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Arizona Study: Gas Problematic; Electricity Rates to Soar

Higher electricity prices are inevitable, and it is a matter of choosing the right mixture of power generation sources to keep retail rates from increasing as much as 80% by 2020, according to a draft study released in June assessing Arizona's energy future. The "Powering Arizona: Choices & Tradeoffs for Electricity Policy" study was conducted by Arizona State University (ASU) and a California-based nonprofit group, The Communications Institute.

With her state continuing to experience unrelenting population growth, Arizona Gov. Janet Napolitano raised the question, "How much energy is Arizona going to need if we add one million new homes?" In response, ASU and the institute pursued their study and held a half-day forum in Phoenix to examine the state's future electricity needs. The same ASU business school research unit earlier in June released another study warning about under-investment in Arizona energy infrastructure during the next 20-25 years.

Projected growth over the next 10 years will require an added 20 million MWh, and beyond the year 2030 another 50 million MWh, the ASU study concluded. The typical Arizona household is spending $320/month for electricity, gasoline and other fuels in 2008, the study concluded, and that will grow to $450/month by 2030.

"There are options to cut these costs," the study said. "Instead of increasing reliance on natural gas, using conventional coal-fired power generation would lower rates 15-25% from the baseline forecast. This coal-based strategy, however, increases carbon emissions. Using natural gas to cut carbon emissions, however, may not be the most cost-effective strategy."

Various alternatives to increased reliance on natural gas carry their own challenges. More nuclear and clean coal will cost less than the projected cost of gas-fired generation, but society is not necessarily ready to embrace these technologies, the study said. Solar thermal projects are being touted, but are projected to raise electricity retail costs by 40% by 2015, compared with a 20% boost from natural gas-fired generation.

Efforts to reduce current carbon emission levels would require closing existing coal-fired generation plants and replacing them with a combination of integrated gasification combined-cycle (IGCC), nuclear and solar plants, the study said. "The backstop technology is once again natural gas, and if other states play the same game, natural gas use would increase and prices would soar and electricity rates could rise dramatically."

Under the IGCC-nuclear-solar scenario, the ASU study said power rates could increase by 80% in Arizona by 2020.

ASU's study said its simulations revealed what it called an important lesson -- namely, that "existing coal, hydroelectric and nuclear capacity are valuable assets, providing a low-cost buffer, shielding consumers from rate increases." But it also noted that climate change-driven policies to reduce greenhouse gas emissions "devalue these assets."

The bottom line, according to the study, is that there is a heavy price that consumers will have to pay if conventional sources of electricity are abandoned or deemphasized.

"These findings and the uncertainties surrounding generation costs suggest that Arizona may wish to consider maintaining a diversified portfolio of generation assets, continuing to build natural gas-fired capacity and adding nuclear, coal or IGCC capacity.

"While solar energy and other renewable energy offer great promise in meeting growing energy demand, a headlong push to build large amounts of solar thermal capacity may be counterproductive by raising rates too high, too fast and diminishing public support to achieve the real promising technological breakthroughs that lie ahead."

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