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Electricity decarbonization is not that expensive, so let’s get on with it

Electricity decarbonization is not that expensive, so let's get on with it

 

 


by Leonard S. Hyman and William I. Tilles

 


Presentation to Society of Utility and Regulatory Financial Analysts

Richmond, VA 

23-24 April 2020

 


EXECUTIVE SUMMARY

 


To reduce  greenhouse gas (GHG) emissions that cause  global climate change, we must sharply reduce or eliminate fossil fuels from electric generation. That  would reduce GHG  emissions by a quarter.  Then  we must convince consumers to switch from direct use of fossil fuels to  carbon-free  electricity.  Electrifying  transportation would cut GHG  emissions by another quarter, but only if the electricity consumed were  were carbon free. Decarbonization of electricity has to go first. Otherwise,  consumers would substitute one fossil fuel for another.

 


Cost of decarbonization cannot be considered separately from  the electric industry's  need to modernize and replace old plant.  In real terms, over 20 years,  price of electricity would  rise by one half to pay to modernize and replace plant alone and  would double, with decarbonization  accounting for the differential. That is, real prices would  rise roughly 2% to 4% annually, with the difference the price of decarbonization.   The electricity bill equals 2% of GDP and the household bill only 2% of household income, so  projected price increases   should have little  impact on the average consumer

 


The electricity sector would have to make capital expenditures of  $5-$8 trillion over two decades, depending on the degree of decarbonization. The capital markets could easily absorb  the   $100-$200 billion a year of  securities needed to finance the expansion, and would do so at historically low capital costs.  The process should not require government subsidy. 

 


Does  the industry have  20 years to do the job? Only if it first  closes  coal-fired power stations and does not replace them with gas-fired ones. That would  slash the industry's GHG  emissions by two thirds.  Can we be confident that decarbonization will cost so much more than a business-as-usual approach? Maybe not,  because  there is  more of a likelihood  that  new technology costs will fall and fossil fuel costs rise than the other way around.  

 


In sum, the electric industry can raise  money at low cost  to decarbonize  and  customers will face only single digit price increases yo pay for it, so let's get on with it before it is too late.

 

 

 

 You can read the complete paper here: 

 

http://www.lenhyman.com/attachments/electricitydecarbonization.pdf

 

 

 

 

 

 Here are the appendices with data sets. 

 

 

 

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