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Assumptions to the Annual
Energy Outlook 2017
July 2017
Independent Statistics & Analysis
www.eia.govU.S. Department of Energy
Washington, DC 20585
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 i This report was prepared by the U.S. Energy Information Administration (EIA), the statistical andanalytical agency within the U.S. Department of Energy. By law, EIA's data, analyses, and forecasts are
independent of approval by any other officer or employee of the United States Government. The viewsin this report therefore should not be construed as representing those of the U.S. Department of Energy
or other federal agencies.July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 iiTable of Contents
Chapter 1. Introduction ................................................................................................................................ 1
The National Energy Modeling System .................................................................................................... 1
Component modules ............................................................................................................................... 3
Macroeconomic Activity Module ...................................................................................................... 3
International Energy Module ............................................................................................................ 4
Residential and Commercial Demand Modules ................................................................................ 4
Industrial Demand Module ............................................................................................................... 4
Transportation Demand Module ...................................................................................................... 5
Electricity Market Module ................................................................................................................. 5
Renewable Fuels Module .................................................................................................................. 6
Oil and Gas Supply Module ............................................................................................................... 7
Natural Gas Transmission and Distribution Module ......................................................................... 7
Liquids Fuels Market Module ............................................................................................................ 8
Coal Market Module ......................................................................................................................... 9
Annual Energy Outlook 2017 cases ....................................................................................................... 10
High Oil and Gas Resource and Technology case ............................................................................ 13
Carbon dioxide emissions ...................................................................................................................... 15
Chapter 2. Macroeconomic Activity Module .............................................................................................. 18
Key assumptions .................................................................................................................................... 18
Chapter 3. International Energy Module .................................................................................................... 20
Key assumptions .................................................................................................................................... 20
Chapter 4. Residential Demand Module ..................................................................................................... 25
Key assumptions .................................................................................................................................... 26
Legislation and regulations .................................................................................................................... 32
Chapter 5. Commercial Demand Module ................................................................................................... 36
Key assumptions .................................................................................................................................... 36
Technology Choice Submodule.............................................................................................................. 39
Legislation and regulations .................................................................................................................... 46
Chapter 6. Industrial Demand Module ....................................................................................................... 51
Key assumptions - Manufacturing ......................................................................................................... 52
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 iiiPetrochemical feedstock requirement .................................................................................................. 60
Buildings component ............................................................................................................................. 64
Boiler, steam, and cogeneration component ........................................................................................ 67
Combined heat and power .................................................................................................................... 69
Key assumptions - non-Manufacturing.................................................................................................. 70
Legislation and regulations .................................................................................................................... 71
Chapter7. Transportation Demand Module ............................................................................................... 75
Key assumptions .................................................................................................................................... 75
Light-duty vehicle submodule ............................................................................................................... 75
Commercial light-duty fleet assumptions .............................................................................................. 80
Legislation and regulations .................................................................................................................... 95
Chapter 8. Electricity Market Module....................................................................................................... 102
Model parameters and assumptions ................................................................................................... 103
New generating plant characteristics .................................................................................................. 104
Technological optimism and learning .................................................................................................. 107
Electricity pricing ................................................................................................................................. 114
Legislation and regulations .................................................................................................................. 117
Chapter 9. Oil and Gas Supply Module ..................................................................................................... 131
Key assumptions .................................................................................................................................. 131
Lower 48 onshore ................................................................................................................................ 134
Technological Improvement ................................................................................................................ 139
CO2 enhanced oil recovery .................................................................................................................. 139
Lower 48 offshore ................................................................................................................................ 141
Alaska crude oil production ................................................................................................................. 143
Legislation and regulations .................................................................................................................. 145
Oil and gas supply alternative cases .................................................................................................... 147
Low Oil and Gas Resource and Technology case .......................................................................... 147
High Oil and Gas Resource and Technology case .......................................................................... 148
Chapter 10. Natural Gas Transmission and Distribution Module ............................................................. 149
Key assumptions .................................................................................................................................. 150
Legislation and regulations .................................................................................................................. 156
Chapter 11. Liquid Fuels Market Module ................................................................................................. 157
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 ivKey assumptions .................................................................................................................................. 158
Non-petroleum fossil fuel supply ........................................................................................................ 169
Combined heat and power (CHP) ........................................................................................................ 170
Short-term methodology ..................................................................................................................... 170
Legislation and regulation ................................................................................................................... 170
Chapter 12. Coal Market Module ............................................................................................................. 173
Key assumptions .................................................................................................................................. 173
Legislation and regulations .................................................................................................................. 184
Chapter 13. Renewable Fuels Module ...................................................................................................... 188
Key assumptions .................................................................................................................................. 188
Capital costs ......................................................................................................................................... 189
Solar Submodule .................................................................................................................................. 190
Wind Energy Power Submodule .......................................................................................................... 191
Geothermal Electricity Submodule ...................................................................................................... 194
Biomass Submodule............................................................................................................................. 194
Landfill Gas (LFG) Submodule .............................................................................................................. 196
Conventional Hydroelectricity Submodule .......................................................................................... 196
Legislation and regulations .................................................................................................................. 197
State Renewable Portfolio Standards programs ................................................................................. 198
Appendix A: Handling of federal and selected state legislation and regulations in the AEO ................... 202
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 vFigures
Figure 1.1. National Energy Modeling System .............................................................................................. 3
Figure 3.1. World oil prices in three cases, 1995-2040 ............................................................................... 21
Figure 3.2. OPEC total liquids production in the Reference case, 1995-2040 ............................................ 22
Figure 3. 3. Non-OPEC total liquids production in the Reference case, 1995-2040 ................................... 23
Figure 4.1. United States Census Divisions ................................................................................................. 25
Figure 8.1. Electricity Market Module Regions ......................................................................................... 102
Figure 8.2. Cross State Air Pollution Rule ................................................................................................. 118
Figure 10.1. Natural Gas Transmission and Distribution regions ............................................................. 149
Figure 12.1. Coal Supply Regions ............................................................................................................. 176
Figure 12.2. Coal Demand Regions .......................................................................................................... 177
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 viTables
Table 1.1. Summary of AEO2017 cases ....................................................................................................... 14
Table 1.2. Carbon dioxide emission factors ................................................................................................ 16
Table 2.1. Economic growth in gross domestic product, nonfarm employment and productivity ............ 19
Table 3.1. Worldwide oil reserves as of January 1, 2014 ............................................................................ 23
Table 3.2. Average annual real gross domestic product rates, 2010-40 .................................................... 24
Table 3.3. Average annual growth rates for total liquids demand in the Reference case, 2010-40 .......... 24
Table 4.1. 2009 Households ........................................................................................................................ 27
Table 4.2. Installed cost and efficiency ratings of selected equipment ...................................................... 28
Table 4.3. Capital cost and performance parameters of selected residential distributed generationtechnologies ................................................................................................................................................ 29
Table 4.4. Minimum and maximum life expectancies of equipment ......................................................... 30
Table 5.1. 2003 Total floorspace by Census division and principal building activity .................................. 38
Table 5.2. Floorspace attrition parameters ................................................................................................ 38
Table 5.3. Capital cost and performance parameters of selected commercial distributed generationtechnologies ................................................................................................................................................ 40
Table 5.4. Assumed behavior rules for choosing space heating equipment in large office buildings ........ 42
Table 5.5. Assumed distribution of risk-adjusted time preference premiums for space heating andlighting equipment in 2015 ......................................................................................................................... 42
Table 5.6. Capital cost and efficiency ratings of selected commercial space heating equipment1 ............ 44
Table 6.1. Industry categories and NAICS codes ......................................................................................... 51
Table 6.2. Census regions, Census divisions, and states ............................................................................. 52
Table 6.3. Retirement rates ........................................................................................................................ 53
Table 6.4. Technology Possibility Curves and Relative Energy Intensities for end-use models ................. 54
Table 6.5. Cost and performance parameters for industrial motor choice model ..................................... 59
Table 6.6. 2010 Building component energy consumption ........................................................................ 64
Table 6.7. 2010 Boiler steam cogeneration component energy consumption .......................................... 67
Table 6.8. Regional collaboration coefficients for CHP deployment .......................................................... 69
Table 6.9. Cost characteristics of industrial CHP systems ........................................................................... 69
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 viiTables
Table 7.1. Standard technology matrix for cars1 ........................................................................................ 76
Table 7.2. Standard technology matrix for light trucks1 ............................................................................. 78
Table 7.3. Vehicle miles traveled equation coefficients, by age and gender cohorts ................................ 80
Table 7.4. Percent of fleet alternative fuel vehicles by fleet type by size class, 2005 ................................ 81
Table 7.5. Commercial fleet size class shares by fleet and vehicle type, 2005 ........................................... 81
Table 7.6. Share of new vehicle purchases by fleet type and technology type, 2009 ................................ 81
Table 7.7. Vehicle technology category for technology matrix for freight trucks ...................................... 84
Table 7.8. Standard technology matrix for freight trucks ........................................................................... 85
Table 7.9. Thirteen regions for the world model ........................................................................................ 89
Table 7.10. 2015 Regional population, GDP, per capita GDP, domestic and international RPM and percapita RPM .................................................................................................................................................. 90
Table 7.11. 2015 Regional passenger and cargo aircraft supply ................................................................ 92
Table 7.12. Standard technology matrix for air travel ............................................................................... 95
Table 7.13. EPACT legislative mandates for AFV purchases by fleet type and year ................................... 97
Table 8.1. Generating capacity types represented in the Electricity Market Module .............................. 103
Table 8.2. Cost and performance characteristics of new central station electricity generatingtechnologies .............................................................................................................................................. 105
Table 8.3. Total overnight capital costs of new electricity generating technologies by region ............... 106
Table 8.4. Learning parameters for new generating technology components ........................................ 107
Table 8.5. Component cost weights for new technologies ....................................................................... 109
Table 8.6. Component capacity weights for new technologies ................................................................ 109
Table 8.7. Coal plant retrofit costs ............................................................................................................ 121
Table 8.8. Mercury emission modification factors ................................................................................... 121
Table 8.9. Planned SO2 scrubber additions by EMM region .................................................................... 122
Table 8.10. Existing pulverized coal plant types in the NEMS Electricity Market Module ....................... 124
Table 8.11. Heat rate improvement (HRI) potential and cost (capital, fixed O&M) by plant type andquartile as used for input to NEMS ........................................................................................................... 125
Table 9.1. Technically recoverable U.S. crude oil resources as of January 1, 2015 .................................. 132
Table 9.2. Technically recoverable U.S. dry natural gas resources as of January 1, 2015 ........................ 133
Table 9.3. U.S. unproved technically recoverable tight/shale oil and gas resources by play (as of January
1, 2015) ..................................................................................................................................................... 135
Table 9.4. U.S. unproved technically recoverable coalbed methane resources by play (as of January 1,2015) ......................................................................................................................................................... 137
Table 9.5. Distribution of crude oil EURs in the Bakken ........................................................................... 138
Table 9.6. Onshore lower 48 technology assumptions ............................................................................. 139
Table 9.7. Maximum volume of CO2 available ......................................................................................... 140
Table 9.8. CO2 availability assumptions ................................................................................................... 140
Table 9.9. Industrial CO2 capture and transportation costs by region ..................................................... 141
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 viiiTable 9.10. Assumed size and initial production year of major announced deepwater discoveries ....... 142
Table 9.11. Offshore exploration and production technology levels ....................................................... 143
Table 10.1. Assumptions for setting CNG and LNG fuel prices ................................................................. 152
Table 10.2. Exogenously specified Mexico natural gas consumption, production, and LNG imports...... 153
Table 10.3. Exogenously specified Canada natural gas consumption, production, and LNG imports ..... 154
Table 10.4. Charges related to LNG exports ............................................................................................. 155
Table 10.5. International natural gas volume drivers for world LNG Europe and Asia market priceprojections ................................................................................................................................................ 155
Table 11.1. Petroleum product categories ............................................................................................... 158
Table 11.2. Year-round gasoline specifications by Petroleum Administration for DefenseDistrict (PADD) .......................................................................................................................................... 159
Table 11.3. Percent in market share for gasoline types by Census Division ............................................. 160
Table 11.4. Petroleum product end-use markups by sector and Census Division ................................... 162
Table 11.5. State and local taxes on petroleum transportation fuels by Census Division........................ 163
Table 11.6. Federal taxes .......................................................................................................................... 163
Table 11.7. Crude oil specifications .......................................................................................................... 163
Table 11.8. Alternative fuel technology product type .............................................................................. 165
Table 11.9. Non-petroleum fuel technology characteristics1 ................................................................... 167
Table 12.1. Coal mining productivity by region ........................................................................................ 175
Table 12.2. Transportation rate multipliers .............................................................................................. 179
Table 12.3. World steam coal import demand by import region1 ............................................................ 181
Table 12.4. World metallurgical coal import demand by import region1 ................................................. 182
Table 12.5. Production, heat content, sulfur, mercury and carbon dioxide emission factors by coal type
and region ................................................................................................................................................. 183
Table 13.1. Aggregate regional renewable portfolio standard requirements .......................................... 199
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 1Chapter 1. Introduction
This report presents the major assumptions of the National Energy Modeling System (NEMS) used togenerate the projections in the Annual Energy Outlook 2017 [1.1] (AEO2017), including general features of
the model structure, assumptions concerning energy markets, and the key input data and parameters that
are the most significant in formulating the model results. The AEO is now on a biennial schedule with a full
report every other year. AEO2017 is an abridged report and contains fewer side cases than the prior AEO.
Detailed documentation of the modeling system is available in a series of documentation reports [1.2].
Important changes since the most recent documentation will be featured in this report and as such no additional formal documentation will be provided until the next long report in AEO2018.The National Energy Modeling System
Projections in AEO2017 are generated using NEMS [1.3], developed and maintained by the Office of Energy
Analysis of the U.S. Energy Information Administration (EIA). In addition to its use in developing the Annual
Energy Outlook (AEO) projections, NEMS is used to complete analytical studies for the U.S. Congress, the
Executive Office of the President, other offices within the U.S. Department of Energy (DOE), and other
federal agencies. NEMS is also used by nongovernmental groups, such as the Electric Power ResearchInstitute, Duke University, and the Georgia Institute of Technology. In addition, AEO projections are used by
analysts and planners in other government agencies and nongovernmental organizations.The projections in NEMS are developed with the use of a market-based approach, subject to regulations and
standards. For each fuel and consuming sector, NEMS balances energy supply and demand, accounting for
economic competition across the various energy fuels and sources. The time horizon of NEMS currently extends to 2050. To represent regional differences in energy markets, the component modules of NEMSfunction at the regional level: the 9 Census divisions for the end-use demand modules; production regions
specific to oil, natural gas, and coal supply and distribution; 22 regions and subregions of the North
American Electric Reliability Corporation for electricity; and 9 refining regions within the 5 Petroleum
Administration for Defense Districts (PADDs). Complete regional and detailed results are available on the EIA
Analysis and Projections Home Page (www.eia.gov/analysis/).NEMS is organized and implemented as a modular system (Figure 1.1). The modules represent each of the
fuel supply markets, conversion sectors, and end-use consumption sectors of the energy system. The modular design also permits the use of the methodology and level of detail most appropriate for eachenergy sector. NEMS executes each of the component modules to solve for prices of energy delivered to end
users and the quantities consumed, by product, region, and sector. The delivered fuel prices encompass all
activities necessary to produce, import, and transport fuels to end users. The information flows also include
such areas as economic activity, domestic production, and international petroleum supply. NEMS calls each
supply, conversion, and end-use demand module in sequence until the delivered prices of energy and the
quantities demanded have converged within tolerance, thereby achieving an economic equilibrium of supply
and demand in the consuming sectors. A solution is reached for each year from 2017 through 2050. Other
variables, such as petroleum product imports, crude oil imports, and several macroeconomic indicators, are
also evaluated for convergence.July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 2Each NEMS component represents the effects and costs of legislation and environmental regulations that
affect that sector. NEMS accounts for all combustion-related carbon dioxide (CO2) emissions, as well as
emissions of sulfur dioxide (SO2), nitrogen oxides (NOX), and mercury from the electricity generation sector.
The integrating module of NEMS controls the execution of each of the component modules. To facilitate
modularity, the components do not pass information to each other directly but communicate through acentral data storage location. This modular design provides the capability to execute modules individually,
thus allowing decentralized development of the system and independent analysis and testing of individual
modules that appropriately reflect each energy sector. The version of NEMS used for AEO2017 generally represents current legislation and environmentalregulations, including recent government actions for which implementing regulations were available as of
the end of September 2016. The potential effects of proposed federal and state legislation, regulations, or
Protection Agency's (EPA) Clean Power Plan (CPP), is included in the Reference case of AEO2017. Howeǀer,
because of the continuing uncertainty surrounding its implementation, a No CPP case is also included. A list
of the specific federal and selected state legislation and regulations included in the AEO, including how they
are incorporated, is provided in Appendix A of this document.July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 3Figure 1.1. National Energy Modeling System
Component modules
The component modules of NEMS represent the individual supply, demand, and conversion sectors of domestic energy markets and also include international and macroeconomic modules. In general, themodules interact through values representing prices or expenditures for energy delivered to the consuming
sectors and the quantities of end-use energy consumption. This section provides brief summaries of each of
the modules.Macroeconomic Activity Module
The Macroeconomic Activity Module (MAM) provides a set of macroeconomic drivers to the energy modules and receives energy-related indicators from the NEMS energy components as part of the macroeconomic feedback mechanism within NEMS. Key macroeconomic variables used in the energy modules include gross domestic product (GDP), disposable income, value of industrial shipments, newhousing starts, sales of new light-duty vehicles, interest rates, and employment. Key energy indicators fed
back to the MAM include aggregate energy prices and costs. The MAM uses the following models from IHS
Global Insight: Macroeconomic Model of the U.S. Economy, National Industry Model, and National Employment Model. In addition, EIA has constructed a Regional Economic and Industry Model to projectregional economic drivers, and a Commercial Floorspace Model to project 13 floorspace types in 9 Census
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 4divisions. The accounting framework for the industrial value of shipments uses the North American Industry
Classification System (NAICS).
International Energy Module
The International Energy Module (IEM) uses assumptions of economic growth and expectations of futureU.S. and world petroleum and other liquids production and consumption, by year, to project the interaction
of U.S. and international petroleum and other liquids markets. This module provides a world crude-like
liquids supply curve and generates a worldwide oil supply/demand balance for each year of the projection
period. The supply-curve calculations are based on historical market data and a world oil supply/demand
balance that are developed from reduced-form models of international petroleum and other liquids supply
and demand, current investment trends in exploration and development, and long-term resource economics
by country and territory. The oil production estimates include both petroleum and other liquids supply
recovery technologies. The IEM also provides, for each year of the projection period, endogenous assumptions for petroleum products for import and export in the United States. The IEM, through interacting with the rest of NEMS, changes North Sea Brent prices in response to changes in expected production and consumption of crude-like liquids in the United States.Residential and Commercial Demand Modules
The Residential Demand Module (RDM) projects energy consumption in the residential sector by Censusdivision, housing type, and end use, based on delivered energy prices, the menu of equipment available, the
availability of renewable sources of energy, and changes in the housing stock. The Commercial DemandModule (CDM) projects energy consumption in the commercial sector by Census division, building type, and
category of end use, based on delivered prices of energy, availability of renewable sources of energy, and
changes in commercial floorspace. The RDM estimates the equipment stock for major end-use services, while the CDM estimates service demand met by major end-use equipment. Both incorporate assessments of advanced technologies, representations of renewable energy technologies, projections of distributed generation includingcommercial combined heat and power (CHP), and the effects of both building shell and appliance standards.
The modules incorporate changes to heating and cooling degree days by Census division, based on a 30-year
historical trend and state-level population projections. The RDM projects an increase in the average square
footage of both new construction and existing structures, based on trends in new construction andremodeling, and commercial floorspace increases as a result of projected growth within the Macroeconomic
Activity Module of NEMS.
Industrial Demand Module
The Industrial Demand Module (IDM) projects the consumption of energy for heat and power in each of 21
industries or industry groups, as well as the consumption of feedstocks in the bulk chemicals industry.
Energy consumption depends upon the delivered prices of energy and macroeconomic estimates of the value of shipments and of employment for each industry. As noted in the description of the MAM, therepresentation of industrial activity in NEMS is based on the NAICS. The industries are classified into three
groups: energy-intensive manufacturing, non-energy-intensive manufacturing, and nonmanufacturing. Seven of eight energy-intensive manufacturing industries are modeled in the IDM, including energy- consuming components for boiler/steam/cogeneration, buildings, and process/assembly use of energy.July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 5Energy demand for petroleum and other liquids refining (the other energy intensive manufacturing industry)
is modeled in the Liquid Fuels Market Module (LFMM) as described below, but the projected consumption is
reported under the industrial totals. The one data change for AEO2017 includes simplifying the direct
reduced iron (DRI) output so that 10% of total DRI output is used in blast furnaces.Transportation Demand Module
The Transportation Demand Module (TDM) projects consumption of energy by mode and fuel type in thetransportation sector, subject to delivered energy prices and macroeconomic variables such as GDP, as well
as other factors such as technology adoption. Transportation modes include light-duty vehicles, heavy-duty
vehicles, air, marine, and rail. Fuel types include motor gasoline, distillate, jet fuel, and alternate fuels such
as ethanol (E85) and compressed and liquefied natural gas (CNG/LNG). The light-duty vehicle travel component uses fuel prices, personal income, and ten age and gender population groups to generateprojections. The Transportation Demand Module considers legislation and regulations, such as the Energy
Policy Act of 2005 (EPACT2005), the Energy Improvement and Extension Act of 2008 (EIEA2008), and theAmerican Recovery and Reinvestment Act of 2009 (ARRA2009), which contain tax credits for the purchase of
alternatively fueled vehicles. Representations of light-duty-vehicle Corporate Average Fuel Economy (CAFE)
and Greenhouse Gas (GHG) emissions standards, heavy-duty vehicle fuel consumption and GHG emissions standards, and biofuels consumption reflect requirements enacted by NHTSA and the EPA, as well asprovisions in the Energy Independence and Security Act of 2007 (EISA2007). TDM also considers the Clean
Air Act provision that provides the state of California the authority to set vehicle criteria emission standards
that exceed federal standards. The air transportation component of the Transportation Demand Module represents air travel in 13domestic and foreign regional markets (United States, Canada, Central America, South America, Europe,
Africa, Middle East, Commonwealth of Independent States, China, Northeast Asia, Southeast Asia,Southwest Asia, and Oceania) and includes the industry practice of parking aircraft in both domestic and
international markets to reduce operating costs, as well as the industry practice of moving aircraft from
passenger to cargo markets. For passenger travel and air freight shipments, the module represents regional
fuel use and travel demand for three aircraft types: regional, narrow-body, and wide-body. The Transportation Demand Module projects energy consumption for freight trucks (heavy-duty vehiclesincluding buses, vocational vehicles, and tractor trailers), freight and passenger rail, and international and
domestic marine vessels by fuel and Census division, as well as marine fuel choices and demand for ocean-
going vessels operating within the North American and Caribbean Emission Control Areas (ECAs). Freight
trucks, freight rail, and domestic and international marine are subject to macroeconomic drivers such as the
value and type of industrial shipments. Passenger rail projections are subject to personal income and fuel
prices.Electricity Market Module
There are three primary submodules of the Electricity Market Module (EMM): capacity planning, fuel dispatching, and finance and pricing. The capacity expansion submodule uses the stock of existinggeneration capacity, the cost and performance of future generation capacity, expected fuel prices, expected
financial parameters, expected electricity demand, and expected environmental regulations to project the
optimal mix of new generation capacity that should be added in future years. The fuel dispatchingJuly 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 6submodule uses the existing stock of generation equipment types, their operation and maintenance costs
and performance, fuel prices to the electricity sector, electricity demand, and all applicable environmental
regulations to determine the least-cost way to meet that demand. The submodule also determines inter-
regional trade and costs of electricity generation. The finance and pricing submodule uses capital costs, fuel
and operating costs, macroeconomic parameters, environmental regulations, and load shapes to estimate
retail electricity prices for each sector. All final regulations, as of November 2016, issued by the EPA for compliance with the Clean Air ActAmendments of 1990 are explicitly represented in the capacity expansion and dispatch decisions, including
the CO2 performance standards for new power plants and the Clean Power Plan, which restricts CO2 emissions from existing plants. All financial incentives for power generation expansion and dispatchspecifically identified in EPACT2005 and revised through later amendments have been implemented. Several
states, primarily in the northeast, had previously enacted air emission regulations for CO2 that affect the
electricity generation sector, and those regulations continue to be represented in AEO2017. The AEO2017
Reference case imposes a limit on CO2 emissions for specific covered sectors, including the electric power
sector, in California, as represented in California's SB 32. The AEO2017 Reference case continues to assume
implementation of the Cross State Air Pollution Rule (CSAPR), after the Supreme Court lifted the stay in
October 2014 and upheld CSAPR as a replacement to the Clean Air Interstate Rule, both of which weredeveloped to reduce emissions that contribute to ozone and fine particle pollution. Reductions in mercury
emissions from coal- and oil-fired power plants also are reflected through the inclusion of the Mercury and
Air Toxics Standards for power plants, finalized by the EPA on December 16, 2011. Because regulators and the investment community have continued to push energy companies to invest intechnologies that are less GHG-intensive, the AEO2017 Reference case continues to apply a 3-percentage-
point increase in the cost of capital, when evaluating investments in certain new coal-fired power plants,
new coal-to-liquids (CTL) plants without carbon capture and storage, and pollution control retrofits.
Although any new coal-fired plant is assumed to be compliant with new source performance standards, this
would only require 30% capture of CO2 emissions and would still be considered high emitting relative to
other new sources, and will continue to face financial risk if carbon emission controls are furtherstrengthened. The AEO2017 also represents a coal technology that captures 90% of the carbon emissions,
and this technology does not receive the 3 percentage point adder.Renewable Fuels Module
The Renewable Fuels Module (RFM) includes submodules representing renewable resource supply andtechnology input information for central-station, grid-connected electricity generation technologies,
including conventional hydroelectricity, biomass (dedicated biomass plants and co-firing in existing coal
plants), geothermal, landfill gas, solar thermal electricity, solar photovoltaics, and both onshore and
offshore wind energy. The RFM contains renewable resource supply estimates representing the regional opportunities for renewable energy development.Investment tax credits (ITCs) for renewable fuels are incorporated, as currently enacted. The ITC includes
business investment in solar energy (thermal nonpower uses as well as power uses) and geothermal power
(available only to those projects not accepting the production tax credit [PTC] for geothermal power). For
solar facilities this includes a 30% tax credit for technologies commencing construction before December 31,
July 2017
U.S. Energy Information Administration | Assumptions to the Annual Energy Outlook 2017 72019. At that time the ITC begins to phase down in value annually until December 31, 2021 where it remains
as a permanent 10% tax credit. For geothermal electric plants, the ITC is permanently at 10%. Theavailability of the ITC to individual homeowners is reflected in the Residential and Commercial Demand
Modules.
The PTC for wind, geothermal, landfill gas, and some types of hydroelectric and biomass-fueled plants are
represented in AEO2017 based on the laws enacted in December 2015. The PTC provides a credit of up to
2.3 cents/kilowatthour (kWh) for electricity produced in the first 10 years of plant operation. For AEO2017,
the tax credit is phased down for wind plants and expires for other technologies commencing construction
after December 31, 2016. Starting in 2017, the tax credit value for wind plants decreases by 20 percentage
points annually until it expires at the end of 2019. AEO2017 also accounts for new renewable energyquotesdbs_dbs29.pdfusesText_35