Allowance structures will influence project economics.
Fred Wellington is a managing consultant with Navigant Consulting. Email him at fred.wellington@navigantconsulting. com.
Carbon-reduction policies are being designed and implemented across the country. Currently, 24 states are moving forward with carbon regulations and the U.S. Congress might pass comprehensive climate-change legislation during this legislative session. One common feature of these regulatory programs is a carbon cap-and-trade system—i.e., a carbon emissions market.
Renewable energy clearly will affect, and be affected by, carbon-reduction policies that assign a price to carbon emissions. The most probable and direct benefit will be the increase in electricity prices caused by carbon-related costs, which would make renewable energy more cost competitive. The degree to which carbon costs affect electricity prices will depend on the confluence of political choices (e.g., setting the level of the cap or allocating compliance targets among regulated sectors) with various regional market situations (e.g., the generation mix and electricity market structures). Regardless of regional differentiation, carbon costs will move forward the timing of grid parity for renewable ßenergy applications. For utilities, renewable energy can aid in potential carbon compliance costs by providing zero carbon generation.