Powering Arizona: Executive Summary
Choices & Trade-Offs for Electricity Policy
Powering Arizona provides an assessment of Arizona’s energy future looking beyond 2020. This independent study was funded by the Tucson-based Thomas R. Brown Foundations. The research team included Dr. Timothy Considine Ph.D., Professor of Natural Resource Economics at Pennsylvania State University, and Dawn McLaren, Research Economist, W. P. Carey School of Business, Arizona State University. Dr. Considine has extensive experience in conducting these types of studies, having conducted energy studies for many organizations including the State of Israel and the World Bank. Ms. McLaren has also spent a great deal of time researching energy use in Arizona and other issues involving the basic economic and business climate of the state.Click here to download the PDF Draft Report.
Executive Summary
For decades, Americans have taken for granted one of the pillars of our modern economy: affordable and reliable electric power. Nowhere is this more evident than in Arizona where falling real prices for electric power have been a key factor in facilitating the adoption of modern conveniences such as air conditioning, thereby allowing comfortable living in a harsh desert environment and attracting millions of people to the state’s vibrant economy. This growth engine powered by electricity, however, is encountering strong headwinds created by global scarcity of energy resources and concerns over environmental sustainability.
Contrary to trends over the past two decades, this study finds that electricity use per household declines due to conservation and efficiency improvements induced by higher real prices for electricity. Nevertheless, Arizona households and businesses will require an additional 20 million-megawatt hours of electricity over the next decade. Looking out beyond to the year 2030, these requirements increase to 50 million megawatt hours of electricity.
How will this power be produced? If the past is any guide, the most likely course is to supply this new demand with natural gas fired capacity and the electricity system becomes increasingly vulnerable to fluctuations in natural gas prices. If recent trends for higher natural gas prices continue, electricity rates in Arizona could more than double in real terms over the next two decades. During 2008, the average household spent over $320 per month on electricity, gasoline, and other fuels. These expenditures rise to $450 per month in today’s dollars by 2030 under the report’s baseline forecast.
There are options to cut these costs. Using conventional coal-fired power generation would lower rates 15-25% from the baseline forecast but would increase carbon emissions. Coal-based integrated gasification combined cycle (IGCC) with carbon capture and storage and advanced nuclear lower emissions would result in electricity rates somewhere between the baseline reliance on natural gas and conventional coal. The willingness of society to support the construction of these plants, however, is questionable. Replacing new gas-fired capacity with solar thermal plants would raise rates 20% above the baseline-forecast.
Much higher electricity rates are likely under policies mandating reductions in carbon emissions. To achieve significant cuts in carbon emissions, it would be necessary to phase out existing coal-fired generation. Replacing this capacity with a portfolio of nuclear, IGCC, and solar would reduce emissions but would raise rates from already elevated levels in the baseline forecast. The adoption of these systems, however, is not assured. The backstop technology is, once again, natural gas, and if other states follow the same path, the use and price of natural gas would increase and electricity rates could rise dramatically. Under this scenario electricity costs in Arizona would rise nearly 80% from now to the year 2020.
These findings suggest that Arizona may wish to consider maintaining a diversified portfolio of generation assets. It is important to continue research and development into new renewable energy sources including advanced solar photovoltaic and thermal energy production that would reduce costs and increase efficiency. While increased use of solar and wind energy in Arizona does contribute to the state’s power grid, these sources are incapable of meeting the future demand for electricity over the next 12-15 years beginning from a current base of .03 of one percent. Renewable energy offers great promise. In Arizona’s neighboring state, California, more than 11% of that state’s electricity is now generated by renewable sources, (excluding hydroelectric), however the state’s electricity rates are about one third higher than Arizona’s.
In summary, a headlong push now to build more renewable sources may be counter-productive by raising rates too high too fast and may diminish public support to achieve the promising technological breakthroughs that lie ahead. Abandoning conventional energy sources, such as coal and nuclear, would dramatically increase electricity rates and threaten economic growth. Arizona’s near-term energy future should consist of a highly diverse electricity energy generation capacity.
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1] Source: United States Energy Information Administration (EIA) Arizona Energy Profile for total electricity consumption in February 2008.
2] Renewable Sources Defined: Other renewables listed in EIA reports include solar thermal, photovoltaic energy, wind, wood, black liquor, other wood waste, biogenic municipal solid waste, landfill gas, sludge waste, agriculture byproducts, other biomass, and geothermal.
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Powering Arizona: Forum of Arizona Leaders
This study is also based, in part, from input provided from a state-wide forum held on ASU’s Phoenix Campus. The co-chairs of the forum were Representative Phil Lopes, Leader, House Democrats, Arizona House of Representatives; and Commissioner Gary Pierce, Arizona Corporation Commission. It was cosponsored by Arizona State University, the University of Arizona, the Thomas R. Brown Foundations, and The Communications Institute, in association with the Arizona Republic, the Arizona Daily Star, and the Arizona Capitol Times. The forum was an interactive discussion involving top national energy experts with leaders from the Governor’s Office/Administration, the Arizona State Legislature, utilities, business, universities, public interest organizations, and members of the news media.
A faculty of top energy experts provided expertise to the discussion on the state's energy decision-making, including:
* Timothy Considine, Ph.D., Professor of Natural Resource Economics, Pennsylvania State University
* Craig Cornelius, Former Program Manager, United States Department of Energy Solar Programs; Principal, Hudson Clean Energy Partners
* Joseph P. Kalt, Ph.D., Professor of Political Economy, John F. Kennedy School of Government, Harvard University
* Dawn McLaren, Research Economist, Arizona State University
* Craig Smith, Ph.D., Senior Scientist, Lawrence Livermore National Laboratory, Nuclear Energy Expert
* Joseph Simmons, Ph.D., Director, Soalr Energy Programs, University of Arizona
Joe Strakey, Ph.D., Chief Technology Officer, National Energy Technology Laboratory
* Juan Torres, Project Manager, Sandia National Laboratories