As mentioned earlier, WECC staff will be discussing with stakeholders the results from long-term (20-year) study cases based on these scenarios, as well as the results of other study cases, as a basis for creating alternative 20-year transmission plans in addition to the WECC Reference Case. Following each scenario narrative is a placeholder for high-level summary of those transmission-planning results. A comparative analysis of the transmission planning results and suggestions about key factors, which impacted the differences, will follow the scenario narratives. Appendix V of this report includes a comparative analysis of those results.
Scenario One: Focus on Economic Recovery
Wide-spread Economic Growth in WECC Region with Increasing Standards of Living and Evolutionary Changes in Electric Supply and Distribution Technology
This is a world in which an initially slow uptick out of recession is followed by rising economic growth in the WECC region. Happening in concert with a steady pace of incremental rather than breakthrough technology improvements in the power sector this growth supports the emergence of the next generation power system for the region—one which is more efficient, flexible, responsive to customers, and takes full advantage of a spreading smart grid. After a period of international financial instability, the U.S. economy with more growth is back on a more solid fiscal foundation with the restructuring of the national debt leading to the implementation of new tax and fiscal policies. The U.S., with its growing population, entrepreneurial culture, and ability to develop advanced technologies, helps to bring the global economy back into balance.
A steadily improving economy drives increasing electricity demands from consumers and expanding businesses and industries—both large and small. In the early years, natural gas meets this demand as increasing supplies keeps domestic prices low. As the last decade unfolds however, there is a major shift towards renewables driven by a robust regional electricity market facilitating the integration of renewables, and increasing environmental concerns about land and water use and air quality. Continued concern about climate change leads to efforts to reduce CO2 emissions and culminates in a federal energy policy, which includes a national carbon tax. These changes contribute to economic growth as they trigger innovation, revitalize markets and drive new investment.
Even without game-changing breakthroughs, the energy sector is a primary beneficiary of the prowess of the U.S. in both technology development and entrepreneurial vigor and provides a solid basis for overall economic growth for the nation. The WECC region, home to some of the nation’s best educational and financial management institutions, leads the long-term positive evolution of the nation’s economy.
Key Scenario Metrics in 2032:
Natural Gas Price = $10.00
Cost of Carbon = 2032 Reference Case value: $37.11
Policy Adjusted Peak Load Growth Rate* = 1.9% (2032 Ref Case = 1.5%)
Policy Adjusted Demand Growth Rate* = 1.6% (2032 Ref Case = 1.2%)
* Adjusted for known electrification, DSM and energy efficiency policies included in the modeling results
Beginning Years: 2013-2017/The Dark Before the Dawn
The big events and issues shaping the electric power sector in the WECC region in early 2013 can be summarized in six key areas: (1) The impact of and slow recovery from the 2008-2009 credit crunch and follow-on recession; (2) A growing concern among voters and their representatives about both the short-and-long-term effects of climate change, yet with no political consensus to act nationally or globally; (3) A rapidly emerging concern about the long-term availability and usage of fresh water; (4) The growing investment in renewable energy technologies to meet renewable portfolio standards (RPS); (5) Organizing and implementing energy imbalance markets (EIM); and (6) The impacts of implementing FERC Order 1000.
Those six issues make investor-owned utility managers nervous about their future opportunities in serving long-term demand growth, as well as where and how to invest in new assets. Activists and advocates for protection of the environment (including clean-tech investors) promote balanced financial and regulatory support to sustain and accelerate investment in clean energy technologies. Even though there is a general acceptance of and some enthusiasm about clean energy technologies, most are still not quite cost competitive with the traditional sources of power. Improvements are needed in some of their performance areas. Innovations are coming, as seen in labs and pilot projects, but further steps will be needed as those new options are implemented more widely and integrated into existing power systems (See Figure 1.1 below on the challenges of impactful innovation).
Legislators and regulators have a delicate dilemma on their plate: How to continue progress toward a cleaner and more sustainable power system without imposing high and quickly escalating energy costs and unnecessary risks on consumers and industry. Additionally, these advancements must not harm economic growth or job creation.
“Innovation Pessimism: Has the Machine Broken Down?” The Economist, January 12 2013
Although the boom times are back in Silicon Valley, it may come as a surprise that some in Silicon Valley think the place is stagnant, and that the rate of innovation has been slackening for decades. And a small but growing group of economists reckon the economic impact of the innovations of today may pale in comparison with those of the past. Some suspect that the rich world’s economic doldrums may be rooted in a long-term technological stasis.
Economists divide growth into two different types, “extensive” and “intensive”. Extensive growth is a matter of adding more and/or better labour, capital and resources. Intensive growth is powered by the discovery of ever better ways to use workers and resources, and economists label the all-purpose improvement factor responsible for such growth “technology”.
Technological progress does not require all technologies to move forward in lock step - merely that some important technologies are always moving forward. Innovation and technology, though talked of almost interchangeably, are not the same thing. Innovation is what people newly know how to do. Technology is what they are actually doing; and that is what matters to the economy.
Although the economic impacts of technology lag investment in the technology, there may be reason for optimism as we are just entering the period where the exploitation of recent technology innovation (e.g., information & communications technology) will begin to have a significant impact on economic growth.
Figure 1.1: Technology: An Economic Growth Driver
In these early years, federal and state policies concentrate on economic growth. Though the U.S. economy continues on the positive growth trajectory that began in 2012, big challenges must be resolved. The financial crises in the European Union, especially in Greece, Spain, and Italy, as well as the political battles over how to reduce the U.S. deficit, dominate the headlines. There are concerns that the European Union could implode from within, as austerity programs do not prove effective. Pundits, investment analysts, and global finance experts all publish nightmare scenarios that contribute to the overall sense of gloom.
The optimistic news from the U.S. housing market, increased job growth and lowering rates of unemployment are all offset with news of conflicts in the Middle East rattling oil markets. Oil prices, now above $100 per barrel, have only small effects in the U.S. as oil consumption continues to decline, yet constrains economic growth outside the U.S. as global consumption increases. Despite ongoing monetary interventions by European Union finance ministers, there are fears the ongoing debt crises in Portugal, Spain, and Greece look like might lead to further economic contraction in Western Europe. Europe lags well behind the U.S. and Asia in terms of economic growth and continues as a drag on the global economy.
President Obama’s re-election in 2012 provided a degree of hope that Congress and the Obama Administration would collaborate to address the fundamental problems of the U.S. economy. This notion of political harmony proves ephemeral as changes in tax policies as well as debt reduction are spread out over several years. The benefits come slowly, and while helping parts of the economy, the extended uncertainty about policy restrains broad economic growth both in the U.S. and globally. Voter frustration with the political gridlock results in an attitude shift towards candidates running for state or federal office in 2014 and 2016 towards those more willing to collaborate on solving the nation’s economic ills. However, in general, policies supporting a balanced approach to economic growth gain wider support.
By 2017, actions for effective regulation and the restructuring of the national debt leads to the implementation of tax and fiscal policies geared toward reestablishing middle class growth and supporting small businesses development. Economic growth is the primary focus of policymakers in Washington, D.C. and the states in the Western Interconnection. These actions coupled with economic growth in Asia, particularly China, India and Latin America prevents a return to recession.
Economic growth in the WECC region happens in fits and starts. Those western states and provinces with strong natural resource and agricultural sectors enjoy higher growth in the early years than the ones focused on high technology, defense and tourism. California, along with the Pacific Northwest, British Columbia, and Alberta are more closely tied to the global economy and need global growth to support their industries. The western states as a whole are able to take advantage of renewed growth in Asia and Latin America because of their emphasis on exports and international trade.
Electric power technologies are part of these globally focused industries, and companies in the WECC region lead the wind and solar power sectors, and are better able to integrate technology innovations. Companies in the Silicon Valley develop the software and services necessary to implement and run an optimized/smarter grid. Regulatory policies and state incentives enable utilities to start to implement innovative products and services. These domestic markets support companies that can produce and export technologies that will reshape the power business.
Western utilities and other energy companies continue their development of improved solar and wind technologies, including offshore, dispatchable, and low-speed wind generation. They pioneer investments and activities leading to more energy efficiency and overall conservation. Significant potential remains in this space for new and dynamic innovations.
While renewable portfolio standards combined with state and provincial tax incentives have stimulative impacts, demand growth remains the single largest driver for new investment in the energy sector. In the short term, due to slowly improving economic conditions and slower power demand growth because of more energy efficiency, power companies see limited opportunities. As a result, some new plant construction slows and some planned transmission expansion is put on hold.
As events unfold, optimism about the long-term potential of the U.S. economy proves to be accurate—albeit after some really tough early years. Power sector investments centered on technology eventually come to market. These technologies, which had started with a few utility systems both before and during economic stagnation, transform the power sector into a more efficient, flexible, and customer-responsive business. Previously announced coal plant retirements proceed without delay as the EPA continues its push for cleaner air quality. New sources of demand appear on the horizon as economic growth accelerates, companies large and small expand and consumer spending rebounds (See Figure 1.2, even with growing energy efficiency, absolute growth in demand is important).
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