A carbon dioxide cap-and-trade plan proposed under a House of Representatives climate change and energy bill would hike wholesale power prices in the Electric Reliability Council of Texas approximately $10 billion in 2013, according to a study issued Tuesday by the grid operator.
The bill by House Energy and Commerce Committee Chairman Henry Waxman, Democrat-California, would create a cap-and-trade program in 2012 to reduce emissions 3% below 2005 levels by 2013, 20% below 2005 levels by 2020 and 83% below 2005 levels by 2050. Waxman expects a committee vote on his bill by month-end.
Given natural gas prices of $7/MMBtu, expected power load levels and the existing and committed level of wind and other generation, carbon allowances must rise to between $40- 60/metric ton in order to reduce emissions from ERCOT generation to 2005 levels by 2013, the study showed. This would result in the $10 billion annual increase, which would raise a typical consumer's monthly bill by $27, it said.
The ERCOT study, ordered by the Texas Public Utility Commission on April 2, produced similar results to a study released in January by the grid operator covering the Mid- Atlantic and Midwest, the PJM Interconnection. Estimating wholesale power prices hikes of between $5-36 billion in 2013, the PJM study looked at costs related to three now-defunct bills, including S. 2191 by Senators Joseph Lieberman, Independent Democrat-Connecticut, and John Warner, Republican-Virginia.
In its analysis that stated no policy preferences, ERCOT simulated the cost-based, hourly dispatch of all existing and committed generation to serve the electric load in the region for the year 2013. The independent grid operator represents 85% of Texas electricity load and 75% of the southern state’s land area, unlike other grid operators such as PJM whose territory covers multiple states.
The study showed that at higher gas prices brought about by increased demand due to carbon emission limitations or other reasons, allowances would rise to well above $60/mt in the case of $10/MMBtu prices in order to meet the desired reductions. At the higher price, wholesale power prices in ERCOT would increase approximately $20 billion, it said.
Total emissions are reduced below 2005 levels at a carbon allowance price between $40/mt and $60/mt for expected power load levels at $7/MMBtu gas, but fall below 2005 levels between $25/mt and $40/mt if total energy use is reduced by 10%, ERCOT said. This level of allowance prices would result in an annual increase in wholesale power costs of approximately $7 billion and an average monthly increase to consumers of $17, it said.
At $7/MMBtu for gas, meeting the 2005 CO2 level would cause an increase in wholesale power costs of approximately $7 billion, which would result in a monthly increase of $22 for average consumer bills, the operator said.
Texas is not one of the 23 states participating in regional carbon trading regimes. It relies primarily on gas-fired power generation but also has many coal-fired power plants. ERCOT noted that its coal plants are expected to hit 21,515 MW of generation in 2013, while gas currently tops 53,900 MW.
