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When utility executives make decisions about building new power plants, a lot rides on their choices. Depending on their size and type, new generating facilities cost hundreds of millions or even billions of dollars. They typically will run for 40 or more years – 10 U.S. presidential terms. Much can change during that time.
Today one of the biggest dilemmas that regulators and electricity industry planners face is predicting how strict future limits on greenhouse gas emissions will be. Future policies will affect the profitability of today's investments. For example, if the United States adopts a carbon tax 10 years from now, it could make power plants that burn fossil fuels less profitable, or even insolvent.
Investment - Choices - Consumers - South - Carolina
These investment choices also affect consumers. In South Carolina, utilities were allowed to charge their customers higher rates to cover construction costs for two new nuclear reactors, which have now been abandoned because of construction delays and weak electricity demand. Looking forward, if utilities are reliant on coal plants instead of solar and wind, it will be much harder and more expensive for them to meet future emissions targets. They will pass the costs of complying with these targets on to customers in the form of higher electricity prices.
With so much uncertainty about future policy, how much should we be investing in noncarbon electricity generation in the next decade? In a recent study, we proposed optimal near-term electricity investment strategies to hedge against risks and manage inherent uncertainties about the future.
Range - Assumptions - Percent - Generation - Decade
We found that for a broad range of assumptions, 20 to 30 percent of new generation in the coming decade should be from noncarbon sources such as wind and solar energy. For most U.S. electricity providers, this strategy would mean increasing their investments in noncarbon power sources, regardless of the current administration's position on climate change.
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