Transcript Economic Impact Analysis of a 20% New Jersey Renewable Portfolio Standard New Jersey Board of Public Utilities December 1, 2004 Scott Weiner Nancy Mantell Michael Lahr Frank Felder.

Economic Impact Analysis of a
20% New Jersey Renewable
Portfolio Standard
New Jersey Board of Public Utilities
December 1, 2004
Scott Weiner
Nancy Mantell
Michael Lahr
Frank Felder
TM
R/ECON
Rutgers Economic Advisory Service
• R/ECONTM is a service of Rutgers Center for
Urban Policy Research
• We produce economic analyses, forecasts, and
impact assessments for a variety of clients in New
Jersey and the rest of the US
--Clients include NJ Department of the Treasury, PSE&G, and JCP&L
• We have 2 models used in these endeavors: an
econometric model and an Input-Output model
• Both models were used in this study for the BPU
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The Econometric Model
• An econometric model (more than 150 equations)
• Equations are based on historical data for New
Jersey and the US for 1970 to 2003
• Model sectors:
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–
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Employment and gross state product for 40 industries
Consumer price index
Personal income and its components
Wage rates and price deflators for major industries
Population, labor force and unemployment
Housing permits and construction contracts
Motor vehicle registrations, and
State tax revenues by type of tax, and current and capital expenditures.
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Model Additions for RPS Study
• Energy sector
• The energy sector equations include:
– electric price per kilowatt hour, residential and other
(commercial and industrial)
– electricity usage per 1000 megawatt hours, residential
and other
– electric revenues in billions of dollars
– energy taxes in millions of dollars, and
– employment at electric utilities (both generation and
distribution) and and other utilities.
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Baseline Forecast
• Baseline forecast (including the new energy
sector) based on R/ECONTM forecast of
April 2004 for New Jersey and the Global
Insight, Inc. US forecast of February 2004
• Forecast is for the period 2004 to 2020
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Baseline Forecast (cont’d)
• For the US: fast growth in 2004; slow,
steady growth after 2005
• For New Jersey: similar pattern to that for
the nation
– Nonagricultural employment: average growth
of 1.2%
– Real gross state product: average growth of 3%
– The unemployment rate will average 5% during
the forecast period
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The Simulations
• HIGHER ENERGY COSTS (allows the producer price
indices for natural gas and coal to rise faster than in
BASELINE); by 2020 PPI Energy is 19% higher than in
Baseline
• PROPOSED RPS OF 20% IN 2020 (assuming expected
cost reductions in wind and PVs)
• PROPOSED RPS OF 20% IN 2020 (cost reductions in
wind and PVs do not exceed historic rates of decrease)
(also known as Worst Case Scenario)
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Findings of the Simulations
RESULT TABLE: PERCENTAGE DIFFERENCES IN SELECTED VARIABLES IN 2020
HIGHER ENERGY
COSTS
PROPOSED RPS
OF 20% IN 2020
PROPOSED RPS
OF 20% IN 2020
vs
BASELINE
vs
BASELINE
vs
HIGHER ENERGY
COSTS
PROPOSED RPS
OF 20% IN 2020
(NO TECH CHANGES)
vs
BASELINE
Electric Price per Kilowatt Hour
4.63%
3.70%
-0.88%
24.07%
Electricity Usage in 1000 Megawatt Hours
-0.02%
-0.03%
-0.01%
-0.10%
Electric Revenues ($ Millions)
4.91%
3.31%
-1.53%
22.66%
Energy Taxes ($ Millions)
2.56%
1.96%
-0.58%
13.04%
Gross State Product for Utilities ($ Millions 2000=100)
-0.04%
0.00%
0.04%
-0.07%
Gross State Product ($Millions 2000=100)
-0.04%
-0.01%
0.02%
-0.15%
Employment at Electric Utitliies (Thousands)
-0.03%
-0.01%
0.05%
-0.09%
NonAgricultural Employment (Thousands)
-0.01%
0.00%
0.01%
-0.04%
Consumer Price Index (1982=100)
0.10%
0.04%
-0.07%
0.41%
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Further Simulations
• Used a combination of the I-O and
econometric models
• My colleague Mike Lahr will discuss these
findings
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Why Different Models?
• R/Econ model
– Good for price effects
– Lacks some industry detail: ~ 40 sectors
– Tailored to NJ: ideal for tracking effects of energy
price effects
• Region I-O model
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–
–
–
Lacks prices
~ 500 sectors, better articulation of effects
Rutgers’ I-O documented in literature
Good for identifying investment effects
• Short-run construction effects
• Long-run operating & maintenance effects
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Navigant Report Relevance
• Compared to alternative: gas-fired turbines
– Outside of NJ
• RPS options
– Land-fill biogas and biomass (both gasified or fluidized biomass)
• Economically feasible
• Unlikely to expand
– Wind
• Almost economically viable now
• Production assumptions
– Off-shore only in NJ
– Rest of PJM may use on-shore
– Solar photovoltaics
• Likely to need subsidy through most of period
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Economic Effects of Investment
• Direct Costs
– Wind ~ $1,000 per kW
– Solar ~ $7,250 per kW
• Apply details to I-O model
– Scenario 1: No NJ-based econ dev policies
• Wind power satisfied from rest of PJM
• PV & wind manufacturing incentives non-existent
• Installation impacts of PV only
– Scenario 2: State-based policies effected
• Wind power off-shore in NJ, includes O&M
• All units – wind and PV – produced in NJ
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RPS Installation Schedule
Solar PV
(MWs Installed)
Cumulative
Annual
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
6
11
26
56
110
130
152
178
209
245
287
337
395
463
542
636
6
5
15
29
55
19
22
26
31
36
42
50
58
68
80
94
Wind
(MWs Installed)
Cumulative
Annual
266
513
685
886
1,122
1,399
1,725
2,125
2,539
3,023
3,590
4,256
4,864
266
248
172
201
236
277
326
399
414
484
567
666
608
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Scenario 1: No NJ-based
Economic Development Policies
Annual impacts
Jobs
Income
State and local taxes
GSP
2010
520
$29 M
$2.6 M
$39 M
2020
2,600
$142 M
$13 M
$191 M
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Scenario 2: Economic
Development Policies
• All spending retained in NJ
• Annual impacts
2010
Jobs
Income
State and local taxes
GSP
2,700
$160 M
$18 M
$218 M
2020
11,700
$694 M
$77 M
$956 M
• Impacts due to PV
– 7 times > than for wind
(costs are benefits)
– ~50% share of 2020 impacts
(but only 12% of accumulated PV/wind capacity)
• Impact greater if NJ becomes production leader for PV & wind
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Health & Environmental Effects
• There are many and substantial health and environmental effects
due to air emissions from power plants
• The health and environmental benefits from a RPS result from
and depend on the reduction in the atmospheric concentration of
emissions, which are (with the exception of carbon dioxide)
geographic specific
• The health and environmental benefits of reduced emission
concentrations are positive and span a wide range of values
• Quantifying the health and environmental benefits associated
with a New Jersey RPS involves many detailed assumptions and
using prior studies that may not be completely relevant to New
Jersey
– A New Jersey analysis requires additional research and modeling
in order to quantify these benefits
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Health &Environmental Effects
(cont’d)
• Existing cap-and-trade emission allowance policies for sulfur
dioxide and nitrogen oxide act in combination with a RPS so
that the RPS may not alone result in reduced levels of these
emissions but will lower the price of emission allowances
• Other policymakers use a wide range of externality values that
may have limited application to New Jersey but these values are
used in this report for illustrative purposes
• Illustrative calculations using generic environmental externality
adders indicate that in the year 2020 the environmental benefits
of the proposed 20% RPS is in the range of several hundred
million dollars
• There are other non- health and environmental effects, but
smaller, positive effects of a 20% RPS
– Downward pressure on natural gas prices
– Improve reliability
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Summary of Findings
•
•
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Under the Expected Case assumptions, the proposed 20% RPS
compared to the existing RPS would raise electricity prices
approximately 3.7% in the year 2020 and have negligible impact on
the growth of New Jersey’s economy.
If natural gas prices rise to levels assumed in the High Energy Price
scenario, the proposed 20% RPS has a positive economic impact on
the New Jersey economy because electricity prices would be lower
than under the existing RPS scenario.
Under the proposed 20% RPS, the location in New Jersey of all of
the manufacturing, operations, and maintenance facilities and
employees needed to support the PV and off shore wind
infrastructure in New Jersey would be adding approximately 11,700
jobs and attenuate economic benefits to the New Jersey economy in
the year 2020. In addition, the number of jobs could grow as demand
for goods and services extends throughout the region.
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Summary of Findings (cont’d)
•
•
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The health and environmental benefits from a RPS result from and
depend on the reduction in the atmospheric concentration of
emissions, which are (with the exception of carbon dioxide)
geographic specific, and other policymakers use a wide range of
externality values that may have limited applications to New Jersey
but these values are used in this report for illustrative purposes.
Illustrative calculations using generic environmental externality
adders indicate that in the year 2020 several hundred million dollars
in environmental damage may be avoided by implementing a 20%
RPS.
The proposed 20% RPS would lower natural gas prices for
consumers in New Jersey and nationwide by reducing the burning of
this fuel in power generation.
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Summary of Findings (cont’d)
•
•
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The proposed 20% RPS would increase reliability by providing
electricity when grid power is not available and may reduce
expenditures on T&D within the state.
The economic and electricity price impacts of the proposed 20%
RPS depend substantially on whether expected technological
improvements occur that reduce the cost of PV’s and wind power.
Existing cap-and-trade emission allowances policies for sulfur
dioxide and nitrogen oxide act in combination with a RPS so that
the RPS may not alone result in reduced levels of these emissions
but will lower the price of emission allowances.
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Policy Recommendations that NJ
Can Implement Unilaterally
• Monitor future cost reductions in renewable technologies particularly
wind and PVs
• Evaluate the appropriateness of off-shore wind in NJ as an electricity
generation resource
• Coordinate and integrate various policies to maximize their impact
• Strengthen the link between NJ’s renewable energy and economic
development programs by proactive initiatives to attract the location of
manufactory and maintenance facilities within the state
• Assess whether NJ should develop the research and modeling
capability to quantify the state specific health and environmental
benefits of its renewable energy policies and to provide insights into its
effectiveness
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Recommendations that Require
NJ to Coordinate with Others
• Monitor the adoption of RPS policies by other states in the
region, especially regarding the cost and availability of
renewable resources
• Establish the link between reductions in emissions due to
the RPS and corresponding changes in environmental
policies to capture those reductions
• Continue NJ’s leadership role to facilitate trading the
essential elements of RECs in the mid-Atlantic and
Northeast regions to enhance liquidity in order to finance
renewable projects within those regions
• Work with PJM to ensure that the wholesale market and
reliability rules applicable to renewables reflect the values
these resources provide
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