The Regulatory Assistance Project 50 State Street, Suite 3 Montpelier, VT 05602

Phone: 802-223-8199 web: www.raponline.org

Characterizing Renewable Energy and Its Benefits

Presented by

Christopher James and Ken Colburn

August 30, 2011

Electric Energy Training for Air Regulatory & Planning Staff

NESCAUM EE-AQ Planning Workshop August 30, 2011

Introduction to RAP

• RAP is a non-advocacy, non-profit organization providing technical and educational assistance to government officials on energy and environmental issues.

• RAP Principals all have extensive utility regulatory experience.

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Renewable Energy (RE): Topics Covered in this Presentation

• Definition

• Examples of policies and measures

• Differences between energy efficiency (EE) and RE

• Development of RE policies

• RE policies implemented at local, state and federal level

• Benefits and trade-offs of RE

• Challenges and opportunities in RE integration

• Tracking & enforcing RE policies

• Estimating benefits & inclusion in SIPs

• Growth and Evolution of Renewable Portfolio Standards (RPS) and Clean Energy Standards

Definition and Examples of RE

Similarities and Differences Between RE and Energy Efficiency (EE)

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What is Renewable Energy?

• An RE resource is an energy source that is naturally replenished – If properly managed, regeneration can be sustained indefinitely

• Examples include: – Solar: photovoltaic (PV), concentrating solar power (CSP), solar

hot water, passive solar

– Biomass: combustion, gasification, feedstock, etc.

– Wind

– Geothermal

– Hydro: conventional, tidal, etc.

– Landfill Gas

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RE and EE: Similarities

• RE and EE both reduce the need to operate marginal or peaking fossil generation, particularly important on high electric demand days (HEDD) – Reduces emissions and electricity prices

• Like EE, RE can be sized and deployed to meet customer requirements – Variable size; dispersed or concentrated, etc.

– Technology hinges on availability of underlying natural resources

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RE and EE: Differences

• Renewable Energy

– RE generation can be directly measured

– Like power plants, projects must be 100% complete before output occurs

– RE can be transmitted across long distances

– Some forms of RE create emissions (e.g., biomass and landfill gas combustion)

• Energy Efficiency

– EE benefits require auditing and statistical sampling to determine energy savings

– EE benefits begin as soon as the first measure is installed

– EE benefits are local

– EE can defer or avoid the need to upgrade or construct new transmission

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Current Status and Historical Development of RE in the U.S.

Examples of Policies, Programs, and Progress

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U.S. Energy Sources Overall

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Development of RE in the U.S.

• Three “phases”:

– 1978-1990: The federal Public Utilities Regulatory Policy Act of 1978 (PURPA) required utilities to purchase power from “qualifying facilities (QFs)” at “avoided cost”

– 1990-~1997: Stagnancy due to restructuring, low natural gas prices, repeal of incentives, etc.

– 1997-On: New era – federal RE production tax credit (PTC) and investment tax credit (ITC) offered, and states adopt RPS, net metering, green power choice, financial incentives (rebates, etc.) funded though per-kWh system benefits charges (SBC) or public benefits funds (PBF)

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• Non-Financial:

– RPS Policies

– Solar/DG RPS “Carve-Outs”

– Net Metering Policies

– Interconnection Policies

– 3rd-Party PPA Policies

– “Standard Offer” Contracts

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Many State & Local Approaches Now in Use

• Financial:

– RE Grant Programs

– RE Loan Programs

– Rebate Programs

– SBC/PBF Funding

– Feed-In Tariffs

– PACE Financing Policies

– Property, Sales & Other Tax Incentives

– Tax Credits

Significant Federal Financial Incentives

• American Recovery and Reinvestment Act: $1.5 billion for RE

• Production Tax Credit (PTC): 2.2¢/kWh for wind, geothermal, closed-loop biomass for first 10 years of operation

• Investment Tax Credit (ITC): 10-30% of expenditure

• Clean Renewable Energy Bonds (CREBS) and Renewable Energy Production Incentive (REPI) for munis and cooperatives

• Others…

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Fastest Growing Segment

• Generation: Non-hydro RE grew 14.4% in 2009; 19.8% in 2008

– Wind up 33.5%; solar 3.1% in 2009

– Non-hydro RE up 87% over 1998-2009

– Conventional generation: -4.1% overall; -11.6% for coal in 2009

• Capacity: RE gained 10,647 MW in 2009

– Mostly wind (9,645 MW) – up 39% over 2008; 63% of all 2009 capacity additions in 2009 (natural gas was only 3,812 MW)

– Solar (83 MW) – up 15.5% over 2008; new plants getting larger (~20 MW) and 150-700 MW-size installations are being planned (e.g., Genesis Solar, Spring Valley Wind, etc.)

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Source: EIA, Electric Power Annual, April 2011

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Benefits and Trade-Offs of RE

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Multiple Benefits of RE (1)

• Environmental – Apart from biomass combustion, little or no air

pollution • After manufacture of the devices

– Less or no water, land, thermal pollution • But many exceptions (land disturbance with conventional

hydro and CSP, ridgeline issues with wind, etc.

– Reinforces importance of: • Communication between environmental and energy agencies • Consideration of externalities in all cases

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Multiple Benefits of RE (2)

• Energy Security & Reliability

– More distributed supply sources can reduce risk, T&D

– Greater resource diversity

• National Security

– Less vulnerable to supply/price volatility & risk

• Economic

– Using local resources keeps jobs, money close to home

– Positive trade flows (e.g., $1.9 billion for U.S. solar in 2010)

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We Send $1.33 Billion Out-of-State Annually for Coal

Source: UCS, Burning Coal, Burning Cash, 2010.

RE and Jobs

Aggressive EE measures combined with a 30% RPS target in 2030 can generate over 4 million full-time-equivalent job-years by 2030 (Wei et al, 2009)

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Consider RE Trade-Offs Too

• Direct emissions – Some forms of RE (e.g., biomass combustion) have

significant emissions

• Indirect (lifecycle) emissions – Manufacture, transportation, and decommissioning of

RE technologies • Note: This is not unique to renewable energy; conventional

generation technologies share many of the same issues

• Additional reason for communication and coordination between air and energy regulators over externalities

Challenges and Opportunities in Integrating RE

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Outlook for RE? Enthusiasm or Fatigue? Utah

Montana

New Mexico

Colorado

California

Washington

Oregon

Significant increases in renewable

energy needed in upcoming years to

meet RPS requirements – at the

same time as natural gas prices are

stable and supply is increasing

2x 3x

Nevada

Arizona

Source: Analysis Group.

2011

Challenges Integrating RE into the Grid

• Variability: Wind and solar variability presents problems for ISO schedulers; delivery deviations can result in penalties

• Matching RE with Load: Onshore, wind often blows strongest at night and in the winter, while electricity demand peaks on summer days (though offshore wind in the Northeast is more peak-coincident)

• Transmission: Lines may be unavailable or of insufficient capacity to move power to demand centers

• Interconnection: Upfront processing costs & prioritization schemes can discourage new RE entrants

• Pricing: Distance-based transmission pricing mechanisms (or those based on service territories crossed) can discourage remote RE generation

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The Grid is Weakest Where Wind and Solar Resources Are Best

Source of maps: NREL, Platts

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New Transmission to Connect Wind Resources Has to Cross Many Electric Utility Service Areas

CERES, Constellation, Entergy, NRDC, PSEG: “Benchmarking Air Emissions” June 2010. Source: Energy Information

Administration, Annual Electric Generator Report Form EIA-860 (2008).

http://www.eia.doe.gov/cneaf/electricity/page/eia860.html

Some Challenges May Be Waning (1)

• Electricity storage technologies are advancing rapidly

– Will mitigate RE variability and load matching problems; enable peak response

• Smart Grid infrastructure will reduce cost, facilitate other issues

– Load matching, pricing, etc.

[Note: Additional slides on these topics can be found at the end of the formal presentation.]

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• Distributed Generation (DG) technologies rapidly developing: – Tidal and wave energy – Thermo-electric effect

(Chen, MIT & Ren, BC) – Fast-charging batteries (Braun, UI-UC) – PV efficiency (e.g., silver scattering)

• “Next Great Decentralization” – As already seen in computing, telephony – Will see both supply-side and demand-side innovation – Will policies obstruct or encourage?

Some Challenges May Be Waning (2)

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Other Reasons for Optimism (1): Economic Solar Potential

Source: “Solar Energy Industry Forecast: Perspectives on U.S. Solar Market Trajectory,” Presentation by the

U.S. Department of Energy Solar Energy Technologies Program, May 27, 2008; solar radiation map, WGA.

Solar attractiveness is a

function of radiation and

existing electricity prices

Other Reasons for Optimism (2):

• Forthcoming EPA EGU regulations are reducing externalities, leveling costs

• Need for coal generation to maintain grid reliability is increasingly suspect

– Example: 50% of Western coal can be retired and grid reliability maintained (Synapse & Western Grid Group)

• FERC Order 1000 (2011)

– Must include “policy considerations” in planning

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U.S. RE Competitiveness Is At Risk

• 2009 – China overtook U.S. in RE investment for first time ($35 billion vs. $19 billion)

• 2010 – U.S. fell to 3rd, after China & Germany

• U.S. 11th out of G20 in %GDP invested in clean energy

• “The money follows the market.” (NuWire Investor)

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Source: Pew Environment Group; NuWire Investor, 4/5/10

Tracking and Enforcing RE Policies

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Note: Not all states with RPS allow

REC trading!

Source: Federal Energy Regulatory Commission

Renewable Energy Certificate (REC) Tracking Systems (1)

• REC tracking systems began as quasi-governmental regional entities, created as accounting systems to issue, track, and retire RECs under states’ Renewable Portfolio Standard (RPS) rules.

• RECs allow regulators to track compliance with mandatory RPS targets and to verify progress in voluntary state renewable programs.

• Each MWh of generation is issued a REC with a unique identification number to prevent double-counting.

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Renewable Energy Certificate (REC) Tracking Systems (2)

• Each REC includes attributes such as generator location, capacity, fuel-type and source, owner, and date operational. Records are tagged by program eligibility.

• Subject entities, such as utilities, comply with RPS targets by owning RECs from RE generation or purchasing RECs from other RE generators. In some jurisdictions they can make “Alternative Compliance Payments (ACP).”

• Where necessary, systems track conservation or energy efficiency credits for states with combined RPS and Energy Efficiency Resource Standard (EERS).

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Renewable Energy Certificate (REC) Tracking Systems (3)

• Most systems have added attributes to support other state, provincial, or regional programs or requirements such as various REC classifications (e.g., solar set-asides), voluntary utility green-power programs, or emissions tracking.

• Differences in intra-regional rules include whether RECs can be banked for use in future years and for how long; which renewable technologies are eligible; and whether some fuels or technologies are granted multiple credits.

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REC Trading Pros and Cons

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• Pros: Broader, more liquid market makes compliance with RE goals cheaper and easier.

• Cons: State policymakers cannot readily ensure that REC money goes to RE projects within their state borders.

Estimating the Benefits of RE and Including RE in SIPs

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Estimating Benefits of RE Policies (1)

• Factors to consider: – The nature of the RE drivers:

• RPS: voluntary or mandatory?

• RPS definition: What’s included? Are there different classes or categories?

• Local/county level requirements?

• Investment or production tax credits? Expiry date(s)?

– The nature of the RE resource: centralized or dispersed?

• Wind farms, concentrating solar, large biomass

• Residential PV, solar thermal hot water, small scale biomass

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Estimating Benefits of RE Policies (2)

• Factors to consider (continued):

– Output from RE resources (MWh) is typically measured directly, but…

– RE units < 1 MW may not be tracked or accounted for in the information systems of transmission operators, or in EIA’s Annual Energy Outlook

– Dispersed RE, like EE, may focus in urban areas and have greater emissions benefits than the power pool average or state regulatory emissions limits

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• Conceptual framework:

1. Estimate amount and timing of energy provided by RE

2. Estimate emissions reductions resulting from displaced fossil generation

3. Model the impact of emission reductions on ambient air quality

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Including RE Benefits in SIPs (1)

Including RE Benefits in SIPs (2)

• Review state policies for levels, enforceability, etc.

• Review characteristics of RE resource(s):

– Coincidence of RE output with electricity demand and pollutant concentrations

• On-shore wind behaves differently from off-shore wind

• Wind on ridge tops behaves differently than wind in valleys

• Solar PV output has good coincidence with summer peak demand and ambient ozone levels

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Including RE Benefits in SIPs (3)

• RE resources whose output coincides with peak electricity demand and higher pollution levels have excellent air quality benefits – Note that coincidence periods can be at any time of

day; some air quality management areas have high PM and ozone levels at night

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Including RE Benefits in SIPs (4)

• Determine future RE penetration and resource type

• Include local/county requirements and other programs that result in additional RE resources (above and beyond RPS) – Example: Utility green power policies may be a

voluntary/emerging pathway strategy for SIP credit

• Identify and follow appropriate path from EPA’s EE/RE manual to formally include RE resources in SIPs

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Growth and Evolution of RPS Policies & Clean Energy Standards

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Timeline of State RPS Policies: Initial Enactment and Major Revisions

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Source: Wiser, “State of the States: Update on RPS Policies and Progress”, 10/20/10

RPS Laws Often Address More Than Just Renewable Electricity

• Credit for Energy Efficiency/Savings (7):

– HI, MI, NC, NV, OH, PA, WV

• Credit for Solar Thermal Energy (14):

– AZ, CO, DC, HI, KS, NC, MD, NH, NV, NY, PA, VT, WI, WV

• Levels being increased in some states

• Biomass thermal also being considered in some states

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Clean Energy Standards (CES) (1)

• How similar/different from RPS?

– An electricity portfolio standard (setting aggregate sales targets for utilities)

– Provide greater flexibility by defining clean energy more broadly than just renewables

– A promising option for states where narrowly defined renewable electricity policies have less appeal

– A handful of states have already enacted electricity portfolio standards with CES attributes

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Clean Energy Standards (2)

• Pennsylvania (enacted in 2004):

– Coal bed methane, waste coal, coal IGCC

• Michigan (2008):

– Coal with CCS, gasified coal

• Ohio (2008):

– Coal with CCS, Gen III nuclear

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Clean Energy Standards (3)

• West Virginia (2009): – Coal bed methane, waste coal, coal with CCS,

coal gasification or liquefaction, natural gas, synthetic gas, and GHG offset projects

• Indiana (2011) – VOLUNTARY: – Coal bed methane, nuclear power, and natural

gas (if used in a new facility in Indiana that displaces electricity generation from an existing coal-fired facility)

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Bipartisan Interest in a Federal CES?

• 2011

– President Obama’s Proposal

– Senate: Bingaman/Murkowski White Paper

• 2009-2010

– Sen. Lugar: Diverse Energy Standard (S.3464)

– Sen. Graham: Clean Energy Standard (S.20)

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NOTE: RAP and the Pew Center on Global Climate Change will soon release a comprehensive new paper:

Clean Energy Standards: State and Federal Policy Options

Implications for Air Modeling

• When we combine EE, RE, thermal, and “clean” fossil fuel generation, it could become much harder to forecast emission impacts

• Some of these technologies (e.g., some variations on coal with CCS) could potentially increase emissions of some pollutants

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Question & Answer Period

• Thank You!

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About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that:

Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

Ken Colburn, Senior Associate

kcolburn@raponline.org

617-784-6975

Chris James, Senior Associate

cjames@raponline.org

617-861-7684

Additional Slides

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• Electricity Storage

• Why Storage? (demand vs. generation timing, cost, source variability (e.g., RE))

• Evolution of Electricity Storage (pumped storage)

• New Capabilities Provided by Advanced Storage Technologies

• Application Areas for Advanced Electricity Storage

• Supporting Renewable Deployment and Emission Reductions

• Smart Grid - Key to Full Utilization of Electricity Storage

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Electricity Storage Applications

• Generation Applications – Regulation or Automatic Generation Control Service – Primary or Governor Response – Real-time Dispatch/Balancing Energy – Renewables Balancing – Diurnal and Longer Time Shifting – Reserves; Distributed Generation

• Transmission & Distribution – Voltage Support – Transmission Time/Load Shifting – Stability-Related Applications – Transmission/Distribution Deferral – Radial System Reliability Improvement

• Electrification of Transportation

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Electricity Storage Technologies (Examples)

• Batteries – Lead-Acid – Nickel-Cadmium and

Nickel-Metal Hydride – Lithium-Ion – Sodium-Sulfur (NaS) – Zinc-Bromine – Vanadium Redox

• Flywheels

• Compressed Air (CAES)

• Pumped Hydro; Ice

• More Technologies in Development

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• What is “Smart Grid”?

• An interconnected system of information and communication technologies that works with other technologies throughout the electricity system that can: – Help utilities and consumers manage energy use – Increase system reliability through automation – Improve integration of clean energy resources

• Distinguishing features of smart grid:

– Engages the customer, and

– Integrates supply and demand

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Promise of Smart Grid

• Improved grid reliability, security and efficiency

• Timely information for consumers and new opportunities for saving energy and money

• Massive increases in demand response, energy efficiency, energy storage, distributed generation and large-scale renewable resources

• Electrification of the transportation sector

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Caution: Smart Policies Are Needed to Realize Smart Capabilities (Examples)

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Smart Capabilities Smart Policies

Allow interconnected

distributed generators to run

during utility outages

Support investments in clean distributed resources,

simplify interconnection requirements and procedures,

net metering, enable excess power sales

Dynamically integrate wind

and solar resources

Better planning for renewable resources and

transmission, support utility investments

Continuous building

diagnostics

Invest in efficiency programs for buildings and major

energy-consuming equipment for all customer classes

Optimize voltage and

reactive power

Remove barriers for utility investments to improve

distribution system efficiency

Increase demand response Supportive rates or incentives, consumer access to

energy usage data, support for automated controls

• Distributed generation (DG) is the use of smaller-scale power generation technologies located close to the load being served.

• Generally, DG can improve system reliability, reduce line losses, lower emissions, create employment, reduce insurance losses, and enhance public safety.

• For many customers, DG can also lower costs, improve on-site reliability, and expand their energy options (including CHP).

• Only 0.5% of U.S. electric generation in 2000, expected to be 11% of capacity additions through 2025 (CBO, EIA)

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• Distributed Generation (DG) - Definition

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• Technologies New small-scale, efficient power generation technologies are promising to provide generating performance that previously was available only from large central station plants

• Customer Needs – Changes in electric customer needs for power reliability are creating an increased value for high quality power.

• Restructuring – Electric utility restructuring is creating new opportunities for self-generation as well as concerns over the future cost and/or reliability of the central power generating system.

DG Drivers