Climate Leadership & Community Protection Act Scoping Plan Electrification Cost Comparison

On December 30, 2021 New York State released for public comment its Draft Scoping Plan that defines how to “achieve the State’s bold clean energy and climate agenda”.  This post compares the societal costs estimated in the Scoping Plan with costs in an article by Ken Gregory that is a critique of an influential report  by Thomas Tanton “Cost of Electrification: A State-by-State Analysis and Results”.

I have summarized issues with the Climate Act and  written extensively on implementation of it because I believe the solutions proposed will adversely affect reliability and affordability, will have worse impacts on the environment than the purported effects of climate change, and cannot measurably affect global warming when implemented.   The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

The Climate Leadership and Community Protection Act (Climate Act) was passed in 2019 and became effective on 1/1/2020.  The Climate Action Council has been working since then to develop plans to implement the Act.  Starting in the fall of 2020 seven advisory panels developed recommended policies to meet the targets that were presented to the Climate Action Council in the spring of 2021.  Over the summer of 2021 the New York State Energy Research & Development Authority (NYSERDA) and its consultant Energy + Environmental Economics (E3) prepared an Integration Analysis to “estimate the economy-wide benefits, costs, and GHG emissions reductions associated with pathways that achieve the Climate Act GHG emission limits and carbon neutrality goal”.  The Integration Analysis implementation strategies were incorporated into the Scoping Plan in the last half of 2021.   According to the Scoping Plan: “This analysis provided data on the emission reductions and societal costs and benefits that can be expected from differing options of strategy sets that could be included in this draft Scoping Plan”. When finalized the Plan will be used to revise the New York Energy Plan and rulemaking to implement its provisions will begin.

Scoping Plan Costs

The Climate Act requires the Climate Action Council to “evaluate the total potential costs and potential economic and non-economic benefits in the Scoping Plan”.  The Integration Analysis evaluated costs and benefits for several mitigation scenarios suggested by the Council.  Evaluated costs include: “annualized

capital, operations, and maintenance cost for infrastructure (such as devices, equipment, generation assets, and transmission and distribution) and annual fuel expenses by sector and fuel (conventional or low-carbon fuels, depending on scenario definitions).  Importantly, the analysis does not “natively produce detailed locational or customer class analysis”.  In other words, there are no estimates of the explicit costs for New Yorkers.  The authors claim that “More specificity is needed around individual proposals in order to determine the impact on specific customers”.  After much debate the Council recommended “that as proposals are advanced with additional implementation details, a complete consumer benefit-cost impact be performed to show the impact and inform program design prior to full implementation.” 

The costs presented are the net present value (NPV) of net direct costs relative to the Integration Analysis Reference Case from 2020 to 2050.  According to the Scoping Plan: “The NPV of net direct costs in Scenario 2, Scenario 3, and Scenario 4 are in the same range (due to uncertainty) and are primarily driven by investments in buildings and the electricity system (Figure 13).  A previous figure shows that the net direct costs range between $290 and $310 billion. 

Tanton Cost of Electrification

The Executive Summary in Thomas Tanton’s “Cost of Electrification: A State-by-State Analysis and Results” describes the analysis:

The purpose of this analysis is to report the capital cost associated with “electrification” for states and the nation. For the context of this report, electrification is converting the entire economy to use electricity as a fuel. This includes all appliances in residential and commercial buildings, as well as every transport vehicle. Electrifying the entire nation, with a goal of eliminating the direct consumption of fuel would cost between $18 trillion and $29 trillion in first costs.

Tanton’s approach is simple. Using data from the Energy Information Administration, he calculated costs to electrify each end use sector.  Two assumptions were applied to all the sector analyses:

1. “Universal electrification is assumed implemented overnight in 2020. This simplifies calculations, avoiding forecasting future interest rates (charged during construction) and relative price escalation that occurs from now into the future.”
2. “Learning and mass production impacts on future costs of renewables, EVs, batteries, and efficiency technologies are subsumed within capital costs. These estimates are based on recent published data, some of which is from the Department of Energy (DOE).”

He summarizes the approach for converting the electricity grid to 100% renewable:

Electrical service is provided to Americans by a variety of public and private utilities and marketers.  Nationally about 5% of all electricity currently comes from renewable sources. Other supply comes from natural gas (31%), nuclear (10%), large hydroelectric (4%), coal (18%), and other/unspecified sources of power (7%). Nationwide there are approximately 1 million megawatts (MW) of installed capacity representing over 21,000 generation units. To move from the current resource mix to 100% renewable generation will require replacing 70% of the “fleet,” and most likely, a significant amount of new transmission lines to reach distant locales. For context, approximately 30% of this electricity generated is used in residential applications, and 70% in commercial and industrial. The typical residential customer uses about 500 kilowatt-hours (kWh) per month.

In Tanton’s analysis the estimated total installed cost (overnight) is approximately $29.2 trillion. He also breaks down the costs by state.  For New York the estimated overnight cost is $1.465 trillion.

Gregory Cost of Electrification

Gregory published a condensed summary of a longer description of his analysis.  He argues that there were several errors in the Tanton report and revises the cost estimates accordingly.  Tanton bases his analysis on annual average conditions and I agree with Gregory that hourly electricity generating data should be used instead.  In both analyses it is assumed that battery storage is used to cover wind and solar energy resource droughts.  Gregory finds that “wind and solar generated electricity, using 2020 electricity data, is 109 times that estimated by the Tanton report” and that the total capital cost of electrification would be $433 trillion using 2020 data.  It is much more realistic to overbuild solar and wind capacity to reduce energy storage requirements.  Gregory estimates that overbuilding by 21% reduces overall costs by 18% down to $363 trillion by reducing battery storage costs. Importantly he notes that “allowing fossil fuels with carbon capture and storage to provide 50% of the electricity demand dramatically reduces the total costs from US$433 trillion to US$24 trillion”.

Gregory does not provide state specific estimates.  However, we can pro-rate his nation-wide numbers to New York only numbers by assuming that the costs would be proportional to the Tanton New York State costs.  Gregory’s total national capital cost of electrification is $433 trillion and New York’s proportional share based on Tanton is $22.2 trillion.  Overbuilding solar and wind by 21% reduces New York overall costs to $18.2 trillion.  Allowing fossil fuels with carbon capture and storage to provide 50% of the electricity demand reduces New York’s estimated costs to $1.2 trillion.

Discussion

Both Tanton and Gregory provide spreadsheets that document their calculations.  Tanton explains:

The assumptions in this study can be justified. However, if different capital costs may be warranted, the workbook used in the calculations is available and the default capital cost for each technology can be modified by the user. Similarly, if there is disagreement with the energy or demand for a sector or state, those values can also be changed. This capability is to hopefully allow policy makers and any public opportunity to see impacts of increased energy conservation due to proposed policies or more demand due to emergencies

On the other hand, The Draft Scoping Plan does not even list the numbers in Figure 13 shown above, much less document how the values are derived so that the public can evaluate their assumptions. 

Tanton notes that his estimates don’t count all the costs.  He notes that “constructing and implementing an “all-electric” nation will require consideration of two other significant costs: stranded assets and deadweight losses”.   He describes stranded assets as the components of the natural gas system that are discarded before their useful life is over.  Deadweight losses are “losses that occur when a beneficial good or service is not fully realized because of artificial scarcity, a tax or subsidy, or other government action”. He goes on to explain that they are “costs imposed when one party transfers to another party something the second party doesn’t value or views as a negative” and gives an example is the intermittency of wind and solar, if the second party values on-demand energy.

There are significant differences in these cost estimates and the Scoping Plan costs.  To the extent possible without Scoping Plan documentation, I can still make some guesses why.   Because of the high costs of energy storage, I believe one of the main differences is the amount of wind and solar over-building.  The Scoping Plan has more over-building than either of these studies.  Note that Gregory reduces costs significantly by using fossil fuels with carbon capture.  The Scoping Plan includes a zero-carbon dispatchable resource that fills that niche.  There are tremendous difficulties implementing widespread carbon capture programs but the technology has at least been tried at the scale necessary.  The Scoping Plan offers no alternative that has been even tested beyond the laboratory.

Conclusion

These two analyses provide cost estimates to New York on the order of three to over ten times higher than the Scoping Plan costs.  In my opinion the Scopoing Plan costs are too low and these costs are too high. In order to provide meaningful Scoping Plan comments, it would be appropriate to do a detailed comparison of the assumptions and methodologies used in the Scoping Plan to these studies.  There is insufficient information provided by the Climate Action Council to evaluate the Scoping Plan in this way.

Finally, note that the cost per ton of reduced carbon emissions was also determined in the Tanton analysis. “In no instance are the costs of universal electrification less than the benefits as “estimated” by the social cost of carbon”.