Methods for Valuing and Incorporating Environmental Costs in Electric Resource Planning and Acquisition

Abstract

Electric power resource planning and acquisition practices in United States and many other countries consider a limited range of factors such as price, fuel diversity, reliability, etc. for achieving desirable results. This selection process often neglects the value of public goods consumed by the energy projects, and thus fails to make optimal choices for the society at large. For example, a fossil-fueled power plant consuming a greater quantity of air and water resources than a renewable energy resource may be chosen if the selection process is based mainly on the delivered price of power. To the extent that any project consumes public goods or usés public subsidies, the societal values of those goods and subsidies become external factors and neglecting their values in the decision processes leads to making suboptimal choices for the society. In the case of publicly owned and operated utility systems in which no direct private profits are involved, incorporation of external factors in the resource acquisition process is an internal decision and can be accommodated once proper values are established for externalities. In the case of privately owned but regulated utility systems such as those in the United states, incorporation of external factors in resource planning is not as easily accomplished because the market values for public goods are not readily determined and the use of the estimated values in resource selection is resisted by the private investors whose profits may be adversely affected. In the latter case, government regulators must work with the regulated utilities in finding acceptable methods for valuing public goods in electric resource planning and acquisition.