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The High Cost
of Removing The Lower Snake River Dams.
A Joint Analysis by the
Washington Policy Center and the Center of the American Experiment.
Article by Todd
Myers, Isaac Orr, Mitch Rolling and Tom Stacy.
Todd Myers
is the Director of the Center for the Environment at Washington
Policy Center. He is one of the nation’s leading experts on
free-market
environmental policy. Todd is the author of the landmark 2011 book
Eco-Fads:
How the Rise of Trendy Environmentalism Is Harming the Environment and
was
a Wall Street Journal Expert Panelist for energy and the environment.
He has
authored numerous studies on environmental issues, including Five
Years of
Environmental Policy: Are We Making a Difference; Promoting Personal
Choice,
Incentives and Investment to Cut Greenhouse Gases, and more.
Isaac Orr
is
a policy fellow at Center of the American Experiment, where he
writes about energy and environmental issues. Isaac has written
extensively on
hydraulic fracturing, frac sand mining and electricity policy, among
other energy
and environmental issues. His writings have appeared in
The Wall Street Journal,
USA Today,
the
New York Post,
The Hill,
Orange County Register,
The Washington
Times,
and many other publications.
Mitch Rolling
is a policy analyst at Center of the American Experiment, where
he conducts research and writes about energy issues. Prior to his
current
role, he interned at the Center for several months and wrote
extensively on
renewable energy and electricity policy. Several of Mitch’s writings
have since
appeared in numerous national and Minnesota publications, and his
research
has been cited by publications such as
The Wall Street Journal.
Tom Stacy
is an Ohio-based independent electricity system economics
consultant with decades of experience in electricity market modeling,
economics, and policy in market throughout the U.S., particularly in
the
PJM and MISO service regions. He is best known for pioneering and
refining
methods for comparing the cost of new intermittent generation with the
cost
of maintain existing dispatchable generation, a concept that has
become
more relevant as utilities are increasingly weighing premature
retirements of
coal and gas units and replacing them with wind and solar.
Executive Summary
Proposals to remove the Lower Snake River
(LSR) dams would transform Washington
from a state with some of the lowest
electricity prices in the country to a state
with much higher costs.
The total cost of replacing the generation of
the LSR dams with 100 percent wind, solar,
and battery storage would be $34.3 billion
based on 2021 LSR dam generation and real-world
wind and solar capacity factors for the
region.
Electricity
rates would increase from 8.33
cents per kilowatt hour (kWh) in 2020, to
10.34 cents per kWh by 2028, an increase
of 2.01 cents per kWh, a nearly 25 percent
increase.
Under
this scenario, Washington would go
from having the 7th
lowest total electricity
prices in the country in 2020 to the 18thhighest
in 2028.
Washington electricity consumers would
see their electricity expenses increase by
an average of nearly $330 per year through
2050.
Removing these dams would reduce the
reliability of the grid by making the statemore
vulnerable to fluctuations in output
from weather-dependent energy sources
like wind and solar.
The
LSR dams provide other benefits,
including transportation for goods,
irrigation, and tourism, which must be
addressed in any proposal advocating their
removal.
In contrast, replacing the dams with new
natural gas facilities would provide reliable
electricity at a cost of $10.3 billion—$24
billion less than replacing the dams with
wind, solar, and storage, even with current
high prices for natural gas.
The
$34.3 billion cost reported in this study
pertains only to the expenses incurred
replacing the electricity generated by
LSR dams with new generation sources.
This figure is notably higher than cost
estimates produced by those who
advocate destroying the dams, which do
not include the cost of full replacement or
transmission.
Washingtonians
would benefit most from
keeping the LSR dams online. The next best
option would be to build natural gas power
plants to replace them
Authors’ Note:
This report is a continuation of the work performed by Center of the
American Experiment
modeling the cost of energy portfolios in states throughout the
country. Portions of this report have been
repurposed and modified to reflect the result of Governor Inslee and
Senator Murray’s proposal to eventually
replace the Lower Snake River dams
Policy Recommendations
Our research leads us to three common-sense
policy recommendations that will keep
Washington’s electricity reliable, and affordable,
while improving outcomes for salmon recovery.
If adopted, these recommendations would save
Washington electricity consumers billions of
dollars in the coming decades.
1.
Keep the state’s existing hydroelectric
dams:
Washington has some of the
lowest-cost electricity in the nation due
to its hydroelectric dams. Removing the
LSR dams and attempting to replace
them with a combination of wind, solar,
and battery storage facilities would be
a costly mistake that will dramatically
raise electricity prices.
2.
Allow for the construction of new
natural gas plants in Washington.
Removing the LSR dams would be far
less costly if Washington allowed the
construction of new natural gas plants,
but it is currently not legal to do so.
Dam opponents admit dam removal will
increase reliance on natural gas, so that
electricity might as well be produced in
Washington state.
3.
Dedicate salmon-recovery funding to
projects across the state.
Rather than
waste huge amounts of taxpayer money
on one stretch of river, only to leave
Washington’s electricity less reliable,
salmon-recovery advocates should push
for funding to be used where it can be
most effective across the Northwest.
Introduction
Washington state had the 7th
lowest
electricity prices in the United States in 2020
and the lowest carbon dioxide emissions
from the electricity sector for any state in the
nation.
These economic and
environmental feats were only
possible because the original
New Deal built the Grand
Coulee and Bonneville dams.
The hydroelectricity generated
from these dams continues to
be the largest source of power
in Washington to this day.
Hydroelectric power
provided 66 percent of total
in-state electricity generation
in 2020, but several groups
have advocated for removing
the four LSR dams: Ice Harbor,
Little Goose, Lower Granite, and
Lower Monumental, to aid in
salmon recovery efforts.
These groups received
a boost when Washington
Governor Jay Inslee and Senator Patty Murray
released their joint recommendations stating
that salmon and other species in Washington
state face a dire future that is in part due to the
existence of the LSR dams.
While Inslee and Murray stated that
breaching the dams is not feasible in the
short term, the pair said “federal and state
governments should move forward with a
program to replace the benefits provided by the
Lower Snake River Dams, consistent with the
Pacific Northwest’s clean energy requirements
and decarbonization future, so that breaching
of the Lower Snake River dams is a pathway
that can be credibly considered
by policymakers in the future.”7The
pathway sought by
Governor Inslee and Senator
Murray has several challenges.
While Washington is a net
exporter of electricity, this
statistic is misleading.
Washington is a net exporter
of electricity in the summer
months, but it is a net importer
of electricity during the winter.
This makes the retention of the
LSR dams crucial to keeping
Washington’s lights on as state
laws mandate a shift away
from oil and natural gas in
its transportation and home
heating sectors.
American
Experiment’s
modeling shows removing the four LSR dams
and replacing the electricity generated by them
with onshore wind, solar, and battery storage
would increase energy costs by $34.3 billion
through 2050. This sum does not account
for the economic losses that would affect
Washington farmers who rely on the dams for
irrigation and to send their wheat to market via
barges.
“American
Experiment’s
modeling shows
removing the
four LSR dams
and replacing the
electricity generated
by them with
onshore wind, solar,
and battery storage
would increase
energy costs by
$34.3 billion through
2050.”
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"
The four LSR dams have a combined
nameplate capacity of 3,033 MW, constituting
nearly 10 percent of Washington’s installed
power plant capacity."
They accounted for
4.68 percent of Washington’s in-state electricity
generation in 2021, the most
recent year data are available.
Over the past decade,
generation from the LSR dams
accounted for an average of
7.2 percent of Washington’s in-state
electricity generation. This
report uses the 2021 percentage
to provide a conservative
estimate of potential costs.
This analysis examines two
scenarios to determine the cost
of replacing the lost electricity
resulting from the removal of
the four LSR dams in 2028. One scenario, the
Renewable Scenario, calculates the cost of
replacing the electricity generation of the four
LSR dams with a combination of onshore wind,
solar, and battery storage. All facilities would be
located in Washington.
The other scenario modeled determines the
cost of replacing the electricity generated by
the LSR dams with new combined cycle and
combustion turbine natural gas generation
in Washington State. This scenario is called
the Natural Gas Scenario (NG
Scenario).
Both scenarios evaluate
replacing the generation from
the LSR dams of 5.4 million
megawatt hours (MWh), based
on real-world generation data
for 2021 on an hourly basis.11,12Readers
should note that this
analysis does not account for
federal subsidies paid to wind
and solar operations. This
methodology is appropriate
because federal subsidies would
not reduce the cost of producing energy using
these resources; they would simply shift who
pays for it.
The appendix explains the assumptions and
factors considered by our model
Section II: Replacing the
Lower Snake River Dams with
Renewables, or Natural Gas
"Our model calculates the generation mix
needed to replace the electricity generated
from the LSR dams for every hour of 2021 using
the resources mixes in the
Renewable Scenario and NG
Scenario."
Under
the Renewable
Scenario, Washington electricity
providers would be required to
invest heavily in wind, solar, and
battery storage technologies
to make up for destroying
the dams. Figure 1 shows the
resource mix needed to replace
the dams under the Renewable
Scenario in a hypothetical
situation in 2028 after the LSR
dams have been destroyed.
The black line shows the
2021 electricity production from
the LSR dams, which must be
matched by wind, solar and battery storage for
every hour of the year to maintain the same
level of reliability as the LSR dams after they are
destroyed in 2028.
Wind and solar generation data were
modeled using real-world, 2021 hourly capacity
factors of these resources in the Bonneville
Power Administration (BPA) territory during the
dates depicted in Figure 1.13
These dates were
selected because they show
the days where battery storage
is needed most to match
generation from the LSR dams.
Any
wind and solar
generation that exceeds the
LSR dam generation is used
to charge the batteries on the
system. Once the batteries are
fully charged, any additional
solar or wind power that is
generated is curtailed or turned
off. Curtailment is expected to
become increasingly common
as more wind and solar are
placed into service on the
grid.
Under the NG Scenario,
Washington would replace the generation
from the LSR dams with new natural gas
power plants, which are capable of being
turned up and down to match fluctuations in
electricity generation from the LSR dams (see
Figure 2).
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Section III: Comparing the
Costs of the Renewable Scenario
and the NG Scenario
Our modeling indicates that the Renewable
Scenario would cost Washingtonians an
additional $34.3 billion (in constant 2022
dollars) compared to keeping the dams in place.
This would increase electricity rates by 24
percent in 2028, with average
electricity rates rising from
8.33 cents per kWh in 2020
to 10.34 cents per kWh. As a
result, the average cost for each
Washington utility customer
would increase by $485 in 2028,
the equivalent of paying an
additional $40 per month (see
Figure 3)
These cost estimates
assume a declining cost of
renewables and battery storage
using projected future costs
from the moderate scenario in
the National Renewable Energy
Laboratory (NREL) Annual Technology Baseline
(ATB). Even with declining costs for wind, solar,
and batteries, the cost to replace the electricity
from the LSR dams is very high and nearly
3.5 times more than replacing the dams with
natural gas generation.
In contrast, the costs associated with the
NG Scenario would total $10.3 billion, which
would translate to a 6.6 percent increase in
electricity rates. Prices would rise from 8.33
to 8.88 cents per kWh in 2028, resulting in
an additional cost of $134
for each utility customer in
Washington that year, or $11 per
month. Under the NG scenario,
Washington electricity rates
would remain one of the lowest
(13th)
in the country based on
2020 rates.
Figure 3 shows the annual
additional costs of complying
with the Renewable Scenario
and the NG Scenario from 2022
through 2050, compared to
the current cost of electricity.
This number is obtained by
dividing the annual cost of
the programs among all Washington utility
customers, including residential, commercial,
and industrial electricity users.
Renewable Scenario costs decline from 2028
through 2048 as wind turbines, solar panels,
and battery storage facilities depreciate over
time. Costs increase slightly again in 2048
because wind turbines and battery storage
facilities only last for 20 years, and these
facilities must be rebuilt, or “repowered,” at the
end of their useful lives in order to maintain
adequate electricity generation capacity to
replace the LSR dams.
Residential
customers
Under the Renewable Scenario, residential
electricity prices would increase by 2.38
cents per kWh in 2028. Rising prices would
cause Washington families to see their annual
electricity costs increase by an average of $242
per year through 2050 (see Figure 4).
Residential customers under the NG
Scenario would see an average additional cost
of $73 per year compared to the current electric
grid through 2050, an increase of $6.08 per
month.
Commercial
Customers
Under
the Renewable Scenario, commercial
electricity customers like small businesses,
grocery stores, and other retailers would see
their electricity prices increase by 2.15 cents
per kWh in 2028. Rising prices would cause
Washington businesses to see their annual
electricity costs increase by an average of
$1,315 per year (see Figure 5).17Commercial
customers under the NG
Scenario would see prices increase by 0.59
cents per kWh in 2028. Rising prices would
result in commercial customers paying an
additional cost of $394 per year compared to
the current electric grid.
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Industrial customers
Industrial companies in Washington, as
significant users of electricity, would be hit hard
under the Renewable Scenario, seeing their
electricity prices increase by 1.22 cents per kWh
in 2028.
These rising prices would cause
Washington industrial customers to see
their annual electricity costs increase by an
average of $20,668 per year (see Figure 6).
Under the NG Scenario the cost of industrial
electricity would increase by 0.34 cents per
kWh in 2028. Rising prices would cost the
average industrial customer an additional
$6,198 per year.
With
energy-intensive industries in
Washington already struggling to keep
their doors open, this potential increase is
particularly important. Members of Congress
are already asking the BPA to cut existing rates
for manufacturers.
Renewable Scenario compliance costs
are driven by the need to build enough wind
turbines, solar panels, battery storage facilities,
and transmission lines to meet the same level
of electricity provided by the LSR dams in 2021.
NG Scenario costs are driven by building and
operating new natural gas power plants in
Washington.
Other
factors that increase costs include
rising property taxes and utility profits resulting
from building the renewable energy sources
needed to replace the dams.
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Section IV: How Wind, Solar, and
Battery Storage Drive Up Costs
Compared to Reliable Power Plants
Thus far, this report has summarized the cost
difference between the Renewable Scenario
and the NG Scenario. In this section, we will
discuss how attempting to replace the LSR
dams using wind, solar, and
battery storage drives up costs
to a much greater extent than
building reliable natural gas
plants.
The
most important thing
to know about the electric grid
is that the supply of electricity
must be in perfect balance
with demand at every second
of every day.19
If demand rises
as Washingtonians turn on
their clothes dryers or plug
in their electric vehicles, an electric company
must increase the power supply to meet that
demand. If companies cannot increase supply to
meet demand, grid operators are forced to cut
power to consumers—i.e., initiate brownouts or
blackouts—to keep the grid from crashing.
Generating
more electricity is relatively easy
with dispatchable power plants—plants that can
be turned up or down on command—like those
fueled with coal, natural gas, and nuclear fuel.
But adjusting to second-by-second fluctuations
in electricity demand is much more difficult with
wind and solar, whose electricity production is
dependent on second-by-second fluctuations in
the weather.
It
is possible to mitigate
some of the inherent
unreliability of wind and solar by
vastly increasing the amount of
wind and solar capacity on the
grid (known as “overbuilding”
wind and solar installations) to
allow electricity demand to be
met even on cloudy or low-wind
days, and curtailing, or turning
off, much of this capacity when
wind and solar production is
higher. Other mitigation strategies include
building more transmission lines and battery
storage facilities. Each of these mitigation
strategies, however, is a major driver of cost for
the entire electric system.
These mitigations come with other
additional costs, including higher profits for
investor-owned utilities and higher property
taxes. Each of these additional costs will be
discussed in greater detail below.
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Increasing electricity generation
capacity
Building and operating new power plants
is expensive. The Renewable Scenario
would greatly increase the amount of power
plant capacity on Washington’s electric grid
compared to keeping the LSR dams, while the
NG Scenario would build significantly less new
capacity. As a result, the Renewable Scenario is
far more expensive.
In
2020, the most recent year power plant
capacity data were available, Washington had
roughly 30,688 MW of installed power plant
capacity on its grid.
20Under
the Renewable Scenario, the total
capacity needed to replace the LSR dams
would be 17,006 MW. The amount of capacity
that Washington relies upon would increase
to 44,661 MW after the dams are breached in
2028 for a net increase of 13,973 MW. Of this
new capacity, 6,056 MW would be solar, 8,813
MW would be battery storage with four hours of
storage per MW, and 2,137 MW would be wind.
The amount of additional capacity needed
under the NG Scenario would be 2,250 MW,
which means the Renewable Scenario would
require 5.6 times more power plant capacity
than the combined capacity of the four LSR
dams and 7.6 times more capacity than the NG
Scenario (see Figure 7).
It is important to note that our model
selected these quantities of solar, wind, and
battery storage resources because they were
the most cost-effective portfolio for matching
the electricity generated by the LSR dams
with carbon-free resources and maintaining
grid reliability under 2021 LSR dam electricity
generation and real-world wind and solar
generation conditions.
Building these solar panels, wind turbines,
and battery storage facilities would cost $5
billion, $2.2 billion, and $8.5
billion, respectively, while
repowering these facilities at
the end of their 20- to 25-year
useful lives would cost an
additional $7.7 billion for a total
of $23.4 billion. However, only
$15.1 billion would be paid by
Washington consumers through
2050 (see Figure 8).
In contrast, building the
natural gas plants in the NG
scenario would cost only $1.8
billion, with $1.1 billion paid
through 2050. Fuel costs make
up the largest expense in this
scenario, totaling $6.2 billion
through 2050.
Transmission costs
Transmission lines are important: It does
no good to generate electricity if it cannot be
transported to the homes and businesses that
rely upon it.
Transmission
costs are driven by the need
to build new infrastructure to connect wind
turbines and solar panels to the rest of the
electric grid. These facilities are often located
in rural areas far from populous regions of
Washington, where the electricity will be
consumed.
For major buildouts of wind and solar,
previous studies show that transmission
expenditures range anywhere from $240,000 to
$300,000 per MW wind and solar installed.22,23,24These
values are consistent with average
transmission cost estimates reported in a
technical brief produced by Lawrence Berkeley
Labs (LBL) in October 2022 and produced
levelized transmission costs within the range
found by LBL in 2019.
This report uses the low end of this
estimate ($240,000 per MW), which results in
a total transmission cost of $2.4 billion for the
Renewable Scenario, whereas
the Natural Gas Scenario uses
$450 million based on EIA
estimates.
Utility returns
Because the LSR dams
are owned by the federal
government, they do not reap
a rate of return like investor-owned
utilities (IOUs).
Puget Sound Energy is the
largest investor-owned utility
in Washington, and it earns a
return on equity of 9.4 percent
when it spends money building
new power plant capacity, as long as these
expenditures are approved by electricity
regulators in Washington.27Our
study assumes IOUs would own and
operate 34.2 percent of the new capacity built
in the Renewable Scenario and NG Scenarios
because these entities constituted 34.2 percent
of total electricity sales in Washington in 2020.
The Renewable Scenario would require
utilities to spend $15.1 billion on new
infrastructure through 2050, including initial
capital costs and repowering, whereas capital
expenditures in the NG Scenario during
this period would be $1.1 billion. As a result,
additional corporate profits for investor-owned
utilities would be far higher under the
Renewable Scenario, $7.4 billion, than under the
NG Scenario, $1.1 billion
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Property taxes
Property taxes increase most under the
Renewable Scenario because compared
to the current grid and NG Scenario, there
is much more property to tax. While the
property taxes assessed on power plants
are often a crucial revenue stream for local
communities that host power plants, these
taxes also increase the cost of producing and
providing electricity.
Additional
property tax payments under the
Renewable Scenario were calculated to be
$1 billion.28
Under the NG Scenario, additional
property taxes would be $156 million.
Total Costs
Figure
8 shows the total additional cost
comparison of the Renewable Scenario and the
NG Scenario through 2050. As you can see, the
Renewable Scenario is more expensive than the
NG Scenario in every aspect, except fuel costs.
Notably, capital costs in the Renewable
Scenario are 2.4 times more expensive than
fuel costs in the NG Scenario despite using
$9/MMBtu fuel prices. Furthermore, fuel costs
are known as “pass-through” costs, meaning
electricity customers pay only for the cost of
the fuel and upkeep to serve it to them. This
is in contrast to capital costs, which utility
companies are allowed to rate base and earn
a rate of return from and explains why utility
returns in the Renewable Scenario are nearly 7
times more expensive than in the NG Scenario.
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Almost all studies that examine the cost of
renewable energy use a methodology called
the Levelized Cost of Energy, or LCOE, to
assess the cost of wind and
solar compared to different
technologies.29
LCOE estimates
reflect the cost of generating
electricity from different types
of power plants, on a per-unit
of electricity basis (generally
megawatt hours), over an
assumed lifetime and quantity
of electricity generated by the
plant.
In other words, LCOE
estimates are essentially like
calculating the cost of your car
on a per-mile-driven basis after
accounting for expenses like
initial capital investment, loan
and insurance payments, fuel
costs, and maintenance.
Wind
and solar advocates
often misquote LCOE estimates from Lazard or
EIA to claim that wind and solar are now lower
cost than other sources of energy. However,
Lazard and EIA show the cost of operating a
single wind or solar facility at its maximum
reasonable output; they do not convey the
cost of
reliably operating an entire electricity
system
with high penetrations
of wind and solar, which costs
exponentially more.
For example, Lazard and
EIA do not account for the
expenses incurred to build
new transmission lines, the
additional property taxes, utility
profits, or the cost of providing
“backup” electricity with natural
gas or battery storage when the
wind is not blowing or the sun
is not shining, referred to as
a “load balancing” cost in this
report.
Even more importantly, the
LCOE estimates generated by
Lazard and EIA do not account
for the massive overbuilding
and curtailment that must
occur to ensure that grids with high reliance on
wind, solar, and battery storage meet electricity
demand.32
In this case, wind, solar, and battery
storage must meet the hourly electricity
generation provided by the LSR dams.
It
is important for the reader to understand
that the costs associated with load balancing,
overbuilding, and curtailment increase
dramatically because the amount of wind,
solar, and battery storage must be “overbuilt”
to account for the intermittency of wind and
solar, which is why the Renewable Scenario
has an installed capacity of 17,006 MW by 2028,
whereas the NG Scenario has
a capacity of 2,250 MW.
American
Experiment’s
model accounts for these
additional expenses and
attributes them to the cost
of wind and solar to get
an “All-In” LCOE value for
these energy sources. Our
All-In LCOE represents the
cost of delivering the same
reliability value of the LSR
dams, allowing for an apples-to-apples
comparison of the
cost of reliably matching LSR
dam production with new
power plants built in the NG
Scenario and Renewable
Scenario.
Data
from Energy
Environment Economics (E3)
show the LSR dams are some
of the lowest cost sources of electricity in the
state, generating electricity for $17 per MWh
(see Figure 9).
Under the Renewable Scenario, these
low-cost dams would be replaced with wind,
solar, and battery storage by 2028. Figure 9
shows the All-In LCOE of new wind and solar
is approximately $415 per MWh and $433 per
MWh, respectively.
Because
curtailment rates reach 78 percent,
overbuilding and curtailment costs are the
primary drivers of wind and solar due to the
need to build 5.5 times more capacity than
would be needed if the LSR dams were left in
place.33
As a result, the cost of battery storage,
overbuilding, and curtailing in Figure 9 can be
thought of as a levelized cost of intermittency,
or unreliability.
In the NG Scenario, new combined cycle
(CC) and combustion turbine
(CT) natural gas plants are
used to replace the energy
produced by the LSR dams
at a cost of $81 and $164
per MWh, respectively (see
Figure 9). Costs for CC and
CT plants are largely driven
from fuel expenses, which are
assumed to be $9 per MMBtu
throughout the model run.
CT gas costs are higher cost
on a per-MWh basis because
they are used as a peaking
resource and operate less
frequently than CC gas
plants.
If
natural gas prices are
assumed to be $5.40 per
MMBtu—the Henry Hub cost
on October 10, 2022—instead
of $9 per MMBtu, the cost
of CC gas would be $58 per MWh and CT gas
would be $129 per MWh.
As
discussed in Section IV, costs are
higher for wind and solar facilities because
grids powered with large concentrations of
intermittent wind and solar require much more
total capacity and transmission to reliably meet
electricity demand than systems consisting
largely of dispatchable power systems such as
traditional fossil fuel and nuclear plants.
![](images/images_11_08_2022/pic10.jpg)
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Lost jobs from high energy
prices
By increasing energy costs and thereby
reducing the income available for spending
in other sectors of the economy, the
Renewable Scenario and NG Scenario would
reduce the ability of Washington families to
pay for, thus reducing the demand for, other
goods and services in the broader economy.
This makes it more difficult for businesses
to retain employees and raise wages.
Most importantly, it makes Washington
businesses less competitive with companies
in other states, or nations, with lower energy
costs.
In
the Renewable Scenario, prices increase
dramatically, and the vast majority of the jobs
created would be temporary construction jobs
at wind and solar installations. High electricity
costs disproportionately jeopardize jobs in
energy-intensive industries like agriculture,
manufacturing, and mining, which compete in a
global marketplace.
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Appendix
Electricity consumption assumptions
Electricity
consumption is kept constant at 5.465 million MWhs throughout the
course of this model
run based on the most recent years’ data from the U.S. Army Corps of
Engineers database. Electricity
use in each customer class — residential, commercial, and industrial —
is also held constant.
This
assumption is made for two reasons. One, this analysis is intended to
show the difference in
cost between operating the LSR dams in Washington compared to what it
would cost to replicate their
generation under the Renewable Scenario and NG Scenario.
Two, load-growth projections are subject to a wide variety of
assumptions, such as energy efficiency
measures that reduce electricity demand, electric vehicle adoption,
and the electrification of other
sectors of the economy, which would increase demand for electricity.
These
factors are difficult to predict accurately, and the assumptions used
for load growth or energy
efficiency can have major implications for cost. Therefore, the most
straightforward analysis looks at
these issues assuming all other factors remain equal.
Time horizon studied
This
analysis studies the impact of removing the LSR on electricity prices
from 2022 to 2050, to
determine the long-term cost.
This
time horizon is examined because like a mortgage, electricity
customers pay off the cost of
power plants each year, meaning decisions made today will affect the
cost of electricity for decades
to come. As such, the total costs highlighted by this study do not
represent the total costs incurred by
each of the scenarios studied, but rather the total cost that
ratepayers would pay through 2050.
Hourly LSR dam generation, capacity factors, and peak demand
assumptions
Hourly
LSR dam generation was determined using data obtained from the U.S.
Army Corps of
Engineers. These inputs were entered into a model provided by the
Texas Public Policy Foundation to
assess hourly load shapes, capacity shortfalls, and calculate storage
capacity needs.
Capacity
factors used for wind and solar facilities were determined using
real-time wind and solar
generation data obtained from EIA’s electric grid monitor for the BPA
and dividing it by the installed
capacity values for wind and solar.
Utility returnsThe
amount of profit a utility makes on capital assets is called the Rate
of Return (RoR) on the
Rate Base for both the Renewable Scenario and NG Scenario.
Investor-Owned Utilities serve 34.2
percent of Washington’s electricity needs, which is why this study
assumed only 34.2 percent of capital
expenditures would earn a RoR.
For
the purposes of our study, the capital structure used is that of
Avista Utilities and Puget Sound
Energy: 51.5 percent debt and 48.5 percent equity, a cost of debt of
4.97 percent and return on equity of
9.4 percent.36
Utility profits are much higher in the Renewable Scenario than the NG
Scenario because
utility companies are earning a government-approved profit on much
more new electricity generation
and storage capacity.
Transmission
For major buildouts of wind and solar, previous studies show that
transmission expenditures range
anywhere from $240,000 to $300,000 per MW wind and solar installed.37,38,39
This report uses the low end
of this estimate of $240,000 per MW wind and solar installed for the
Renewable Scenario. For the NG
Scenario, we use EIA estimate of transmission expenses.
Property taxes
Additional
property tax payments for utilities were calculated to be one percent
of the
undepreciated cost of generation assets installed to comply with the
Renewable Scenario and NG
Scenario, based on Washington property tax rates.
Wind and solar degradation
According
to the Lawrence Berkeley National Laboratory, output from a typical US
wind farm shrinks
by about 13 percent over 17 years, with most of this decline taking
place after the project turns ten
years old. According to NREL, solar panels lose one percent of their
generation capacity each year and
last roughly 25 years, which causes the cost per megawatt hour (MWh)
of electricity to increase each
year. However, our study does not take wind or solar degradation into
account.
Annual average additional cost per customer
The
annual average additional cost per customer was calculated by dividing
the average yearly
expense of the Renewable Scenario and NG Scenario by the number of
electricity customers in
Washington.
Annual average cost per rate class customer
The
annual average additional cost per residential, commercial, and
industrial rate class customer
was calculated by applying the overall cost per kWh of Renewable
Scenario and NG Scenario
compliance during the time horizon of the study to rate classes based
on historical rate factors in
the state of Washington. Rate factors are determined by the historical
rate ratio (rate factor) of each
customer class.
For example, electricity prices for residential, commercial, and
industrial rate classes in Washington
were 9.87, 8.92, and 5.08 cents per kWh in 2020, respectively. Based
on general electricity prices 8.33
cents per kWh, residential, commercial, and industrial rates had rate
factors of 1.18, 1.07, and .61,
respectively. This means that, for example, residential customers have
historically seen electricity
prices 18 percent above general rates. This model continues these rate
factors to assess rate impacts
for each rate class.
Impact on electricity rates
The
table below shows annual electricity rate increases by customer class
using the cost of the
Renewable Scenario and NG Scenario and adjusting for the rate factor
described above.
![](images/images_11_08_2022/pic14.jpg)
Assumptions for Levelized Cost of Energy (LCOE) calculations
The main factors influencing LCOE estimates are capital costs for
power plants, annual capacity
factors, fuel costs, heat rates, variable operation and maintenance
(O&M) costs, fixed O&M costs, the
number of years the power plant is in service, and how much
electricity the plant generates during that
time (which is based on the capacity (MW) of the facility and the
capacity factor).
LCOE
values for the LSR dams were derived from the E3 report referenced
earlier.
LCOE values for new power plants were calculated using data values
presented in the NREL ATB
and are based on the cost of operating each energy source during the
model. The cost of repowering
power facilities that need it at the end of their useful lives is
accounted for in each value. These values
are described in greater detail below.
Capital costs, and fixed and variable operation and maintenance costs
Capital
costs and expenses for fixed and variable O&M for new wind, solar,
battery storage, and SMR
resources were obtained from the NREL ATB.
Unit
lifespans
Different power plant types have different useful lifespans. Our
analysis takes these lifespans into
account for our Levelized Cost of Energy analysis.
Wind turbines last 20 years.
Federal LCOE estimates seek to compare the cost of generating units
over a 30-year time horizon.43
This is problematic for wind energy LCOE estimates because NREL
reports the useful life of a wind turbine is only 20 years before it
must be repowered. Our analysis
corrects for this error by using a 20-year lifespan for wind projects
before they are repowered and need
additional financing.
Solar panels last 25 years.
Our analysis uses a 25-year lifespan for solar because this is the
typical
warranty period for solar panels. These facilities are rebuilt after
they have reached the end of their
useful lifetimes.
Battery
storage lasts 20 years.
Battery storage facilities are assumed to last for 20 years, which is
longer than the median lifetime of 15 years found by the NREL.44
Battery facilities, like wind and solar,
are rebuilt after reaching the end of their useful lifetimes.Natural
gas plants last 30 years.
Natural gas facilities have a financial lifespan of 30 years.
Fuel
cost assumptions
Fuel costs for new natural gas plants were assumed to by $9 per million
British thermal units, as this
was the cost at the Henry Hub in early September 2022.45
We hold these values constant throughout
the entirety of the report.
Levelized cost of transmission, property taxes, and transmission lines
This
report calculated the additional levelized transmission, property tax,
and utility profit expenses
resulting from each new power source during the course of the model
and according to the additional
capacity in MW installed and generation in MWh of that given source.
Capacity installed is used to
determine capital costs and additional expenses (transmission,
property taxes, and utility profits) of
each electricity source over the course of its useful lifespan.
The Levelized Cost of Intermittency (LCOI)
This
report also calculated and quantified the levelized cost of
intermittency (LCOI) for wind and
solar energy on the entire energy system. These intermittency costs
stem from the need to build
backup natural gas or battery storage facilities to provide power
during periods of low wind and solar
output, which we call “load balancing costs,” and the need to
“overbuild and curtail” wind and solar
facilities to limit the need for battery storage. It is important to
note that these costs are highly system
specific to the mix of resources being built and operated in any given
area.
Load
balancing costs
We
calculate load balancing costs by determining the total cost of
building and operating new
battery storage facilities to meet electricity demand during the time
horizon studied.47
These costs
are then attributed to the LCOE values of wind and solar by dividing
the cost of load balancing by the
generation of new wind and solar facilities (capacity-weighted).
Attributing
load balancing costs to wind and solar allows for a more equal
comparison of the
expenses incurred to meet electricity demand between non-dispatchable
energy sources, which
require a backup generation source to maintain reliability, and
dispatchable energy sources like coal,
natural gas, and nuclear facilities that do not require backup
generation.
Overbuilding and curtailment costs
The cost of battery storage for meeting electricity demand is
prohibitively high, so many wind
and solar advocates argue that it is better to overbuild renewables,
often by a factor of five to eight
compared to the dispatchable thermal capacity on the grid, to meet
peak demand during periods of
low wind and solar output. These intermittent resources would then be
curtailed when wind and solar
output improves.
As
wind and solar penetrations increase, a greater portion of their
output will be curtailed for each
additional unit of capacity installed.
This “overbuilding” and curtailing vastly increases the amount of
installed capacity needed on
the grid to meet electricity demand during periods of low wind and
solar output. The subsequent
curtailment during periods of high wind and solar availability
effectively lowers the capacity factor of all
wind and solar facilities, which greatly increases the cost per MWh
produced.
For
example, future curtailment values in the Renewable Scenario will
increase substantially. Annual
curtailment levels for this model were estimated based on hourly load
forecasts and were found to
reach up to 78 percent of total wind and solar generation by the end
of the model.
Rising
rates of curtailment stemming from the overbuilding of the grid
effectively lower the capacity
factor of all generating resources on the grid, thereby increasing the
levelized cost of energy, which is a
calculation of power plant expenses divided by the generation of the
plant.
As curtailment rises, wind and solar facilities are forced to recover
their costs over fewer MWhs,
resulting in huge increases in the overbuilding and curtailment costs
as the percentage of electricity
demand served by wind, solar, and battery storage increases. The
annual cost of curtailment is nearly
$1.4 billion every year from 2028 to 2050![](images/images_11_08_2022/pic15.jpg)
![](images/images_11_08_2022/pic16.jpg)
![](images/images_11_08_2022/pic17.jpg)
![](images/images_11_08_2022/pic18.jpg)
![](images/images_11_08_2022/pic20.jpg)
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