Energy Portfolio Standards Creating New Opportunities for Increased Use of Clean Energy

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Energy Portfolio StandardsCreating 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
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Agenda

• What is clean energy
• Introduction to EPS
• Resource eligibility
• Incorporating EE and CHP
• 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

Primary Clean Energy Benefits
Reduce energy demand
Meet load growth with fewer environmental consequences
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.
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)

• Many states are creating Energy Portfolio
  Standards (EPS) Renewable, Alternative Energy,
  Energy Efficiency
• Since FL is in initial discussion stages, I will
  use EPS
• 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
1 251 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

• States tailor EPS requirements to fit policy
  objectives, electricity market conditions and
  clean energy potential.
• Key features of EPS design
• 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.
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)

• 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
• 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

• 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
  Connecticuts 20 minimum thermal threshold.
• 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)

• 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 EPAs Combustion Turbine New Source
  Performance Standards.
• 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

• Increasingly, states are setting EE goals
• Goals include of demand growth (TX, CA), of
  supply (CT), of sales (HI)
• Important to have clear EMV 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
• 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/state
  andlocal/activities.htm

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Incorporating EE into EPS (3)
North Carolina RPS Study Results
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Tiers and Multipliers
Credit Multipliers

• States regularly incorporate technology tiers
  and/or vintage tiers and/or credit
  multipliers to encourage particular
  technologies.
• By using tiers, different types of resources
  arent competing for the same percentage.
• Connecticut 3 tiers. Tier I and II are new
  renewable generation and Tier III is EE, CHP and
  DR.
• Credit multipliers are an effective method of
  placing increased value on a specific resource.

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 through 2008 2.0 for solar
Table from Ryan Wiser, LBNL, 2006
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Scope of EPS (entities that must meet requirement)

• EPS requirements are most commonly applied to
  investor-owned 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
• Some states have created EPS provisions for
  munis 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

• 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
• Restructured markets
• Tend to use short-term RECs trade to multiple
  parties, without PUC oversight
• Developers often sell electricity and RECs
  separately
• NYSERDAs 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
• 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.
• 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)

• 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
• Important to understand tradeoff of accepting
  out-of-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)

• 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
• Northeast NEPOOL GIS
• Mid-Atlantic PJM GATS
• West WREGIS
• TX ERCOT

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Penalties for Not Achieving EPS Requirement

• 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 cant 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.
Elements of Successful Implementation
Develop broad support, including top-level support of the Governor and/or legislature and hold actionoriented 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

• Ensuring other key policies are aligned with
  promoting increased use of clean energy can
  greatly increase the success of the EPS
• 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/guide
  toaction.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

• 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
• [phone]
• Pielli.Katrina_at_epa.gov
• www.epa.gov/cleanenergy