New Study: 50% Renewables Would Save AZ More than $4 Billion

Arizona families and businesses would get lower bills if utilities got 50 percent of their electricity from renewable energy sources like solar and wind, compared to if these same utilities go forward with their fossil fuel-heavy plans for the future, according to a new report commissioned by the Natural Resources Defense Council (NRDC). The modeling, conducted by renowned energy firm ICF, using assumptions provided by NRDC based on publicly-available sources, found that average electricity bills in 2030 would be three dollars a month lower if Arizona pursues a high-renewables future, and five dollars a month lower in 2040. NRDC finds that total electricity system cost savings in the high-renewables future between 2020 and 2040 total more than $4 billion.

Solar and wind power outside Wilcox, Arizona.

milehightraveler/iStock

A renewable energy future is cleaner and cheaper

Arizona is the nation’s sunniest state, yet gets just six percent of its electricity from solar power. The state’s biggest investor-owned utility, Arizona Public Service (APS), does not want to change that. It wants to meet future electricity needs mainly by building new gas-fired power plants (see the resource plan APS filed at the Arizona Corporation Commission in 2017 and APS’ recent request for proposals for new power plants that largely shuts out solar and energy storage).

A diverse coalition of environmental and public health advocates is proposing an alternative to utilities’ fossil fuel-dominated future. They are working to place a measure on the November 2018 general election ballot that would require utilities like APS and Tucson Electric Power (TEP) to source 50 percent of their electricity from renewables, like wind and solar power, by 2030. The Natural Resources Defense Council (NRDC) supports the Clean Energy for a Healthy Arizona measure.

To understand each alternative future—utilities’ planned, gas-heavy future, or one where half of utilities’ electricity comes from renewables—NRDC commissioned electricity modeling. In a blog last week, I laid out one important result of the modeling: we find that the operation of Arizona’s big nuclear power plant, Palo Verde, is not changed by a 50 percent RPS, despite APS’ claims to the contrary. The plant continues to run around-the-clock in both the renewable energy and the gas-dominated futures. This blog describes the other important result of the modeling, on cost. Below we describe the modeling, results, and key conclusions.

But first, some introductions

NRDC is a national not-for-profit organization with around 9,000 members in Arizona. We frequently use power sector modeling to understand the costs and benefits of different policy proposals. NRDC’s analysis of a 50 percent renewable portfolio standard (RPS) in Arizona was performed by energy consultancy ICF, using their Integrated Planning Model (IPM®), and assumptions developed by NRDC. IPM is a detailed model of the electric power system that is routinely used by the electricity industry and regulators, including the U.S. Environmental Protection Agency, to assess the effects of environmental regulations and policy. It integrates extensive information on power capacity and generation, technology performance, transmission, energy demand, electricity and fuel prices, policies, and other factors. IPM then determines the most cost-effective way to meet electricity needs, based on its detailed representation of the U.S. electricity system. It can build new power plants, retire existing plants, or ramp them up and down to meet demand in the least-cost way.

Our scenarios, inputs, and assumptions

ICF ran the model with two different policy cases: an RPS case and a Gas Expansion case.

For the RPS case, utilities subject to Arizona’s existing 15 percent by 2025 Renewable Energy Standard—basically all utilities except Salt River Project—have to meet a 50 percent renewable energy by 2030 target, with interim benchmarks along the way. This matches the Clean Energy for a Healthy Arizona proposed ballot measure. In the Gas Expansion case, APS and TEP meet current and future energy needs, in part, by building 5,900 MW of gas-fired power plants. This matches the long-term resource plans the state’s utilities submitted to the Arizona Corporation Commission (ACC).

Assumptions for this analysis were developed by NRDC, relying primarily on publicly available projections from various parts of the U.S. Department of Energy (DOE). For gas prices and energy demand, we relied on reference case (“business as usual”) projections from the Energy Information Administration (EIA), which is an independent statistical agency of the DOE. For power plant costs, we relied on the EIA for the costs of building new fossil fuel-fired generation or new nuclear plants, and the DOE’s National Renewable Energy Laboratory (NREL) Annual Technology Baseline projections for the costs of building new wind and solar projects, which represent its expert view on the future costs of renewable technologies. Additionally, limits on variable renewable generation were incorporated to approximate the amount of solar and wind the grid can accommodate without additional transmission investments.

What the modeling found

Clean energy is cheaper

Our modeling finds that the Arizona families and businesses would pay higher energy bills under utilities’ gas-focused strategy. In contrast, strong renewable energy standards result in bill savings. Average electricity bills in 2030 for residential customers are about three dollars more per-month in the Gas Expansion case, compared to the RPS case, and the difference grows over time. Solar projects built to meet the RPS do not require any fuel and cost almost nothing to operate, while customers must continue to pay to fuel the gas plants. By 2040, average electricity bills for residential customers are about five dollars more per-month in the Gas Expansion case, compared to the RPS case.

Note: amounts are in 2012 dollars.

The bill increases in the Gas Expansion case understate the risk of utilities’ gas-heavy future. Gas prices are volatile. If they rise more quickly than expected, Arizona customers would be stuck with the cost of this risky strategy: paying for both this build-out of new gas capacity and the higher-than-expected price of running these plants.

On an individual, average, residential customer basis, the savings from choosing the clean energy future might be modest, but statewide, these savings add up. NRDC estimates, from the ICF analysis, that the total electricity system cost savings (capital, fuel and other operations and maintenance costs of running the system) would be $4.1 billion between 2020 and 2040 if the state implements a 50 percent RPS.

Note: amounts are in 2012 dollars.

New solar, storage in RPS case, just fossil fuels in the Gas Expansion case

In NRDC’s analysis, the 50 percent RPS drives the construction of an additional 5,320 MW of new solar in Arizona by 2030, enough to power over 1.8 million Arizona households per-year. The model also builds some energy storage towards the end of the forecast to help balance solar in the RPS case. Notably, the model finds it more cost-effective to build storage for system balancing, and not gas-fired power plants. In the Gas Expansion case, in contrast, new power plants are limited to the utilities’ planned gas plants: the massive gas build-out occurs at the expense of all other energy resource investments, driving out all prospects for new solar projects and storage.

Note: NGCT means Natural Gas Combustion Turbine (“peakers”), NGCC means Natural Gas Combined Cycle.

Trading gas for solar in the RPS case, nuclear stays the same

The results show that the primary impact of increasing the RPS, compared to going through with the utilities’ gas-heavy plans, is that Arizona meets future electricity needs with solar projects built in-state rather than gas plants that rely on gas purchased and imported from other states. Electricity generation from gas plants accounts for 49 percent of the state’s generation in the Gas Expansion case. In the RPS case, the share of gas generation falls to 37 percent.

Solar does not equal 50% of total Arizona generation in the table above because this total includes SRP generation and exports around the West.

Dispensing with APS criticisms

As part of its all-out effort to fight renewable energy, APS has made unsupported claims about the impact of the Clean Energy for a Healthy Arizona ballot measure on energy bills and Palo Verde. Last week, APS responded to my blog on Palo Verde with an attempt to discredit NRDC’s analysis. But its attempt fails.

  1. They claim we “don’t consider bill impacts for consumers.” That is false: this week’s blog focuses on the cost savings projections in the high-renewables future, while last week’s blog focused on nuclear-related outputs of the ICF modeling,.
  2. They claim the model does not show how Arizona will keep the lights on with a 50 percent RPS. This is also false. The Integrated Planning Model (IPM)is based on a detailed representation of the energy grid and its operations. It considers reliability constraints and transmission bottlenecks as it solves for and confirms power production and energy exchanges within and across dozens of U.S. regions. In fact, IPM has been used by the Federal Energy Regulatory Commission for a number of regional transmission analyses. The reason we used a detailed model like IPM, instead of back-of-the-envelope analysis, is because it is able to demonstrate the economic and technical feasibility of the clean energy targets we study, along with their environmental benefits.
  3. They claim we fail to show how Arizona will handle and maintain its energy demand when the sun is down. But we have been clear: in the RPS case, the model is able to maintain grid reliability through the economic addition of battery storage and the flexible use of gas turbines and power plants. APS also claims that we “remove natural gas resources.” While our modeling did not find it economic to build new gas power plants, all existing gas capacity remains online and is able to help power the state when the sun is not shining in the RPS case.
  4. They claim that the model assumes that other states will just take Arizona’s solar if it has a temporary excess, even if those states are in the same situation. This is false: the model accounts for renewable policies in other states as well as the renewable energy growth that’s happening anyway driven by competitive capital costs. Power can only flow out of Arizona if there’s room for it on transmission lines and if there’s a buyer at the other end of the line. Also, there are a lot of options for managing high renewable penetrations: shifting movable demands (like water heating, space cooling, electric vehicle charging) to soak up cheap solar energy, using energy storage, turning down solar power plants on those few days and hours when there’s the most excess, and yes, exporting electricity. APS’s claim neglects the functioning of the regional grid and disregards the wide range of options that are already in practice for managing renewables on the grid.

Results make sense given the low, and falling costs of solar and storage

Despite the false attacks, the findings of this study should not come as a surprise to anyone who has been paying attention to the energy markets. These results—clean energy is cheaper than fossil fuels—are possible now because of the plunging cost of clean energy. The cost of utility-scale solar has fallen 77 percent since 2009, wind, 38 percent, and the cost of battery storage fell 79 percent between 2010 and 2017. Arizona has been host to some record low-cost renewable and storage projects. Last week Central Arizona Project approved a solar power purchase agreement that will provide the water agency electricity at the low, low cost of 2.5 cents per-kilowatt hour over its 20-year duration, the second-lowest cost such agreement in U.S. history. (Costs are falling so fast that the week-old record might have already fallen.) Last year, Tucson Electric Power signed the lowest-price-ever power purchase agreement for electricity from a solar-plus-storage facility. Solar and wind are the cheapest option for bulk electricity. With Arizona’s strong solar resource, solar-plus-storage is becoming competitive with gas for flexible and dispatchable generation. A stronger RPS in Arizona lowers costs because it shifts investment from costly new gas power plants, to low-cost solar and solar-plus storage.

In addition to the more than $4 billion in cost savings that result from of a 50 percent RPS, the investment in renewables and storage will create jobs in the state, and produce environmental benefits: lowering annual carbon dioxide emissions in 2030 by 4.6 million tons, equivalent to the annual emissions from 900,000 passenger cars.

Clean energy is now cheap. A 50 percent RPS is the best option available for Arizona’s air, and Arizona’s energy bills.

About the Authors

Dylan Sullivan

Senior Scientist, Climate & Clean Energy Program

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