Quantifying Renewable Energy Savings
Fuel cost savings the focus ....
As we've shown with prior work, U.S. wind and solar generation can be forecasted using Inflation Reduction Act (IRA) spending estimates
We do not believe the Biden Administration, or Democrats in general, have articulated why the recent energy transition legislation was labeled the Inflation Reduction Act
While admittedly high level, we show a way to quantify and put a number on the benefit to consumers for fuel cost savings from renewable power generation and electric vehicles
Arguably, the IRA power generation provisions pay for themselves through fuel cost savings for consumers
EV mileage costs appear to be 25% of gasoline-equivalent costs
We highlight theoretical but tangible fuel cost savings for consumers - savings that will reduce the impact of inflation on their disposable income
Show Me the Money
Using historical data and CBO estimates for IRA spending, we believe Production and Investment Tax Credits will total $300 billion between 2006 and 2031.
The vast majority of these credits are for wind and solar generation. Enersection has built a large and detailed power model for the U.S. through 2031 driven by IRA spending forecasts.
U.S. wind and solar generation should increase 2-3 times between 2022 and 2031.
If we assume coal plants continue to retire at their current pace but that all wind and solar generation in the U.S. is theoretically replaced with natural gas generation, we can calculate implied fuel cost savings from the renewable power.
Replacing U.S. wind and solar generation would require 14 Bcf/d natural gas for 2023 power generation (7,100 heat rate used), rising to 32 Bcf/d in 2031.
Assuming a flat natural gas price deck of $5/Mcf, we calculated the cumulative cost of natural gas for power generation needed to replace all wind and solar.
The model allows us to split wind and solar generation and identify the amount derived from IRA spending, calculated in this model run at $215 billion.
As we detailed in our break down of the IRA, Clean Electricity tax credits total $160 billion, but those also include $30 billion of nuclear PTCs.
Said differently, the IRA spends $130 billion in wind and solar tax credits between 2023 and 2031, with resulting fuel cost savings for consumers of $215 billion over the same timeframe.
On the transportation side of the ledger, we have done similar detailed calculations utilizing:
- Estimated EV fleet growth
- Average vehicle miles traveled
- EV fleet efficiency (kWh per mile)
- Average U.S. power costs
- Gasoline mileage efficiency
- Gasoline costs per gallon
By modeling U.S. EV fleet growth, we can use our inputs to determine generation demand and the cost to charge the U.S. EV fleet. Charging costs are compared to the cost of the same miles using gasoline internal combustion engines at $3.50/gallon.
At a U.S. EV fleet of 20 million vehicles in 2031, penetration gets to 7% of U.S. total. In 2031 annual fuel cost savings for gasoline miles replaced by electric charging are $25 billion, with cumulative savings of $130 billion between now and then.
Fuel cost savings from wind and solar power and electric vehicles in the U.S. will exceed $500 billion between 2023 and 2031. Those are hard dollars in consumers pockets. The savings can be articulated better, in our opinion, helping with messaging and ultimately buy-in.
We acknowledge fuel cost-only analysis doesn't consider capital costs, capacity utilization, intermittency, LCOEs, backup capacity or other factors. But the math is straightforward.
If people don't fully-understand how energy transition potentially saves them money, show them.