Transcript Where Good Environmental Policy is Good Electricity Policy

Energy Portfolio Standards
Creating New Opportunities for
Increased Use of Clean Energy
Katrina Pielli
Clean Energy Program Manager
Climate Protection Partnerships Division
U.S. Environmental Protection Agency
Florida PSC Renewable Portfolio Standard Workshop
July 26, 2007
Agenda
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What is clean energy
Introduction to EPS
• Resource eligibility
• Incorporating EE and CHP
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Scope of EPS
Using RECs to meet EPS requirement
Penalties for not achieving EPS requirement
Elements of successful implementation
Aligning other policies to achieve EPS
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What is Clean Energy?
• Clean energy includes demand- and supply-side resources
that deliver clean, reliable, and low-cost ways to meet energy
demand and reduce peak electricity system loads.
– Energy Efficiency reduces demand for energy and peak
electricity system loads. Common energy efficiency measures
include hundreds of technologies and processes for practically
all end uses across all sectors of the economy.
– Renewable Energy is partially or entirely generated from
non-fossil energy sources. Renewable energy definitions vary
by state, but usually include solar, wind, geothermal, biomass,
biogas, and low-impact hydroelectric power.
– Combined Heat & Power, also known as cogeneration, is a
clean, efficient approach to generating electric and thermal
energy from a single fuel source. Inherently an energy
efficiency measure.
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Clean Energy Benefits
Clean energy can reduce electricity demand and meet load growth
to help address many state energy challenges
State Energy Challenges
Electricity demand
continues to rise
Electricity transmission
systems are overburdened
Many base-load plants are
aging
Volatile natural gas prices
and financial risk as well as
high energy prices
Reducing emissions to
improve air quality and
comply with clean air rules.
Primary Clean Energy Benefits
Reduce energy demand
Meet load growth with fewer
environmental consequences
Additional Clean Energy Benefits
Reduced energy-related air
emissions
Increased power reliability
Increased fuel diversity
Efficient use of natural resources
Increased state economic
development
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Energy Portfolio Standards (EPS)
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Many states are creating Energy Portfolio Standards (EPS) –
Renewable, Alternative Energy, Energy Efficiency
• Since FL is in initial discussion stages, I will use EPS
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Policy Objective: EPS requirements create market demand for
clean energy supply by mandating that utilities and electricity
providers serve load with a minimum requirement of clean
energy.
Policy Advantages:
• Due to market-based approach, has potential to achieve policy
objectives efficiently and at relatively modest cost (ratepayer
impacts generally range from less than 1% increases to 0.5%
savings).
• Spreads compliance costs among all customers.
• Functions in both regulated and unregulated state electricity
markets.
• Provides a clear and long-term target for clean energy generation
that can increase investors’ and developers’ confidence in the
prospects for renewable energy.1
1. Provided the state sends strong signals that this is a policy that will last.
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States With EPS Requirements
= CHP/waste
heat recovery
eligible
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States With EPS
Requirements (2)
States with EPS
requirements mandate
that between 1 – 25%1 of
electricity be generated
from renewable sources
by a specified date.
Note:
1. Higher percentages are typically for states that already have
a relatively large amount of RE, like NY, CA and ME
Source: Navigant Consulting, Inc, Database of State Incentives
for Renewable Energy (DSIRE) and California Energy
Commission.
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EPS Design
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States tailor EPS requirements to fit policy objectives,
electricity market conditions and clean energy potential.
Key features of EPS design:
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Goals and Objectives
Applicability
Eligibility
Compliance
Overall design of EPS requirements can influence
investor confidence, the ability of markets to develop,
and opportunities for project developers and investors
to recover capital investments.
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Key Features in EPS Design
Several best practices for EPS design features have emerged based on state
experiences.
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Key features in EPS design
Accounting methods (e.g., energy production versus installed
capacity requirements; RECs or bundled energy only).
Resource eligibility
Time horizons for compliance periods
Mandatory or voluntary participation
Flexible compliance mechanisms to guard against high prices or
the lack of supply of renewable energy
Coordination with Federal and State energy policies
Cost recovery mechanisms for utilities
Enforcement mechanisms for non-compliance
Incorporate “technology tiers” and/or “credit multipliers” to
encourage particular technologies.
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Resource Eligibility
Eligibility of technologies varies by state and depends on
whether an energy resource or technology supports state goals.
* Renewable CHP systems are eligible; fossil-fueled CHP systems are not eligible.
‡Includes only those states that allow fuel cells using nonrenewable energy sources of hydrogen. Some states allow only renewable fuel cells (Arizona,
California, Colorado, Delaware, Massachusetts, Maryland, New Mexico, New York, Rhode Island, Wisconsin) as eligible technologies.
Source: U.S. EPA Clean Energy-Environment Guide to Action (2006), Database of State Incentives for Renewable Energy (DSIRE) last accessed July
2007,
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Resource Eligibility (2)
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EPS requirements should fit policy objectives, electricity
market conditions and clean energy potential.
• Important to complete a potential study
• Clearly understand implications of eligible vintage resources
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Increasingly, states are including non-renewable energy in
EPS (e.g. EE, CHP)
By including EE, North Carolina found the overall cost of a
RPS was reduced over the long-term
By including CHP, states promote the efficient generation
of electricity and thermal energy
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Incorporating CHP into EPS
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States are increasingly including CHP as an eligible EPS
resource.
Inclusion may require a minimum efficiency requirement (e.g.,
50% total efficiency in Connecticut) or designation as a
“qualifying facility” under the Public Utilities Regulatory Policy
Act (such as in Maine ).
• These efficiency requirements also usually require some minimum
threshold of recovered electric and/or thermal energy, such as
Connecticut’s 20% minimum thermal threshold.
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EPS eligibility requirements may set emission limits for emitting
technologies.
• Through 2005, California sources were required to produce zero
emissions or meet the 2007 state emission limits for DG to qualify
as eligible.
• In Connecticut, emission limits apply to biomass facilities.
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Incorporating CHP into EPS (2)
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CHP systems that are fueled with a qualifying renewable resource are
eligible under traditional EPS. In this context, typically only the electric
output of the CHP system is eligible. States can also include the
thermal output for these systems in EPS to fully value CHP benefits.
There are numerous states that credit thermal output in their
environmental regulations:
• California, Maine, Rhode Island, and Texas include thermal output in their
Small DG Rule. As well as EPA’s Combustion Turbine New Source
Performance Standards.
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To account for the thermal output of CHP units, convert the measured
steam output (Btu) to an equivalent electrical output (MWh) through a
unit conversion factor (1 MWh = 3.413 MMBtu). By adding the thermal
and electric output together, states are recognizing the full
environmental and emissions benefits of CHP.
EPS language can be modified to state that CHP output will be
calculated as the electric output plus the thermal output in MW, based
on the conversion of 1 MWh = 3.413 MMBtu of heat output.
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Incorporating EE into EPS
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Increasingly, states are setting EE goals
Goals include: % of demand growth (TX, CA), % of supply (CT),
% of sales (HI)
Important to have clear EM&V established
Recent ACEEE report for FL assumed EE goal of 0.2% of
electricity sales in 2009, an additional 0.4% in 2010 until
savings of 1% per year are being achieved. Gas sales 0.1% in
year one, 0.2% in year two, increasing to 0.5% savings in year
five and thereafter.
Including EE as part of an ERS can reduce the overall cost to
achieve goals over the long term (NC)
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Incorporating EE into EPS (2)
CA, CO, CT, HI, IL, NV, NJ, PA, TX, VT
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Hawaii, Nevada, and Pennsylvania have indirect EEPS as part of their RPS/AEPS.
Illinois's EEPS is a goal (not a requirement) under the state's Sustainable Energy Plan.
Colorado EEPS is part of a utility/PUC settlement agreement;
Vermont EEPS is incorporated into statewide contracts for energy efficiency.
As of 1/1/07. http://www.epa.gov/cleanenergy/stateandlocal/activities.htm
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Incorporating EE into EPS (3)
North Carolina
RPS Study
Results
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Tiers and Multipliers
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States regularly incorporate
“technology tiers” and/or
“vintage tiers” and/or “credit
multipliers” to encourage
particular technologies.
By using tiers, different
types of resources aren’t
competing for the same
percentage.
• Connecticut = 3 tiers. Tier I
and II are new renewable
generation and Tier III is
EE, CHP and DR.
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Credit multipliers are an
effective method of placing
increased value on a
specific resource.
* = Table from Ryan Wiser, LBNL, 2006
Credit Multipliers*
AZ
1.5 for in-state solar generation installed
pre-2005; 1.3 for renewables installed in
2001, 1.2 for 2002, 1.1 for 2003; in-state
manufacturing and DG multipliers;
proposed rule would eliminate multipliers
for projects installed after 2005
DE
3 for solar or fuel cells before 2014; 1.5 for
wind sited in DE before end of 2012
CO
1.25 for in-state renewable resources
NV
1.15 for distributed renewable generation;
2.4 for PV (2.55 for DG PV); 0.7 for
customer-sited reverse polymerization
waste tire facilities
NM
2 for biomass, geothermal, LFG, or fuel
cell; 3 for solar
DC
1.2 for wind and solar through 2006 and
1.1 from 2007 to 2009; 1.1 for methane
gas through 2009
MD
1.2 for wind through 2005 and 1.1 for wind
from 2006 to 2008; 1.1 for landfill methane 17
through 2008; 2.0 for solar
Scope of EPS (entities that must meet
requirement)
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EPS requirements are most commonly applied to investorowned utilities and electric service providers.
Unusual for mandatory EPS requirements to extend to
municipal utilities and cooperatives, as these entities are
predominately self-regulated.
• Hawaii and Wisconsin require public utilities to fully comply with RPS
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Some states have created EPS provisions for muni’s and
coops:
• Colorado RPS includes municipal and cooperative utilities, but they can
opt-out or self-certify. If they self-certify, compliance reports are for
informational purposes only.
• Washington RPS passed by ballot initiative; calls for electric utilities that
serve more than 25,000 customers in the state to obtain 15% of their
electricity from new renewables by 2020 and to undertake cost-effective
energy conservation.
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EPS Compliance
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Generally, there are two types:
Regulated markets
• Tend to use long-term bundled contracts for electricity and RECs
• Utility RFP solicitations or bilateral negotiations with PUC oversight
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Restructured markets
• Tend to use short-term RECs trade to multiple parties, without PUC
oversight
• Developers often sell electricity and RECs separately
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NYSERDA’s central procurement approach intended to (in
some degree) replicate regulated market outcomes in a
restructured environment
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Using RECs to Meet EPS Requirement
EPS Compliance
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Generally three ways that affected entities may
comply with the EPS requirements:
• Own a renewable energy facility,
• Purchase Renewable Energy Certificates (RECs),
• Purchase electricity from a renewable facility inclusive of all
renewable attributes.
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Clearly identifying accounting methods for the EPS is
critical (e.g., energy production versus installed
capacity requirements; RECs or bundled energy
only).
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Using RECs to Meet EPS Requirement (2)
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Most states require affected entities to meet EPS
through surrender and retirement of RECs.
• Increases flexibility and reduces compliance cost
• Can provide income to project developers
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Important to understand tradeoff of accepting outof-state RECs (reduce compliance cost) and the
development of in-state clean energy and
economic development.
• Policymakers should have clear understanding of
available in-state resource potential
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Using RECs to Meet EPS Requirement (3)
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Most cases, formation of a REC = amount of
electricity generated (and thermal if CHP eligible)
EPS must have system of tracking the generation
in place to ensure it actually comes from eligible
resource. Many existing tracking systems used to
meet emissions disclosure requirements:
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Northeast = NEPOOL GIS
Mid-Atlantic = PJM GATS
West = WREGIS
TX = ERCOT
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Penalties for Not Achieving EPS
Requirement
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States have found having a credible non-compliance
mechanism in place in the form of penalties is helpful;
however, states provide flexibility in compliance.
Many states use alternative compliance payments (ACP)
which an affected entity can pay if they are unable to
procure the required amount of clean energy.
If the affected entities can’t purchase RECs below the ACP
price, they pay the state the ACP as an alternative.
• The state typically use these funds to promote clean
energy projects
ACP price typically escalates over time
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Elements of Successful Implementation
A number of best practices have emerged for implementing
effective EPS requirements based on state experiences.
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Elements of Successful Implementation
Develop broad support, including top-level support of the
Governor and/or legislature and hold action–oriented facilitated
discussions among key stakeholders.
Determine mix and amount of clean energy desired. (Careful
analysis and modeling of expected impacts prior to establishing
target is key to success.)
Establish a long timeline to encourage private investment.
Establish cost caps on the price to comply with EPS
requirements, high enough to encourage use of a range of
eligible technologies but low enough to protect electricity
suppliers.
Make sure a credible non-compliance mechanism is in place in
the form of penalties; however, provide flexibility in compliance.
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Aligning Other Policies to Achieve EPS
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Ensuring other key policies are aligned with
promoting increased use of clean energy can
greatly increase the success of the EPS
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Utility throughput-incentive
Standby-rates
Interconnection rules
Output-based emission for DG
Consider other policy options, such as a resource
“loading order” as in California
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EPA EPS Resources
• EPA Clean Energy-Environment Guide to Action
• Chapter 5.1: Renewable Portfolio Standards and Chapter
4.1: Energy Efficiency Resource Standards
• http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.
htm
• EPA Fact Sheet: Renewable Portfolio Standards An
Effective Policy to Support Clean Energy Supply
• http://www.epa.gov/chp/state_resources/EPS.htm
• EPA white paper: Energy Portfolio Standards and the
Promotion of Combined Heat and Power
• http://www.epa.gov/chp/state_resources/EPS.htm
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Summary
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Numerous opportunities for Florida to
increase use of clean energy, including
EPS.
Existing barriers the PSC can address to
achieve EPS
EPA can provide assistance to the PSC.
www.epa.gov/cleanenergy
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For More Information
Katrina Pielli
U.S. Environmental Protection Agency
Clean Energy Program Manager
(202) 343-9610
[email protected]
www.epa.gov/cleanenergy
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