Introducing Energy Efficiencies Would Cost Less than Building a New Power Plant, Study Finds
February 18, 2009
Dominion Virginia Power recently announced plans to build and operate a 585 megawatt coal-fired power plant in Wise County, Virginia, citing forecasts of rising demand for electricity. The Virginia State Corporation Commission approved the plan. In response, the Wise Energy for Virginia Coalition retained Abt Associates to assess the economic impact of the proposed plant compared with that of the alternative approach: increasing energy efficiency in the way the company delivers electricity to its customers. The Abt Associates researchers found that having the company invest in energy efficiency would cost ratepayers less, as well as being more beneficial to the environment and public health. The analysis further found that this "energy-efficiency alternative" approach would increase Gross State Product (GSP), jobs, and employee earnings.
The energy-efficiency alternative was found to supply electricity at a substantially lower cost than the cost of power generated by the plant. The energy-efficiency alternative would also avoid the cost of a carbon emissions regulation. Such a regulation would likely present a substantial burden to the power plant, because coal has the highest carbon content of electric power sources. A carbon emissions regulation is likely to add considerably to the plant's cost to Virginia ratepayers, yet neither the power company nor the state agency that approved the company's proposal had considered this cost in their economic evaluations of the proposed plant.
The researchers analyzed two carbon emissions regulation cases: a low-permit-cost case, using an initial permit price of $23 per ton of CO2-equivalent emissions, and a mid-permit-cost case, using an initial permit price of $39 per ton. They also analyzed a case that involved no regulation of carbon emissions, though — given the strengthening consensus at the federal level to pursue a carbon emissions regulatory program — they view the carbon emissions regulation cases as providing the more realistic assessment.
The analysis found that the energy-efficiency alternative cases (which were derived from a recent study of energy efficiency opportunities in Virginia, undertaken by the American Council for an Energy Efficient Economy) yield a substantial rate reduction for both residential and business customers, in comparison to the base case alternative of continuing to purchase electricity from the regional power grid. These reductions total in the tens of millions of dollars in each year, and exceed $100 million annually in future years under the carbon emissions regulation cases. In contrast, the plant yields substantial rate increases, totaling in the tens of millions of dollars for all analysis years under the carbon emissions regulation cases. (Under the no carbon emissions regulation case, the difference between the two alternatives is less substantial; however, the energy-efficiency alternative remains substantially superior to the plant in terms of overall rate impact.)
The authors of the project report state that, "The likely promulgation of a carbon emissions regulation substantially increases the likelihood that construction and operation of the Plant will create a material economic drag on the Virginia economy."
The report identifies health effects from the proposed plant, and quantifies these economically. While the plant would be required to meet stringent standards under federal and state air pollution programs, the allowed emissions are estimated to contribute annually to 2 to 5 premature deaths in Virginia, and a significant increase in non-fatal effects such as bronchitis and other respiratory and cardiovascular illnesses. The health impacts from the plant are estimated to cost Virginia $16 to $48 million each year that the plant is in operation.
The authors acknowledge that the plant "would certainly contribute to Virginia's economy during its construction: our analyses indicate an annual average increase of $180 million in gross state product, 1,422 jobs, and $105 million in employee earnings over the four years of Plant construction." However, they write, "this benefit is short-lived and does not contribute to a sustained increase in economic activity in Virginia. In contrast, investment in energy efficiency can contribute to a sustained, long-term increase in GSP and jobs, and provides a skill and experience platform for extending the benefits of energy efficiency throughout the Virginia economy."
The authors recognize that institutional barriers exist to pursuing the energy-efficiency alternative and that implementation of energy efficiency programs involves a material implementation cost beyond the equipment and operating outlays for achieving energy efficiency (these costs were accounted for in the Abt Associates analysis). For example, utilities often do not have an economic incentive to offer energy efficiency or other demand-side programs, because reduced electricity sales reduce utility revenues and earnings. The authors also state that the energy-efficiency alternative, as outlined in their report, represents an illustrative case based on cost-effective energy efficiency potential, rather than a specific set of energy efficiency measures or a program to implement those measures.
Nevertheless, they write, "This analysis — and real-world examples — demonstrate that energy efficiency can contribute a relative economic gain compared with traditional supply-side approaches for meeting growing electricity demand and ought to be considered a priority energy resource as part of any IRP [integrated resource plan] process."
