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

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


1
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
2
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

3
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.

4
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
5
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.
6
States With EPS Requirements
CHP/waste heat recovery eligible
7
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.
8
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.

9
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.
10
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,
11
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

12
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.

13
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.

14
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)

15
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

16
Incorporating EE into EPS (3)
North Carolina RPS Study Results
17
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
18
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.

19
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

20
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).

21
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

22
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

23
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

24
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.
25
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

26
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

27
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
28
For More Information
  • Katrina Pielli
  • U.S. Environmental Protection Agency
  • Clean Energy Program Manager
  • (202) 343-9610
  • Pielli.Katrina_at_epa.gov
  • www.epa.gov/cleanenergy
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