City Council Agenda and Packet 2023 10 10 SP

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Financial Considerations I Financial Considerations Financial Considerations The process of decarbonization doesn't occur in a vacuum, and other financial considerations beyond initial costs or utility savings come into play. Different financial scenarios or considerations impact how the cost of decarbonization might be viewed -these are the additional avoided costs discussed below. In addition, the process of electrification, in particular, can yield additional benefits- known as co -benefits. Where quantification is possible, it is provided, based on economic modeling derived from best and most recent available science. All figures assume a value stream of the roadmap horizon of 2023 -2040. Additional Avoided Costs Avoided future carbon emissions penalties As climate change becomes an increasingly current (rather than future) reality, carbon emissions penalties are starting to be applied by leading organizations to internal operations, and by governing bodies as regulation. Colorado recently adopted HB21-1286, which establishes penalties for high Energy Use Intensity private sector buildings, and the City of Denver created Energize Denver, which has even more aggressive carbon penalties. Leading private sector firms, such as Microsoft, also apply an internal cost of carbon to lower immediate emissions and begin bending decision making to anticipate a more aggressive future carbon penalty regulatory environment. The Canadian Federal government recently adopted an internal decision making price of $261 CDN$/mton, and the EPA has draft rule of $261US. While these have yet to become actual regulatory penalties, they indicate a likely direction over time as climate change worsens. For this roadmap, an initial penalty stream based on the Colorado carbon price of $76/mton is applied from 2023-2027, moving to the draft EPA price for 2028-2040. Natural gas price shocks Historically, natural gas has substantially greater price volatility than electricity, which isn't captured by typical escalation rates. The Russian invasion of Ukraine has put a spotlight on the potential for long term natural gas price instability - during 2022, natural gas prices increased by 50%, making previous natural gas escalation rate assumptions of 3-4 % invalid. Many risk forecasters anticipate further natural gas instability based on volatility of many producing nations. This roadmap includes a scenario of a 51.5 second natural gas price shock in 2030, mirroring the impact of the 2022 shock. $1.0 Future electric micro -grid backup power Currently, emergency power is provided by backup fossil fuel powered generators. A decarbonized alternative, with potentially $0.5 even greater resiliency, is electric batteries fueled by on -site solar. The cost of batteries for such systems is currently cost - prohibitive, but likely to drop in the future. Installing on -site solar as proposed for overall renewable power for the City has a dual benefit of helping enable future electrical islandability. The value of this is assumed at 10 % of the overall cost of proposed on -site solar. Average Price for Utility Piped Gas (United States) 2019 2020 2021 2022 2023 Natural gas prices went up -50% in 2022 https://www bls.gov/regions/west/news-release/averageenergyprices-Seattle. CITY OF LOUISVILLE I FINAL REPORT V3 1 INTERNAL DECARBONIZATION PLAN 122 35