Electric Sector Capacity Planning under Uncertainty: Shale Gas and Climate Policy in the US ∗

Abstract

This research investigates how uncertainties related to shale gas production will influence the longterm deployment of supply-side technologies in US electricity markets, particularly under uncertain climate policy constraints. Using a two-stage stochastic programming approach, model results suggest that there is considerable value to limiting fugitive methane emissions from shale gas. This strategy would give the electric sector the flexibility of waiting to observe the resolution of uncertainties before building new capacity. Information about the stringency of greenhouse gas abatement is most valuable to utilities and generators when tight emissions caps are realized. The stochastic solution is especially valuable if no pre-2030 mitigation is assumed, if the uncertainty resolution date is delayed, or if the social cost of carbon is incorporated into the calculations