Perspectives on Policy & Economic Considerations of Deep

DecarbonizationAbe Silverman

• General Counsel, New Jersey Board of Public Utilities• Formerly Deputy General Counsel & VP of Regulatory Affairs for

NRG Energy, Inc.– A large competitive power company owning generation and retail energy

The views expressed here are mine along and do not represent the view of the Board of Public Utilities or of Board Staff

Consider the Source:

NJ Electricity Generation by Fuel Type (%) 2010-2016

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Petroleum

Coal

Natural Gas

Nuclear

Renewables

2016 2015 2014 2013 2012 2011 2010 2

National CO2 Emissions Trajectory

US CO2e reduction pathway necessary to meet COP21

commitmentseconomy-wide, by sector; 1990-2050

(gross CO2 – not netted for GHG sinks)

Source: Data from US EPA

-17%by 2020

-26%by 2025

-80%by 2050

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

CO

2e

ton

s (m

n)

All other sectors Transportation Electricity generation

3

*2050 economy-wide CO2 target, dotted black line

-17%by 2020

-26%by 2025

-80%by 2050

-

500

1,000

1,500

2,000

2,500

3,000

CO

2e

mill

ion

ton

s

Electricity generation 2050 economy-wide goal

4Source: Data from US EPA

US CO2e reduction pathway necessary to meet COP21 commitmentseconomy-wide, by sector; 1990-2050

(gross CO2 – not netted for GHG sinks)

National CO2 Emissions Trajectory: Focus on Electricity Sector

-17%by 2020

-26%by 2025

-80%by 2050

-

500

1,000

1,500

2,000

2,500

3,000

CO

2e

mill

ion

ton

s

Electricity generation 2050 economy-wide goal CO2e path if all NGCC replaces Coaland meets Demand Growth

5Source: Data from US EPA

US CO2e reduction pathway necessary to meet COP21 commitmentseconomy-wide, by sector; 1990-2050

(gross CO2 – not netted for GHG sinks)

National CO2 Emissions Trajectory: Gas Replaces Coal & Meets Load Growth

-17%by 2020

-26%by 2025

-80%by 2050

-

500

1,000

1,500

2,000

2,500

3,000

CO

2e

mill

ion

ton

s

Electricity generation 2050 economy-wide goal CO2e path if all NGCC replaces Coaland meets Demand Growth

CO2e path if NGCC replaces Coaland Renewables meet Future Demand

6Source: Data from US EPA

US CO2e reduction pathway necessary to meet COP21 commitmentseconomy-wide, by sector; 1990-2050

(gross CO2 – not netted for GHG sinks)

National CO2 Emissions Trajectory: Gas Replaces Coal & Renewables Meet Growth

-17%by 2020

-26%by 2025

-80%by 2050

-

500

1,000

1,500

2,000

2,500

3,000

CO

2e

mill

ion

ton

s

Electricity generation 2050 economy-wide goal CO2e path if all NGCC replaces Coaland meets Demand Growth

CO2e path if Renewables replace coaland Renewables meet Future Demand

CO2e path if NGCC replaces Coaland Renewables meet Future Demand

7Source: Data from US EPA

US CO2e reduction pathway necessary to meet COP21 commitmentseconomy-wide, by sector; 1990-2050

(gross CO2 – not netted for GHG sinks)

National CO2 Emissions Trajectory: Renewables Replace Coal & Meet Load Growth

1

2

3

We must decarbonize at a price consumers can afford.

2030 is the easy part.

100% green is largely an economics problem, not an engineering challenge.

4Competitive markets that co-optimize reliability, cost and carbon are least-cost.

5Many state regulators no longer trust the federal government (or markets) to deliver outcomes.

Thoughts

*Hubble Space Telescope image of galaxies getting ripped apart as they collide.

8

The Four Product Future:

Renewables

Renewables will provide the vast majority of energy needed by consumers. Utility-scale renewables growth will track strongly along existing (and expanding) state RPS targets. Distributed renewables will also grow, enabled by rate design, state policies, consumer demand and improving economics.

Storage

Utility-scale or commercially-sited energy storage can balance variable renewables generation and manage peak demands while providing critical grid support products (e.g. ancillaries).

Fast-ramping gas

Fast-start gas capacity can provide flexible, dispatchablecapacity to ramp as needed to balance renewables.

Controllable demand

Smart, controllable loads, e.g. connected water heaters, will become pervasive in end-use devices and can address capacity / demand-shift challenges imposed by high penetrations of weather-dependent renewables. This will provide value to customers and the grid.

1 2 3 4

Source: https://www.nrg.com/insights/energy-education/the-four-product-future-transforming-the-energy-industry-today.html

Four Products Comprise the Grid of the Future

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Power Plant Finance

Expected Energy Revenues

Expected Capacity Revenues

Costs

Investments are justified if:

Cost of Capital is Risk Adjusted; higher risk

= higher costs

Generally levelizedover 20 years Variable

costs includedMay be PPA, RECs, market

revenues or subsidy & may include “merchant tail”

Where do carbon pricing/costs go?

10

Carbon pricing in New England:

With virtually no coal left in the region’s fuel mix, increased carbon pricing has a limited ability to alter the relative cost of fuels in the dispatch stack.

NRG dispatch modeling shows that progressively higher carbon prices result in, at best, only moderately lower CO2 emissions from the power sector in New England.

In a gas-defined generation mix, there are limited marginal benefits to progressively higher carbon prices – even at 10x current RGGI prices.

3331

3028

27 26

0

5

10

15

20

25

30

35

$0 $10 $20 $30 $40 $50CO

2 Em

issi

ons

(mill

ion

tons

)CO2 price ($/ton)

Est. Annual New England Power Sector CO2 EmissionsAssuming various carbon prices

Source: NRG Analysis

New Jersey conducting its own detailed modeling exercise due in December as part of its Energy Master Plan and as we

re-join RGGIhttps://nj.gov/emp/ 11

12

PPAs in renewable-rich integrated service territories are already at cost-parity. What about market regions without low-cost

renewable options?

2017 Xcel Colorado All-Resource Solicitation ResultsDelivery Year 2023• Record low renewable energy

and battery storage prices were observed in the recent Colorado clean energy RFP.

• Wind-plus-storage and solar-plus-storage shows a eye-popping price of $21-36/MWh.

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

DC DE ILM

D NJ

OH PA CT MA

ME

NH NY RI AZ CA CO MI

MN

MO NC

NM OR

WA WI

Mid-Atlantic/PJM Northeast West-Mountain-Southwest-RegulatedStates

$/to

n CO

2 ab

ated

Class I Solar Carve Out DG Carve Out

$- $200 $400 $600 $800 $1,000 $1,200

RPS Solar Carve Out

RPS DG Carve Out

RPS

Energy Efficiency

$/ton abated

Source: Assessing the Cost and Benefits of US Renewable Portfolio Standards,2017,NRELEnergy efficiency data are based on PSEG, NY CES and RGGI programs annual reports.

Comparison of Cost Effectiveness of Climate Investments

Comparison of Cost Effectiveness of State Renewable Portfolio Standard Programs

Renewable Costs Vary Across State Programs

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Mad Scientists and Economists Wanted!

“The bigger task is to redesign power markets to reflect the new need for flexible supply and demand…. Bills could be structured to be higher or lower depending how strongly a customer wanted guaranteed power all the time—a bit like an insurance policy. In short, policymakers should be clear they have a problem and that the cause is not renewable energy, but the out-of-date system of electricity pricing.

Then they should fix it.”

-- The Economist, February 25, 2017

https://nj.gov/bpu/about/employment/

Abe SilvermanNJ Board of Public Utilities

609.777.3303abe.silverman@bpu.nj.gov