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The Electric Reliability Council of Texas (ERCOT) recently conducted an analysis of the likely effects of proposed climate change legislation on electricity prices.

Consistent with a similar study conducted by the PJM Interconnection, ERCOT focused on the near-term impacts of this potential legislation.

ERCOT performed the analysis by simulating the cost-based, hourly dispatch of all existing and committed generation in the ERCOT region to serve the electric load in the region for the year 2013. The generation was dispatched according to its variable cost, including carbon dioxide (CO2) allowance costs, while adhering to the limitations of the transmission system and other reliability requirements.

The change in total annual wholesale power costs (the costs paid by consumers) and wholesale prices (expressed as load-weighted average locational marginal prices), as well as production costs, total CO2 emissions and similar output variables were noted for various scenarios.

Highlights of the study include the following:

- In the reference case, with $7/MMBtu natural gas prices, expected load levels and the existing and committed level of wind and other generation, the CO2 allowance costs must rise to between $40 and $60 per ton in order to reduce CO2 emissions from electric generation in ERCOT to 2005 levels by 2013. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $10 billion and would increase a typical consumer's monthly bill by $27.

- At higher natural gas prices, brought about by increased demand for natural gas due to CO2 emission limitations or other reasons, allowances would rise to a higher cost (well over $60/ton in the case of $10/MMBtu natural gas prices) in order to achieve the desired reductions. At this higher gas price, the annual increase in wholesale power costs to meet the 2005 level of emissions through reductions by generators in the ERCOT region would be in the range of $20 billion.

- Additional wind generation envisioned by the competitive renewable energy zones (CREZ) plan (up to a total of 18,456 MW) reduces CO2 emissions by 17.6 million tons above the reduction due to existing and committed wind generation, even with no carbon emissions limits imposed by climate-change legislation.

- Additional CREZ wind generation allows the targeted emissions reductions to be met at a lower allowance cost. At $7/MMBtu gas, the 2005 CO2 emissions levels are met at an increase in annual wholesale power costs of approximately $7 billion, which is a $3 billion savings compared to the reference case. At this allowance cost, the increase in a typical consumer's monthly bill would be $22.

To read the report, visit ercot.com.

SOURCE: Electric Reliability Council of Texas

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