Figure 3.3.

Silverman mentioned that a gas power plant built today has a 25-year lifetime at a minimum. And while we have a lot of investment in existing natural gas infrastructure that is quickly becoming stranded, we are simultaneously continuing to build natural gas facilities today. Silverman suggests that thoughtful building of the electricity markets will require a few considerations:

1. We must decarbonize at a price consumers can afford. In our rush to decarbonize, we should not ignore the consumer impact that could cause backlash against the movement.
2. 100 percent green is largely an economics problem, not an engineering challenge.
3. Getting to our 2030 targets is easy. The current administration’s repeal of the Clean Power Plan was helpful because the 2030 targets were not ambitious enough.
4. Competitive markets that co-optimize reliability, cost, and carbon emissions enable lowest total cost solutions. Regulators should focus on designing markets that can be flexible enough to allow for competition between decarbonization technologies. Markets should be designed so that it does not matter which set of technologies becomes widely deployed.
5. Many state regulators no longer trust the federal government (or markets) to deliver outcomes. In many cases, we see blue states decarbonizing at a rapid rate while red states are not acting. If only half the country decarbonizes their electricity system, we will miss our targets. Silverman said that state and federal energy policies do not work together well, resulting in increased costs for consumers.

Silverman sees a few essential products that will be provided by the grid of the future: renewables generating the base load of electricity, storage and controllable demand on the customer side to modulate loads, and fast-ramping natural gas power plants for periods of high demand and low supply.

In conclusion, Silverman presented three policy options to encourage decarbonization of the electricity sector:

1. A carbon price or carbon tax. He noted that economists favor this method, but consider that you need to set very high levels before it drives merchant investment in renewables. That said, a carbon price is the most efficient way to get to the lowest carbon dispatch using today’s infrastructure. However, carbon pricing does less to drive new capital investment in clean tech because a carbon price does not typically drive capital investment into renewables generation until it reaches politically unpalatable levels (around $80 to $100 per metric ton).
2. Long-term contracts for renewables. These are politically palatable options, but they tend to be very expensive and do not encourage competition to drive down cost. High geographic variability means that costs are much higher on the East coast while Midwestern markets can decarbonize relatively easily through cheap land and cheap wind generation. For each scenario, consider if you are pushing risk off onto ratepayers or onto private capital.
3. Using markets to achieve renewable goals. Silverman suggested that the environment does not care which zero carbon technology wins; instead, the goal is to deliver the largest number of carbon-free megawatts at the lowest possible price, consistent with reliability needs. The best way to accomplish this goal is to design a technology-inclusive electricity market that establishes robust competition between various zero-carbon technologies. The lowest cost projects receive a contract capable of promoting project financing and thus both consumers and the environment benefit. One such market design (but certainly not the only design) is laid out in a whitepaper by economists at The Brattle Group, titled “How States, Cities, and Customers Can Harness Competitive Markets to Meet Ambitious Carbon Goals Through a Forward Market for Clean Energy Attributes,” April 2019, prepared for NRG Energy, Inc.

DISCUSSION

The discussion covered a broad scope of topics related to low carbon electricity generation ranging from the economic implications of decarbonizing the electric sector considering increased demand and integration of renewables, to changes in the generation and balance of the grid system. A participant asked: what are the real sources of costs in decarbonizing the electricity sector? Sources of costs were not addressed, but Goff mentioned that the electricity sector is an easy sector to decarbonize, and the first half of the decarbonization efforts within the sector are the easy half. The costs moving out to our 2030 targets are relatively

low, but decarbonizing farther toward our 2050 goals will have higher costs. Goff believes that decarbonizing electricity is an easier task in the United States than it is in much of the rest of the world. By moving first, he argued that U.S. leadership could set an example for other nations to follow and provide benefits to the United States as a result. Silverman added that geographic variability of costs is an important factor, as well as the variability in utility business models. He noted that state regulators put a premium on jobs and economic growth, so it is important to consider the effect of energy policies on state economic growth when making policies.

The panel was asked for comment on the upcoming challenges for the electric grid due to rising demand and peak capacity changes, such as the increased loads required for electrification of transportation. Silverman discussed the problems associated with the existing practice of utilities charging customers a demand charge, which is based not on the average use of electricity but on the maximum amount of electricity used in the year. As we move from level 2 to level 3 to DC fast charging, these electricity demands become significant and the existing demand charge structure can make DC fast charging prohibitively expensive. With respect to market design, Silverman advocated for putting separate prices on grid services (i.e., “attribute pricing”), and then paying grid participants for providing those services, so that grid integration costs become part of the Levelized Cost of Energy (LCOE). A participant asked if LCOE is a misleading metric, as it does not include integration costs, and if integration costs will rise nonlinearly as the electric grid starts incorporating more renewable energy generation plants. Ahlstrom said that the integration costs should not grow too quickly, even for scenarios with a high percentage of renewables generation, because of the flexibility of the grid and, increasingly, the flexibility and grid services that we are obtaining from the renewable resources themselves. He added what really matters is the cost of serving load with the desired level of reliability services. This ability will be amplified as we add storage to renewables to create hybrid resources.

A participant asked for comment on the lack of certainty and technological development regarding sequestration of carbon dioxide, which will be an important part of the decarbonization transition in the electricity sector. Goff suggested that oil companies are the entities best prepared to safely sequester carbon dioxide underground. He believes that this process will not be technologically difficult for oil companies, and that mineralization of carbon dioxide into solid materials, a slow but inexorable process, will help ensure effective and long-term sequestration. Regardless of the reliability of sequestration methods, Goff worries about public acceptance of the practice. Silverman added that the public

perception is important in these issues, and that in New Jersey they found that the public deeply cares about the distinction between carbon neutral versus no-carbon energy generation.⁴

The panel was asked for their thoughts on hybrid micro-grids that combine wind and solar with natural fuels. Silverman suggested that microgrids are an exciting development because they allow consumers to control their own energy consumption and carbon footprint, essentially an alternative to regulatory action. Silverman believes a national “right-to-shop-green” program for the electricity sector would be a good development. A participant wondered: to what extent does higher reliance on microgrids result in increased effectiveness because you are avoiding distribution system losses? Additionally, the participant asked: what are the challenges and opportunities of installing solar panels on the built environment for on-site, efficient power generation and use? Silverman mentioned that in New Jersey, the existing solar rules greatly incentivize building solar on landfills and other disturbed land, and disincentivize solar on farms so as not to replace farming with solar energy generation. Though the policies encourage solar installation on the built environment, there are still many opportunities for significant deployment on top of warehouses and other buildings.

A participant asked the panel what role they envision for HVDC transmission. Ahlstrom suggested that HVDC transmission has many desirable attributes, including controllability and programmability. He stated that HVDC is the most cost-effective way of moving cheap renewable electricity generated in the Midwest to the coasts with minimal power losses due to transmission. However, building national or regional HVDC transmission lines is difficult from a regulatory standpoint, as you need to traverse (and acquire permitting from) many states, some of which may not feel that they directly benefit from the transmission line.

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⁴ Carbon neutral refers to achieving net zero carbon emissions through the balancing the amount of carbon dioxide as is released into the atmosphere through offsets or sequestration. No-carbon generation means no direct carbon dioxide emissions occur, for example, generating electricity from sources like solar, wind, or nuclear.