Renewable Portfolio Standards RPS, Electricity Pricing and Energy Efficiency

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Renewable Portfolio Standards (RPS),
Electricity Pricing and Energy Efficiency
CEPSI 2008 Macau

• C.K. Woo, Senior Partner
• Energy and Environmental Economics, Inc.
• 101 Montgomery Street, Suite 1600
• San Francisco, CA 94104 USA
• Phone [phone]
• Fax [phone]
• Email address ck_at_ethree.com

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Agenda

• Background
• RPS in the US
• Results

High rates, mediocre service beautiful
California sunset priceless
If renewable energy is relatively more costly
than conventional electricity, an increase in the
RPS target should be accompanied by a
marginal-cost based rate increase and an
expansion of energy efficiency investment.
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Background

• RPS, as a percent of retail sales, is a commonly
  used command-and-control policy tool to promote a
  sustainable supply of environmentally friendly
  electricity
• On-going debate
• Is a federal RPS necessary?
• Should a state raise its target?
• Is RPS effective?
• RPS vs. feed-in tariff?
• But how does an increase in the RPS target affect
  electricity pricing and energy-efficiency (EE)
  investment?
• This presentation will show the importance of and
  need for policy coordination

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California Greenhouse Gas (GHG) and RPS policies
Background

• Global Warming Solutions Act of 2006 (AB 32)
• State must reduce emissions to 1990 levels by
  2020
• California Air Resources Board (CARB) charged
  with developing Scoping Plan for how to reach
  targets
• June 2008 Draft Scoping Plan
• 32,000 GWH of energy efficiency
• 30,000 GWH of combined heat and power (CHP)
• 33 RPS by 2020

With total sales of 260K GWH in 2007, California
already has relatively high retail rates. The
rate projection herein does not include the
impact of GHG and RPS policies, which will
further raise the states rates.
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If implemented in addition to the already
legislated 20 target by 2010, the 33 target by
2020 will substantially raise Californias future
demand for renewable energy (40,000 GWH 300K
GWH sales in 2020 13, equivalent to 5000 MW
of generation at 90 capacity factor).
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Marginal costs (MC) electricity
Results
Renewable generation (GWH per year)
Conventional generation (GWH per year)

• Weighted average of MC by RPS target (a) 20
  98.6/MWH (b) 33 119.4/MWH.
• MC-based pricing implies a rate increase of 21.1
  (119.4 98.6) / 98.6. Absent the rate
  increase, inefficient excess consumption occurs.
• When renewable energy is relatively more
  expensive than conventional electricity, an
  increase in the RPS target should be accompanied
  by an increase in the MC-based rate.

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Marginal cost energy efficiency (EE)
Results
Per kWh cost of achieving electricity savings in
Northern California via EE investments. The per
kWh cost for Southern California is almost
identical, thus not repeated here.

• A 20 to 33 increase in RPS raises the
  electricity MC from 0.10/kWh to 0.12/kWh,
  implying 1000 GWH more of efficient EE
  investment in California, enough for meeting the
  annual consumption of 100K homes. Without the
  additional EE, inefficient consumption occurs.
• When renewable energy is relatively more
  expensive than conventional electricity, an
  increase in the RPS target expands efficient EE
  investment.