Demand for Natural Gas in Wisconsin: Changes due to Carbon Regulation

Peter J. Taglia, P.G., Staff Scientist, Clean WisconsinAndrew D. Kellen, P.E., Assistant VP, Power Supply Resources, WPPI

Outline• Wisconsin’s Energy Mix and GHG Emissions• Governor Doyle’s Task Force on Global

Warming• Power Plant Greenhouse Gas (GHG)

Comparison• Task Force Emission Modeling in Wisconsin

− Reference Case− Policy Case− Cap and Trade

• A run on gas, or a run on renewables and nuclear?

Wisconsin Energy Use by FuelSource: WI Energy Statistics, OEI, 2008

Wisconsin’s Energy Mix by Fuel

• #1 Coal is used primarily for electrical generation (90%)

• #2 Petroleum is used primarily for transportation (83%)

• #3 Natural gas consumption is divided between residential, industrial, commercial, and electrical generation uses

Wisconsin Natural Gas Use by SectorSource: WI Energy Statistics, OEI, 2008

Wisconsin’s Natural Gas Consumption Trends

• Residential consumption is flat to declining

• Industrial consumption is declining

• Electrical utility and commercial natural gas use is increasing

• Total natural gas consumption in WI fluctuates based on weather, but overall consumption has been flat to slightly increasing since 1970

Electrical Generation in WI by Fuel

Electrical Generation in WISource: WI PSC, SEA, 2007

• Coal provides approximately 70% of WI electrical sales (in-state generation and imports)

• Natural gas for electricity has increased since 2004 as new plants came online

Coal 60%

• WI’s GHG emissions were 123 Million Metric Tons (MT) CO2e in 2003

− 14% higher than 1990

• Electrical generation is the largest source of GHGs in WI− 43 MT CO2e

− 30% higher than 1990

• By comparison, transportation is the largest source of GHGs in CA (59%)

Wisconsin Greenhouse Gas Emissions by Sector

Source: World Resources Institute, Charting the Midwest, 2007

GHG Emissions in Wisconsin

What role will natural gas play in Wisconsin under carbon regulation?

Executive Order 191 (April 2007): • Bring together a prominent and diverse

group of key Wisconsin business, industry, government, energy and environmental leaders to create a Task Force on Global Warming.

• After examining the effects of, and solutions to, global warming in Wisconsin, the Task Force will create a state plan of action to reduce our state's greenhouse gas emissions.

• Staffed by DNR and PSC

Governor Doyle’s Task Force on Global Warming

29 Task Force Members

6 Working groups created: • Carbon Tax/Cap & Trade• Electric Generation• Conservation & Energy Efficiency• Forestry & Agriculture• Industry• Transportation

And a Technical Advisory Group (TAG)

Governor Doyle’s Task Force on Global Warming

to guide a detailed emission and economic modeling effort

An interim report was released in February, 2008

• Each working group developed a list of options for reducing GHG emissions in their sector

• Estimates for the GHG reductions and the cost of each option were developed

• Work groups recommended options for consideration by the Task Force, but the ultimate decision on final recommendations are made at the Task Force

Working Group Evaluations

1. Reduce Demand Pedestrian/Bike/Mass Transit/ Carpooling (VMT

reduction)

2. Increase EfficiencyHigher MPG vehicles (e.g., California Cars)

3. Lower Fuel Carbon ContentBiofuels, Renewable Electricity (Low Carbon Fuel

Standard)

Natural gas does not offer significant GHG savings for transportation

Options to Reducing Greenhouse Gas Emissions from Transportation

1. Reduce Demand Less sales, shut down plants (undesirable)

2. Increase EfficiencyProduce more product with less fuel

3. Lower Fuel Carbon ContentSwitch from coal to natural gas and

biomass

GHG emissions from WI Industry have been falling since 2000, even as output increased, due to efficiency gains and fuel switching

Options to Reducing Greenhouse Gas Emissions from Industry

1. Reduce Demand Energy conservation (reduce waste)

2. Increase Efficiency• Get more benefit from less

electricity• Increase the fuel efficiency of power

plants

3. Lower Fuel Carbon ContentSwitch from coal to wind, solar,

nuclear, hydroelectric, hydrogen….or natural gas

Options to Reducing Greenhouse Gas Emissions from Electric Generation

Analysis of Electrical Generation Options

Spreadsheet analysis used by electrical generation working group, including inputs for capital costs, fuels, demand and

price escalation Primary spreadsheet author: Tom Smies, WPSC

Electric Generation Work Group Results

Supply SideGHG Reduction Options

Million MWh

CO2 Removed Million Metric Tons

Carbon Reduction Cost

($/Metric Ton CO2) displaces existing

generation

Carbon Reduction Cost ($/Metric

Ton CO2) avoids new generation

Operational Changes to Existing System 

  Redispatch Existing System (coal to gas) 9.5 6.8 50 N/A

New Construction Options 

  Distribution Upgrades 0.4 0.3 756 740

  Transmission Upgrades 0.1 0.1 798 781

  Hydro 500 Mw - CC Valued 3.7 3.1 123 112

  Hydro - 500 Mw Nuclear Valued 3.7 3.1 134 122

  Nuclear - 500 Mw 3.7 3.1 51 40

  Combined Cycle - 500 Mw Base 3.7 2.7 65 51

  Combined Cycle - 500 Mw Cyclic 1.8 1.3 88 59

  West Wind - 500 Mw 1.8 1.5 70 63

  WI Wind - 500 Mw 1.3 1.1 32 26

  Biomass Retrofit - 200 Mw @ 10% Cofire 0.1 0.2 66 66

  New Unit Biomass - 80 Mw 0.6 0.5 68 56

  CHP - 500 Mw (50 MW projects) 3.7 2.1 67 49

Significant GHG reductions could Significant GHG reductions could come from re-dispatching existing come from re-dispatching existing natural gas plants in Wisconsin ahead natural gas plants in Wisconsin ahead of coal plantsof coal plants

But exactly how does replacing coal But exactly how does replacing coal generation with natural gas generation with natural gas generation result in significant GHG generation result in significant GHG savings since both fuels are carbon-savings since both fuels are carbon-based fossil fuels?based fossil fuels?

Power Plant Greenhouse Gas Power Plant Greenhouse Gas EmissionsEmissions

Fuel carbon content

+

Generation efficiency

=

Carbon Dioxide Emissions

Carbon Content of Fossil Fuels (Lbs/MMBtu):

•Coal 205 to 212 •Diesel 161 •Nat. Gas 117•Hydrogen 0

•Efficiency of Combustion•Pulverized Coal 30-35%•SCPC 37-39%•IGCC 38-41%•IGCC w/ CCS 30-35%

•NGCC 50-55%•NGCC Cogen 60-70%

Sources: NETL, Cost and Performance Baseline for Fossil Energy Plants (Rev. 1), August 2007 (SCPC, IGCC, NGCC and IGCC w/CCS), WI PSC 2008 WPL DEIS (SubPC and CFB, normalized to NETL emission data based on heat rate and N20 emissions). Note: Emission rates are for rated output under ISO conditions, actual emissions can be higher.

Greenhouse Gas ComparisonFossil Power Plants

0

500

1000

1500

2000

2500

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O2e

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• Further evaluation of the electrical generation Further evaluation of the electrical generation spreadsheet modeling (and GHG reduction spreadsheet modeling (and GHG reduction option estimates from all working groups) was option estimates from all working groups) was needed to evaluate interactions between needed to evaluate interactions between different policies. different policies.

• The additional modeling was done through the The additional modeling was done through the Technical Advisory Group of the Governor’s Technical Advisory Group of the Governor’s Task Force using a modeling consultant and a Task Force using a modeling consultant and a complex economic/emission model.complex economic/emission model.

• This model was also designed to evaluate a This model was also designed to evaluate a regional cap and trade system regional cap and trade system

Governor’s Task Force Modeling Effort

• ICF Resources retained as modeling consultant

• Energy 2020 model selected for use− Integrated multi-sector economy,

energy and emissions model− Simulates decisions by energy

suppliers and consumers− Provides output data by state,

sector, end use, etc., including:• Fuel use• Emissions• Energy imports and exports• Electric generation, capacity and

prices• Employment and gross state

product (using state REMI model)

http://dnr.wi.gov/environmentprotect/gtfgw/modeling.html

• The Energy 2020 model for WI begins in 2004 with total natural gas consumption of 415 TBtu (Trillion BTU’s, 1 TBtu = approx. 1 Billion Cubic Feet)

• In the Business As Usual (BAU) case, total natural gas consumption remains flat through 2015 then rises to 434 TBtu in 2020 and 476 TBtu in 2024 as additional natural gas electrical plants are built (a 14% increase in natural gas consumption).

Natural Gas Modeling Results

BAU Model Results

The model builds wind to meet the existing renewable portfolio standard (10% by 2015)

The only new fossil generation plants added by the model are approx. 1,600 MW of natural gas combined cycle

Policy Case 1 (all recommended policies, including energy efficiency, new building codes and an enhanced RPS, but no cap and trade):

• Gross natural gas consumption declines 10% in Wisconsin from 2004 to 2024

• No new fossil plant construction • Natural gas generation output reduced over 50% • Smaller decreases in coal generation output • The policy case resulted in overall GHG emissions that

were essentially stable at 2005 levels, but did not meet the goals of most GHG reduction proposals

Additional GHG reductions still needed

GHG Reduction Policy Modeling Results

Modeling of Cap and Trade Program

• Cap applied to electric generating and large industrial facilities, as well as carbon-based fuels

• Greenhouse gas emissions capped at 2009 levels in 2011; declining to 1990 levels in 2020

• GHG emissions begin to have a cost

• Modeling was done for a regional cap and trade program affecting adjacent Midwest Governors’ Accord states (Wisconsin, Iowa, Illinois, Michigan and Minnesota) www.midwesternaccord.org

Cap and Trade Modeling Results• Modeling results demonstrated the difficulty

in designing and implementing a cap and trade system affecting a limited portion of the country

• Some general insights can be gleaned from the results:− The majority of the emission reductions

achieved by the cap and trade program are in the electric power sector

− Natural gas generation increases slightly under cap and trade, while coal generation decreases significantly

− Total natural gas use decreases under cap and trade

• The work of the Governor’s Task Force on Global Warming provided directional information on the ways different GHG reduction policies affected natural gas consumption in Wisconsin

• The modeling results, however, did not provide conclusive insights to the future consumption of natural gas in Wisconsin under stringent carbon regulations

• Two areas discussed by the Task Force, and included in recommendations, but not modeled:− Fuel switching in residential and commercial

sector from natural gas to pellet stoves/boilers

− The biogas potential of the state

Other Perspectives on Natural Gas Electrical Generation Under Carbon Constraints

“… energy-efficiency and renewable energy technologies face deployment limitations and could not compensate for the lack of CCS and nuclear technologies in the near term...electric companies would be forced to switch to using large amounts of natural gas to meet the Lieberman-Warner compliance deadlines… according to separate studies by CRA International and the Nicholas Institute, wellhead prices for natural gas would increase approximately 20 percent by 2020 above currently projected levels.”

http://www.eei.org/industry_issues/environment/climate/Lieberman_Warner_final.pdf

20% Wind Energy by 2030• Joint effort by DOE, AWEA and

others to determine feasibility, costs and benefits of significantly increasing contribution of wind to US electric supply

• Final report issued in May, 2008• Modeled two cases:

− Base Case with no new wind − 20% Wind Scenario with wind

supplying 20% of US electricity in 2030

• Under 20% Wind Scenario, wind generation in 2030 would:− Displace 18% of electricity

generated by coal− Displace 50% of electricity

generated by natural gas− Reduce total US natural

gas demand by 11%

http://www.20percentwind.org

Thank You!

Peter J. Taglia, P.G. Staff Scientist Clean Wisconsinwww.cleanwisconsin.org608.251.7020x27ptaglia@cleanwisconsin

.org

Andrew D. Kellen, P.E.Assistant VP, Power Supply

Resources WPPIwww.wppisys.org608.834.4545akellen@wppisys.org