Clean Electricity Standards – a new feature in En-ROADS

September 10, 2021 by Charles (Skuk) Jones

We recently added a new feature to En-ROADS: a clean electricity standard (CES). It creates a set of financial incentives with feedbacks, designed to push the electric grid towards a certain minimum percent of electricity generated from sources that qualify as clean. You can select which electricity sources count as clean, what the target percent is, and how quickly the target will be achieved.

Our CES is meant to simulate various policies with certain common features: a goal for the fraction of electricity generation coming from sources that qualify as clean, coupled with financial incentives to achieve that goal. Most recently in the U.S., legislation referred to as the Clean Electricity Payment Program (or Performance Program) (CEPP) has been proposed as a “budget reconciliation-friendly” version of the previous electricity standard in another piece of proposed legislation, the CLEAN Futures Act. But similar policies have already been in place, such as Renewable Portfolio Standards in many U.S. States, and the Renewables Mandate in the UK.

Our CES is a compromise, built to show how actions specific to the electric grid interact with other choices. Policy details might result in different financial effects, as described below, but the new CES feature can show insights on how grid decarbonization works with electrification.

How to use the Clean Electricity Standard feature in En-ROADS

You can now explore the effect of a global clean electricity standard in En-ROADS. Below is a step-by-step guide. 1. Open the advanced settings of the Carbon Pricing and Energy Standards slider (abbreviated as “Carbon Price” on the main interface) by clicking the three dots next to the slider. Scroll down to the “Clean Electricity Standard” section:

Select which energy sources you would like to consider as “clean” in this scenario by checking the appropriate boxes under “Sources that qualify as clean electricity.” Your options are: renewables (wind, solar, geothermal, and hydro); new zero-carbon (a hypothetical energy sources such as thorium fission or hydrogen fusion that has not yet achieved commercialization); fossil fuel with CCS (coal and natural gas with carbon capture and storage technology); bioenergy; and natural gas.

The graph “% Electricity from Qualifying Sources” shows the contribution of the energy sources you have selected to the electricity supply in the Baseline and Current Scenario. You can find this graph in the Graphs menu in the “Final Energy Consumption Types” section.

2. Turn the policy on by clicking the “Use clean electricity standard” switch underneath the checkboxes. Notice that the “% Electricity Consumption from Qualifying Sources” graph now displays the effect of the clean electricity standard.

3. You can adjust the policy with these detailed settings:

• “Target % electricity from qualifying sources”: The target for the minimum percent of electricity that comes from the qualifying sources. The target is achieved after a phase-in period determined by the “Years to achieve clean electricity standard” slider.
• “Clean electricity standard start year”: The year the clean electricity standard starts to phase in.
• “Years to achieve clean electricity standard”: How many years elapse from when the policy starts to phase in until the target % is reached.

Note, the clean electricity standard in En-ROADS is a financial incentive, rather than a hard limit, and the percent will generally exceed the target a couple years after the target date unless the policy is extremely aggressive. Keep in mind the viability of the timeline you are modeling. Examples of targets include 80% in ten years (as in the CLEAN Futures Act) or 95% in 25 years.

A clean electricity standard only affects the electric grid, which is only a portion of the energy system. You can see this in the “Final Energy Consumption by End Use” graph, which shows the proportion of final energy provided by fuel (in dark gray and dark blue) and electricity (light gray and light blue):

A clean electricity standard has the most impact on reducing temperature when it is complemented by policies such as electrification and energy efficiency. Adding a strong electrification policy — e.g. 75% in both transport and buildings and industry — significantly reduces the temperature in concert with the clean electricity standard. For example, in this scenario, adding the 75% electrification policy improves the temperature change to 2.7°C. Additionally setting both energy efficiency sliders to 3.5%/year has further synergies — the temperature drops to 2.5°C.

How we modeled a Clean Electricity Standard in En-ROADS

In the model, we simulate a simple market for credits that sets the costs and incentives for different sources of electricity. The price of credits mainly depends on the gap between the amount of clean electricity generated and the target. There are lesser effects that make the credit price higher if the target is higher, if the time to achieve it is faster, and if fewer sources qualify. This credit price phases in over the time it takes for the policy to ramp up. The amount of clean electricity required, multiplied by the credit price, equals the cost increase of electricity. The revenue from this cost increase is returned exclusively to qualifying sources. This makes the clean sources more attractive to operate and invest in. As a result, the amount of clean electricity tends to rise to the target within a year or so of the time set.

When a CES is turned on, the price of credits begins to ramp up and the amount of clean electricity required begins to ramp up. The product of these two increasing values is the amount of money collected to pay for credits. The cost of all electricity increases, so the price of electricity increases, as does the revenue to qualifying sources. Less electricity is used because of the higher costs, and more of what is generated is from sources qualifying as clean. With a little delay, investment also shifts to clean sources so generating capacity becomes cleaner.

As shifting use and capacity start to close the gap between clean generation and the target, the price of credits starts to decrease. The price of electricity decreases from its peak but the difference in revenue is still enough to keep encouraging clean sources. There can be a transition period where electricity is cheaper than the base case, but eventually conditions settle to where a moderate credit price makes electricity slightly more expensive and keeps the incentives high enough to maintain clean source generation at or slightly above the target percentage. The overall electricity price variations are on the order of a couple cents per kilowatt-hour.

Caveats and Cautions

As mentioned above, the new CES feature is a compromise between various policies and proposals with certain features: a goal for the fraction of electricity generation coming from sources that qualify as clean, coupled with financial incentives to achieve that goal. The CES structure in En-ROADS is most like the historical Renewable Portfolio Standards in U.S. States – but scaled up to global markets and with higher Target Percent than what any state policy has attempted yet.

We have rules of thumb for finding the costs needed to achieve the target percent in the target time, which has the effect of raising the cost of electricity. But the details of proposals vary, and the actual costs depend on the details: Who pays, and can they pass on the payment to customers? Are the payments set by policy or determined by markets? Are there price limits or alternative compliance methods? How much foresight do investors show in building electric power capacity? We expect that greening the electric grid will cost something, but we will not claim our CES approximation reflects the cost of any specific policy. These costs might come in the price of energy, or taxes and subsidies, or some combination. The costs might be lower or higher than our rules of thumb estimate depending on other market effects. Therefore, you should be careful making judgements based on any of the financial graphs in En-ROADS.