Impact of global and local emission mitigation policies on the Chilean power system expansion planning

Impact of global and local emission mitigation policies on the Chilean power system expansion planning Enzo Sauma Pontificia Universidad Católica de Chile Daniela Quiroga Pontificia Universidad Católica de Chile David Pozo Skolkovo Institute of Science and Technology 41 st IAEE International Conference Groningen, 10 13 June 2018

UC Energy Research Center, Chile

Motivation 300 90 Chilean GDP (billions) 250 200 150 100 50 80 70 60 50 40 30 20 10 Chilean CO2 emissions (millions) - 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 GDP (constant 2010 US$) CO2 emissions Source: The World Bank Data (CO2 emissions (kt), GPD (constant 2010 US$))

Installed capacity (GW) 25 20 15 10 5 Motivation Chilean electric system: 25% CO2eq, 30% SOx, 25% NOx, 5% PM Wind Solar Hydropower Fossil Fuels 0 1905 1926 1939 1944 1949 1955 1960 1964 1970 1979 1989 1993 1996 1999 2002 2005 2008 2011 2014 Source: Data CDEC-SIC, CDEC-SING (2016)

Motivation Renewable energy potential ~ 2,000 GW

Motivation

Motivation Renewable energy potential ~ 2,000 GW One of the top ten countries by volume of investment in renewable energies (2015) 70% of generation must come from renewable energies by 2050 Emission tax: CO 2, NOx, SO 2, PM Energy transitions Expansion planning level consequences

Carbon and local pollutants (SOx, NOx, PM) taxes Generation and transmission expansion planning Co-optimization of generation and transmission planning Mixed-integer linear program (MILP) Problem Statement Current Chilean expansion plan + renewable-based distributed generation (solar, wind, hydro) Methodology not limited to the Chilean power system

Problem formulation 145 nodes, 505 power units, 149 transmission lines Demand Nodal pricing system scheme Demand Inelastic and uncertain demand 5 demand scenarios (blocks) 10-year horizon, 5 policy-relevant scenarios

Problem formulation Input Node-line matrix Availability of existing units/transmission lines Net power capaciy factor Marginal cost of generating units Emission tax Susceptance of lines Capital costs Operating and manteinance cost Demand Discount rate Loss of load costs Curtailment costs Available technologies Emission factor of generating units Generation transmission expansion planning model Output Transmission lines installed (what, where, when) Generation units installed (what, where, when) Power generated Power flow Tons of emissions

Model Formulation: Objective function Min 1 1 Operating and maintenance costs: Annualized investement capital cost: Imbalance Costs: Emission costs:

Optimization model Min 1 1 subject to: Physical constraints Power flow equations (Kirchhoff s laws) Transmission line capacity limits Generation capacity limits Line and generation units availability (decommision/new commitments) Investment-related constraints By period By geographical location By technology Security constraints System reserve requirements Zonal reserve requirements

Case Studies Case 1 (Base Case) No tax Case 2 Carbon tax $20/ton CO2 Case 3 Case 4 Case 5 Carbon tax + Air pollutants tax Case 3 + Renewable construction plan Case 3 + Electrified demand $20/ton CO2; $5.72/kg PM; $62/ton SOx, $159/ton NOx $20/ton CO2; $5.72/kg PM; $62/ton SOx, $159/ton NOx; +1.5 GW hydropower $20/ton CO2; $5.72/kg PM; $62/ton SOx, $159/ton NOx; +3% demand growth

Results: Capacity installed Aggregate new power capacity installed in each case scenario (MW) Technology Base Case Case 2 Case 3 Case 4 Case 5 Coal 2,235 1,933 1,933 1,558 2,533 Natural gas 12 263 263 263 263 Oil 0 0 0 0 116 Total thermal 2,247 2,196 2,196 1,821 2,912 Hydropower 1,587 1,587 1,587 3,087 1,587 Wind 1,260 1,260 1,260 1,260 1,260 Solar 3,743 3,743 3,743 3,743 3,743 Biomass 147 167 167 167 167 Distributed wind 480 480 480 480 480 Distributed solar 452 469 492 496 503 Distributed hydro 520 560 520 520 560 Total renewable 8,189 8,266 8,249 9,753 8,300

Results: Energy generated Base Case 416027 67475 400759 Case 2 396189 81103 405069 Case 3 383460 93589 404873 Case 4 357421 88168 436771 Case 5 438772 115724 405430 Coal Oil N.Gas Renewables

Results: Capacity installed in Base Case Net Capacity (MW) 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Otro Other Biomasa Biomass Solar Eólica Wind Hidro Hydropower Gas Natural Natural Gas Carbón Coal

Results: Emissions Local pollutants Potencia Neta (MM (MW) ton/year) 2,200 0.45 2,000 1,800 0.40 1,600 0.35 1,400 0.30 1,200 0.25 1,000 0.20 800 0.15 600 0.10 400 0.05 200 0 0.00 SOx CO 2 NOx MP 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 2024 2024 2025 2025 2026 2026 2027 2027 60 50 Otro Biomasa 40 Solar 30 Eólica Hidro 20 Gas Natural Carbón 10 - CO 2 (MM ton/year)

Results: Emissions Base Case vs. Case 2 Local Cont. locales pollutants (millones (MM ton/año) ton/year) 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Base Case: no tax Case 2: carbon tax Delay in the increase of emissions Non-stable change over time 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 SOx CO 2 NOx PM 60 50 40 30 20 10 - CO CO 2 (millones 2 (MM ton/year) /año)

Results: Emissions Case 2 vs. Case 3 Local Cont. locales pollutants (millones (MM ton/year) ton/año) 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Case 2: carbon tax Case 3: carbon, SOx, NOx, and PM tax 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 SOx CO 2 NOx PM 60 50 40 30 20 10 - CO CO 2 (millones 2 (MM ton/year) ton/año)

Results: Emissions Case 3 vs. Case 4 Local Cont. locales pollutants (millones (MM ton/year) ton/año) 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Case 3: carbon SOx, NOx, and PM tax Case 4: carbon, SOx, NOx, and PM tax + modified expansion plan Hydropower installed 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 31,900 GWh fossil fuel 60 50 40 30 20 10 - CO CO 2 (millones ton/año) 2 (MM ton/year)

Emissions Comparison Base Case Case 2 Case 3 Case 4 Case 5 Base Case Case 2 Case 3 Case 4 Case 5 Base Case Case 2 Case 3 Case 4 Case 5 Base Case Case 2 Case 3 Case 4 Case 5 CO2 (10^6 6 ton) SOx (10^4 4 ton) NOx (10^4 4 ton) ton) MP PM (10^3 3 ton) ton)

Distributional effects Case 2 emissions Base case emissions = Net reduction Increase Decrease

80.0 Distributional effects 60.0 CO 2 Emissions (MM ton) 40.0 20.0 0.0 20.0 Caso Case 2 Caso Case 3 Caso Case 4 Case Caso 5 vs. Base Case vs. Base Case vs. Case 3 vs. Case 3 Base case: no tax Case 2: carbon tax Case 3: carbon and 40.0 local pollutant taxes Case 4: carbon and local pollutant taxes, with modified expansion plan Case 5: carbon and local pollutant taxes, with a highly electrified demand

80.0 Distributional effects CO 2 Emissions (MM ton) 60.0 40.0 20.0 0.0 20.0 5 regions 5 regions 12 regions Caso Case 2 Caso Case 3 Caso Case 4 Case Caso 5 vs. Base Case vs. Base Case vs. Case 3 vs. Case 3 40.0 3 regions 3 regions All 1 region

Distributional effects Particulate Matter (PM) Region Base Case Case 2 vs. Base Case Case 3 vs. Case 2 Case 4 vs. Case 3 Case 5 vs. Case 3 (ton) (ton) (ton) (ton) XV 2,9 2,9 2,9 2,9 2,94 I 2.328 1.785 1.770 1.712 2.982 II 359.375 355.981 41.665 36.708 65.948 III 10.824 11.188 11.533 11.289 11.045 IV 0,18 0,18 0,16 0,10 0,62 V 12.778 13.092 13.271 11.361 14.116 RM 118 173 187 161 241 VI - - - - 1,1 VII 3.127 - - - 0,47 VIII 8.783 8.808 9.093 8.545 9.495 IX - - - - - XIV 0,03 0,04 0,05-0,58 X 0,02 0,02 0,02 0,01 0,68

Distributional effects Sulfur dioxide (SO2) Region Base Case Case 2 vs. Base Case Case 3 vs. Case 2 Case 4 vs. Case 3 Case 5 vs. Case 3 (ton) (ton) (ton) (ton) XV 43 43 43 43 44 I 319.167 244.929 242.749 234.805 409.073 II 1.461.467 1.163.154 705.222 549.226 1.566.607 III 230.575 280.738 328.146 294.624 260.969 IV 2,6 2,7 2,3 1,5 9,3 V 280.167 335.821 289.593 66.480 318.652 RM 142 182 195 185 358 VI - - - - 16 VII 4.308 - - - 6,96 VIII 12.119 12.153 12.543 11.785 13.150 IX - - - - - XIV 0,44 0,66 0,77-8,6 X 0,31 0,31 0,31 0,21 10

Distributional effects Nitrous Oxides (NOx) Region Base Case Case 2 vs. Base Case Case 3 vs. Case 2 Case 4 vs. Case 3 Case 5 vs. Case 3 (ton) (ton) (ton) (ton) XV 35 35 35 35 35 I 63.726 48.903 48.467 46.881 81.678 II 754.822 684.833 603.450 567.707 793.336 III 46.031 56.046 65.510 58.818 52.099 IV 2,1 2,2 1,9 1,2 7,5 V 75.946 93.087 87.184 40.325 102.050 RM 3.714 5.505 5.952 5.103 7.525 VI - - - - 13 VII 860 - - - 5,60 VIII 2.433 2.440 2.515 2.362 2.673 IX - - - - - XIV 0,35 0,53 0,62-7,0 X 0,25 0,25 0,25 0,17 8,2

Locational marginal Price (LMP) 160 Base Case Case 2 LMP (USD/MWh) 140 120 100 80 60 40 20160 LMP (USD/MWh) 140 120 100 80 60 40 Bloque 1 Bloque 2 Bloque 3 Bloque 4 Bloque 5 Bloque 1 Bloque 2 Bloque 3 Bloque 4 Bloque 5 Case 4 LMP (USD/MWh) 140 120 100 80 60 40 20 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Bloque 1 Bloque 2 Bloque 3 Bloque 4 Bloque 5 20 160-250 140 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 200 Case 3 LMP (USD/MWh) 120 100 80 60 40 Bloque 1 Bloque 2 Bloque 3 Bloque 4 Bloque 5 Case 5 LMP (USD/MWh) 150 100 50 Costs (USD Billion) Bloque 1 Bloque 2 Bloque 3 Bloque 4 Bloque 5 20 - - 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Average LMP and Costs 42 60 61 60 69 34 35 33 50 26 Base Case Caso 2 Case 3 Case 4 Case 5 Average LMP (USD/MWh) Base Case Case 2 Case 3 Case 4 Case 5 CC OM + IB EM Total Costs (USD Billion)

Conclusions Although taxes are an effective way of reducing emissons, they have effects on the long-term power system planning Under an electrified demand, capital costs may allow oil production to be more convenient even under the tax imposed (Case 5) Spatial distributive effects will impair some regions increasing their emissions Further energy policies such as increasing the renewable energy share in the expansion plan, mitigates leakage effects