Use of NEMS For EERE Policy Analysis

Presented to NREL Energy Analysis Seminar Series June 10, 2004 Frances Wood OnLocation, Inc. Energy Systems Consulting

Todays Discussion
Brief overview of the National Energy Modeling System (NEMS) Use of NEMS by EERE for estimating program benefits Modeling enhancements for wind class representation and offshore wind Enhancements to distributed PV representation Extension to 2050 Other NEMS policy analysis capabilities

OnLocation Inc, Energy Systems Consulting

Page 2

NEMS Overview
NEMS was built by EIA for creating its mid-term energy projections and for policy analyses. NEMS has a modular design organized by energy producing, consuming, and conversion sectors.

OnLocation Inc, Energy Systems Consulting

Page 3

Key Features of NEMS

Annual simulation model to 2025 Optimization techniques used for electricity capacity expansion and dispatch and petroleum refining Regional energy markets Census Divisions, NERC electricity regions, PADD regions, etc. Technology representation in most sectors of interest to EERE residential, commercial, and transportation demand sectors, industrial heat and power, electricity supply and renewable energy

OnLocation Inc, Energy Systems Consulting

Page 4

Use of NEMS for GPRA Benefits

EERE uses NEMS and other tools to measure the benefits of its programs as part of their Government Performance and Results Act (GPRA) reporting NEMS provides a consistent economic framework Important for determining individual program and portfolio benefits
Programs may target similar markets and therefore interact Energy efficiency and renewable energy deployment can lead to energy price reductions that in turn dampen the cost-effectiveness of the EERE technologies

Alternative scenarios will be used this year to look at options value of EEREs R&D portfolio

OnLocation Inc, Energy Systems Consulting

Page 5

GPRA Integrated Modeling Process

The first step is the development of a Base Case
Most recent AEO modified to remove identifiable program impacts already included by EIA For example, Million Solar Roof PV installations Selected model enhancements made to better represent program target markets

Representation of each of the 11 EERE programs

The goals for each program are represented within NEMS-GPRA to assess the benefits of their achievement

Portfolio Case
All the programs are combined in a single case Integrated impacts of Portfolio case are not equal to the sum of the individual programs due to interactions and feedbacks
OnLocation Inc, Energy Systems Consulting
Page 6

NEMS Enhancements
Commercial building shell index replaced with economic evaluation of individual efficiency measures (windows, insulation, etc.) Distributed generation modifications to improve stock accounting Wind module replaced with one that has more detail by wind class Input and output displays for ease of use

OnLocation Inc, Energy Systems Consulting

Page 7

Representation of R&D Programs

R&D programs goals generally are represented by changing technology cost and performance characteristics. Examples include: wind turbines, heat pump water heaters, hybrid vehicles In some cases analysis must be done off-line either due to insufficient technology information or lack of NEMS-GPRA detail Site energy savings are then input into the model Examples include: Most of the industrial sector R&D programs (Industries of the Future)
OnLocation Inc, Energy Systems Consulting
Page 8

Representation of Standards
Appliance standards are represented by eliminating availability of less efficient technologies in years after the standard implemented Residential building codes can be represented by eliminating less efficient shell packages, but codes have different levels of compliance and stringency by State. For GPRA we rely on an offline analysis of the average heating and cooling savings and adoption rates Commercial building codes can be represented by requiring a minimum level of efficiency from the combination of shell measures

OnLocation Inc, Energy Systems Consulting

Page 9

Representation of Deployment Activities

Deployment programs often have adoption rate goals The Energy Star program is represented by lowering consumer hurdle rates for end uses targeted by the program to achieve the program adoption goals Examples include residential lighting, refrigerators and water heaters. Weatherization savings estimated offline based on expected budget levels and past performance are implemented by reducing heating and cooling demands in residential buildings Industrial Best Practices savings are estimated offline and are subtracted from industrial energy demands

OnLocation Inc, Energy Systems Consulting

Page 10

EERE Program Benefits

GPRA Metrics include Non-renewable energy savings Energy expenditures Carbon emission reductions Oil savings Natural gas savings EERE technology capacity and generation or displaced central station capacity Benefits are reported at the program level and for the Portfolio as a whole.

OnLocation Inc, Energy Systems Consulting

Page 11

FY05 Program Energy Savings

Magnitude and timing of program savings vary significantly due to differing types and scope of activities.
3.5 3.0 2.5 Quads 2.0 1.5 1.0 0.5 0.0
2015 2025

Primary Non-Renewable Energy Savings

OnLocation Inc, Energy Systems Consulting

W in d

yd ro G So eo la th r er m Bi a om l as s D ER H yd ro g Ve en hi c In les du s Bu tria ild l in gs W IP FE M P

Page 12

&

FY05 Program and Portfolio Benefits

By 2025, the EERE Portfolio is projected to decrease primary non-renewable energy by 10.4 quads, which represents 31 percent of the projected growth in energy demand from 2005.
14 12 10 Quads 8 6 4 2 0 2010 2015 2020 2025
OnLocation Inc, Energy Systems Consulting

Primary Non-Renewable Energy Savings

FEMP WIP Buildings Industrial Vehicles Hydrogen DER Biomass Geothermal Solar Wind & Hydro EERE Portfolio
Page 13

Wind Module Enhancements

Further detail added to NEMS regarding wind resources Allows resource characterization (cost multipliers) to vary by wind class to accommodate
Different interconnection costs Class 4 winds closer to load

Allows representation of low-wind speed turbine technology cost differences Offshore wind capability added

OnLocation Inc, Energy Systems Consulting

Page 14

Wind Resources Representation in NEMS

NEMS represents 3 wind classes within each region Currently each regions wind resource is characterized by 5 cost steps, independent of wind class Higher class wind class sites assumed to be used first In modified version, resource multipliers (5 cost steps) applied by wind class, instead of for the regional resource as a whole Competition performed to determine lowest cost wind class each year
OnLocation Inc, Energy Systems Consulting
Page 15

Alternative Supply Steps

In the revised version the resource multipliers are applied by wind class, not over the entire regional resource.
3.5 3.0 Cost Multiplier 2.5 2.0 1.5 1.0 0.5 0.0 0% 20% 40% 60% 80% 100% Percent of Wind Capacity Potential
OnLocation Inc, Energy Systems Consulting
Page 16

California Wind Resource Example

Class 6 Class 5 Class 4

Original By Class

Reference Case Results 2025

The new application of long-term multipliers is more restrictive, especially in the West.
3,500 3,000 Megawatts 2,500 2,000 1,500 1,000 500 0
EC A ER R C O M T AA C M AI M N AP P N YP P N E FL SE R C SP P N W P R A C A
OnLocation Inc, Energy Systems Consulting
Page 17

AEO03 Base Alternative Base

Projected Wind Capacity 2025

In several regions, more than one wind resource is developed.
2,500 Class 4 2,000 Megawatts 1,500 1,000 500 0
M AI N M AP P N YP P EC A ER R C O T M AA C FL SE R C SP P N W P E A R N C
Page 18

Class 5 Class 6

OnLocation Inc, Energy Systems Consulting

Low Wind Speed Turbine R&D Case

When R&D impacts are included, projected capacity increases substantially, especially for Class 4.
16,000 14,000 12,000 Megawatts 10,000 8,000 6,000 4,000 2,000 0
EC A ER R C O T M AA C M AI N M AP P N YP P R C SP P N W P FL E A R N SE C
Page 19 Page 20

Class 4 Class 5 Class 6

OnLocation Inc, Energy Systems Consulting

Offshore Wind
We have also modified NEMS to include offshore wind resources First quick method was to increase onshore wind resource quantities at higher cost multiplier levels Difficult to reflect costs correctly over time Direct competition with onshore wind More correct method implemented where offshore wind added as another technology Allows offshore wind to compete directly with all potential generation sources Similar to onshore wind representation, but separate data streams Production tax credits can be represented for offshore wind only or for both onshore and offshore sites.
OnLocation Inc, Energy Systems Consulting

NEMS 2050 Extension

Only selected NEMS modules were extended, primarily those with solar technology markets.

OnLocation Inc, Energy Systems Consulting

Page 21

Key NEMS Solar Modifications

The longer time frame and focus on solar led to several modifications of NEMS Distributed PV in residential and commercial buildings
Modified algorithm for adoption rates Continuous rather than discrete functional form Shift of one year in adoption rate to allow one year payback if very low cost Increased average system size from 2kW to 4kW for residential and 10 kW to 100 kW for commercial, with a capability for change in capacity size over forecast period Increased maximum penetration rates for single family homes and commercial buildings Added PV for multi-family homes Added stock accounting with retirements
OnLocation Inc, Energy Systems Consulting
Page 22

Key NEMS Solar Modifications (cont.)

Solar water heat Created competition for market share in new buildings between solar and electric water heat Allowed greater replacement opportunity in existing homes Solar space heat Redefined gas heat pumps to be solar with gas back up heat Concentrated Solar Power (CSP) Reflected EEREs R&D goals including additional storage capability Increased capacity credit value
OnLocation Inc, Energy Systems Consulting
Page 23

Base Case Generation

Coal dominates future generation under the High Renewable/High Efficiency Base Case.
8000 7000 6000 Billion KWh 5000 4000 3000 2000 1000 0 2000

Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Hydropower DG/CHP Gas and Oil Nuclear Coal
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

OnLocation Inc, Energy Systems Consulting

Page 24

Shares of New Generation in Base

Coal begins to dominate new additions after 2015, and distributed PV begins to enter after 2020.
Share of New Generation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Capacity Additions per Five Year Period, Adjusted by Utilization
Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Nuclear Power DG/CHP CT/Diesel Combined Cycle Coal Sequestered Coal Unsequestered

OnLocation Inc, Energy Systems Consulting

20 00 20 200 06 5 20 201 11 0 20 201 16 5 20 202 21 0 20 202 26 5 20 203 31 0 20 203 36 5 20 204 41 0 20 204 46 5 -2 05 0

Page 25

Carbon Value Case

A case was created to roughly stabilize carbon emissions from the electricity and building sectors.
120 Carbon Value (2001 $/Ton)
Base Emissions

1400 Emissions (MMTCE) 1200 1000

Emissions with Carbon Value

100 80 60 40 20 0

800 600 400 200 0

20 45

20 10

20 15

20 25

20 30

20 35

20 40

OnLocation Inc, Energy Systems Consulting

20 50

20 05

20 20

Page 26

$100 Carbon Value Case

When a value for carbon is added (ramping up from zero in 2015 to $100 in 2040), coal generation levels off and renewable generation increases substantially.
8000 7000 6000 Billion KWh 5000 4000 3000 2000 1000 0 2000

Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Hydropower DG/CHP Gas and Oil Nuclear Coal
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

OnLocation Inc, Energy Systems Consulting

Page 27

New Generation Shares with $100 Carbon

Wind is the dominant new renewable in the early years, while solar and biomass gain additional shares as the technologies become more cost-effective.
Share of New Generation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
00
Capacity Additions per Five Year Period, Adjusted by Utilization
Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Nuclear Power DG/CHP CT/Diesel Combined Cycle Coal Sequestered Coal Unsequestered

5 04 20 46 -2

01

03

03

00

01

02

02

04

-2

-2

-2

-2

-2

-2

-2

-2

11

26

31

06

16

21

36

20

20

20

20

20

20

20

20

OnLocation Inc, Energy Systems Consulting

20

41

-2

05

Page 28

Enhanced R&D Cost Goals

Installed Price ($/kW)

Enhanced R&D accelerates the expected decline in cost for each of the solar technologies.
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000

6,000

5,000

Troughs

4,000

CSP
Towers

3,000

2,000

Crystalline Silicon Thin-films

PV
Baseline Advanced R&D

1,000

Installed Price ($/kW)

0 2000

2010

2020

2030 Year

2040

2050

2060

Nanotechnology Quantum Dot

3000

2500 Total Installed System Cost ($01)

2000

SWH

1500

2010

2020

2030 Year

2040

2050

2060

1000

500

0
1997-2004 2005-2009 2010-2019 2020-2025 2026-2030 2031-2035 2036-2040 2041-2050

Year

OnLocation Inc, Energy Systems Consulting

Page 29

Solar Policy Case

Central Generation Policies Implement federal production tax credit (PTC) for solar: Set at 1.8 cents/kWh in 2005 (with 10-year duration), inflation adjusted through 2020, then phased out between 2020 and 2030. 10% federal investment tax credit (ITC) remains in place through 2050. Accelerated depreciation remains in place though 2050. Distributed Generation/Thermal (Residential and Commercial) Policies Implement federal ITC for for distributed PV, solar water heating, and solar space heating: Set at 30% in 2005, decline linearly to 10% in 2030, and then hold at 10% through 2050. Average PV system capacity increases by 50% between 2005 and 2030.
OnLocation Inc, Energy Systems Consulting
Page 30

R&D and Solar Policies Generation by Fuel

With additional R&D and moderate policies, the solar share of generation increases to 23 percent by 2050. Distributed generation supplies 30 percent of demand by 2050.
8000 7000 6000 Billion KWh 5000 4000 3000 2000 1000 0 2000

Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Hydropower DG/CHP Gas and Oil Nuclear Coal
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

OnLocation Inc, Energy Systems Consulting

Page 31

R&D and Solar Policies Shares of New Generation

With additional R&D and moderate policies, PV and CSP begin to capture a significant share of new generation after 2020. After 2035, distributed generation additions are over half of the total.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Capacity Additions per Five Year Period, Adjusted by Utilization
Distributed PV Central PV CSP Wind Biomass/MSW Geothermal Nuclear Power DG/CHP CT/Diesel Combined Cycle Coal Sequestered Coal Unsequestered

Share of New Generation

OnLocation Inc, Energy Systems Consulting

20 00 20 -20 06 05 20 -20 11 10 20 201 16 5 20 -20 21 20 20 -20 26 25 20 -20 31 30 20 203 36 5 20 -20 41 40 20 -20 46 45 -2 05 0

Page 32

NEMS Policy Analysis Capabilities

As illustrated in these examples, NEMS can be used for analysis of R&D and technology deployment policies Investment and production tax credits NEMS can also be used for evaluating environmental policies, such as SO2, NOx, mercury and carbon emission caps in the power sector Economy-wide carbon caps or taxes Portfolio generation standards (renewable or other) Efficiency standards (CAFE, appliance)
OnLocation Inc, Energy Systems Consulting
Page 33

More Information
For more information on these analyses, visit the following web sites
GPRA Benefits Analysis http://www.eere.energy.gov/office_eere/ gpra_estimates_fy05.html - especially Chapter 4 Wind Model Enhancements April 20, 2004 Renewable Energy Modeling Series http://www.epa.gov/cleanenergy/pdf/wood_apr20.pdf NEMS 2050 Extension NEMS Conference March 2004 http://www.eia.doe.gov/oiaf/aeo/conf/pdf/wood.pdf

OnLocation Inc, Energy Systems Consulting

Page 34