Balancing Cost and Risk: The Treatment of Renewable Energy inWestern Utility Resource Plans
Markets for renewable electricity have grown significantly in recent years, motivated in part by federal tax incentives and in part by state renewables portfolio standards and renewable energy funds. State renewables portfolio standards, for example, motivated approximately 45% of the 4,300 MW of wind power installed in the U.S. from 2001 through 2004, while renewable energy funds supported an additional 15% of these installations. Despite the importance of these state policies, a less widely recognized driver for renewable energy market growth is poised to also play an important role in the coming years: utility integrated resource planning (IRP). Formal resource planning processes have re-emerged in recent years as an important tool for utilities and regulators, particularly in regions where retail competition has failed to take root. In the western United States, recent resource plans contemplate a significant amount of renewable energy additions. These planned additions - primarily coming from wind power - are motivated by the improved economics of wind power, a growing acceptance of wind by electric utilities, and an increasing recognition of the inherent risks (e.g., natural gas price risk, environmental compliance risk) in fossil-based generation portfolios. The treatment of renewable energy in utility resource plans is not uniform, however. Assumptions about the direct and indirect costs of renewable resources, as well as resource availability, differ, as do approaches to incorporating such resources into the candidate portfolios that are analyzed in utility IRPs. The treatment of natural gas price risk, as well as the risk of future environmental regulations, also varies substantially. How utilities balance expected portfolio cost versus risk in selecting a preferred portfolio also differs. Each of these variables may have a substantial effect on the degree to which renewable energy contributes to the preferred portfolio of each utility IRP. This article, which is based on a longer report from Berkeley Lab, examines how twelve western utilities - Avista, Idaho Power, NorthWestern Energy (NorthWestern or NWE), Portland General Electric (PGE), Puget Sound Energy (PSE), PacifiCorp, Public Service Company of Colorado (PSCo), Nevada Power, Sierra Pacific, Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) - treat renewable energy in their recent resource plans. In aggregate, these utilities supply approximately half of all electricity demand in the western United States. In reviewing these plans, our purpose is twofold: (1) to highlight the growing importance of utility IRP as a current and future driver of renewable energy, and (2) to suggest possible improvements to methods used to evaluate renewable energy as a resource option. This article begins with a discussion of the planned renewable energy additions called for by the twelve utilities in our sample, followed by an overview of how these plans incorporated renewables into candidate portfolios, and a review of the specific technology cost and performance assumptions they made, primarily for wind power. We then turn to the utilities analysis of natural gas price and environmental compliance risks, and examine how the utilities traded off portfolio cost and risk in selecting a preferred portfolio.
- Research Organization:
- Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
- Sponsoring Organization:
- USDOE. Assistant Secretary for Energy Efficiency andRenewable Energy. Office of the Solar Energy TechnologyProgram
- DOE Contract Number:
- DE-AC02-05CH11231
- OSTI ID:
- 908490
- Report Number(s):
- LBNL-58450-Journal; ELEJE4; R&D Project: 57461F; BnR: EB2502010; TRN: US200722%%668
- Journal Information:
- The Electricity Journal, Vol. 19, Issue 1; Related Information: Journal Publication Date: 1/2006; ISSN 1040-6190
- Country of Publication:
- United States
- Language:
- English
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Balancing Cost and Risk: The Treatment of Renewable Energy in Western Utility Resource Plans
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