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Modeling suggests efficiency, trading can lower Mich. Clean Power Plan compliance costs

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Modeling suggests efficiency, trading can lower Mich. Clean Power Plan compliance costs

Energyefficiency combined with interstate trading of allowances could reduce Michigan'soverall compliance costs in to meet Clean Power Plan emissions reductionrequirements, updated modeling shows.

"Michigan'sability to reduce energy waste is absolutely key to our energy future,"Michigan Agency for Energy Executive Director Valerie Brader said on a presscall Sept. 26. Brader, along with state Public Service Commission ChairmanSally Talberg, spoke to media about the latest modeling results showing optionsto meet President Barack Obama's Clean Power Plan, a federal regulationlimiting carbon emissions from existing power plants. Earlier modeling releasedin December 2015 showed that the state can comply without taking new actionsthrough 2025. Energy efficiency and multistate trading could be impactful inthe second and third interim compliance periods running from 2025-2027 and2028-2029, the report shows.

On ahigh level, one set of modeling results, conducted by think tank Resources for the Future for theNational Governors Association, showed that the state can earn revenues fromthe sale of excess allowances if multistate trading occurs. The allowanceexport revenue can help lower compliance costs. Another study, conducted byconsulting firm Synapse Energy Economics, showed that conserving 2% of energysales each year could cut total power system costs by over $4 billion from amodeled base case, the Aug. 12 reportshows.

Theupdated modeling results show that "scenarios with higher levels of energywaste reduction were much less costly for Michiganders than those with lowerlevels of energy waste reductions," Brader said. "In fact, they wereless costly than the business-as-usual scenarios."

Ahigh energy efficiency case in Synapse's study assumed a 2% per year energyefficiency resource standard versus the 1% per year standard in state law. Thehigher efficiency resource standard combined with a compliance approach thatinvolves interstate trading and participation by both new and existingresources cuts total system costs by $4.9 billion compared to the base case,which assumes there is no Clean Power Plan. Total system costs includereductions in fuel, operations and maintenance expenses, allowance sales andcosts from new builds, power imports and energy efficiency programs.

TheSynapse study ran four scenarios and two sensitivities. The high gas pricesensitivity, which modeled prices hitting $6/MMBtu by 2034, resulted in 5,000MW of new wind build by 2028, four years ahead of schedule than in a scenarioassuming prices of about $4/MMBtu.

Themodeling results are also impacted by what happens with nuclear capacity in theregion. Synapse's modeling assumed that Entergy Corp.'s 819-MW Palisades nuclear plant would operate through2030 in spite of economic pressures that have forced some nuclear plants to beshut down early. Palisades' operating license with the U.S. Nuclear RegulatoryCommission expires in 2031, and the power purchase agreement with Michiganutility Consumers Energy Co.is up in April 2022. DominionResources Inc. retired its 560-MW Kewaunee unit in Wisconsinbecause of economic reasons, and other units in Illinois have felt similarpressures. Exelon Corp.in June announcedplans to shut its Clintonplant in 2017 and Quad Citiesplant in 2018.

Themodeling results are timely and coincide with decisions that the state andenergy suppliers must make about resource adequacy, Talberg said. "Giventhe age of many coal plants in Michigan, we are expecting many of these coalplants to shut down even without the carbon rule in place. So this modelinghelps us understand the factors that influence the costs to replace [those]facilities," she added.

Outsideof the Clean Power Plan modeling, the state expects results in 2017 for twostudies that it isworking on with the MidcontinentIndependent System Operator Inc. One study looks at the impact fromnuclear plant outages on reliability and another is on transmission expansionwith Canada.

InFebruary, the state halted work on the federal carbon rule after it wasstayed by the U.S.Supreme Court, but the modeling effort began prior to the stay. The U.S. Courtof Appeals for the District of Columbia Circuit oral arguments on the case onSept. 27.