Crafting a Renewable Portfolio Standard for Rhode Island

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Crafting a Renewable Portfolio Standard for Rhode
Island

• Robert C. Grace
• Sustainable Energy Advantage, LLC
• R.I. Greenhouse Gas Action Plan
• Renewable Portfolio Standard Working Group
• October 15, 2002

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Designing a R.I. RPSOverview

• RPS definition experience
• First Steps in RPS Design
• Objectives Design Principles
• Starting Point
• Key decision points
• Other issues to be addressed
• Overall Work Plan

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RPS Mandates in Practice

• A requirement for retail electricity suppliers to
  support (or source from) a defined percentage of
  retail sales from eligible renewables
• Market based encourage competition to meet
  targets at lowest cost
• Experience to date 13 states have adopted RPS or
  similar mandates
• 7 retail choice states AZ, CT, ME, MA, NV, NJ TX
• 3 regulated states IA, MN, WI
• Newest just adopted in CA
• 2 other states have similar mandates on the
  provider of last resort NM, PA
• Under consideration several other states
  Federal
• Distinguishing features of successful mandates
  becoming apparent ? best practices

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Objectives of RPS

• Objectives dictate design (e.g. target,
  eligibility, geography)
• Lack of clear objectives hinders creating
  effective design
• Proposed Objectives for R.I. (by priority)
• Substantial greenhouse gas reductions
• Local and regional air emission co-benefits
• Providing a hedge against volatility and
  enhancing energy security
• Not recommended
• Local economic development
• unrealistic due to land-use constraints, and the
  wrong tool for the job (SBC)
• Stimulating renewables markets
• RI too small to transform markets alone RPS
  wrong tool (SBC)
• Fish/water quality benefits
• e.g. options for achieving GHG, air benefits
  become limited, costs increase, feasibility
  questionable if hydro with dams or reservoirs
  totally excluded
• Goals balanced against limiting cost impacts to
  R.I. customers

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Obvious Design Principles for Best Practices

• Leads to desired environmental benefits
• Complementary with competitive market structure
• Cost-effective and efficient at meeting
  objectives
• Credible
• Enforceable
• Applied fairly, consistently and proportionately
  to all market participants and customers
• Predictable (market stability, reduced perception
  of regulatory risk)
• Consistent with other regulations
• ? Sometimes a balance will need to be achieved
  between competing principles

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Key Design Issues and Decision Points

• For each decision point on RPS design features
• Why is this important?
• Relevant benchmarks and best practices
• Recommendations and/or design options for
  consideration
• Goal
• reach definitive decisions (if possible), OR
• identifying scenarios for modeling the potential
  impacts

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Historical Contribution of Renewables to R.I.
Estimate 1997
Company Renewable generation (MWh) Wholesale consumption (MWh)
Narragansett Electric 600,190 4,702,604
Blackstone Valley Newport Electric 9,406 1,830,671
Total 609,596 6,533,275
9.3
If include RI share of Hydro Quebec contract
Narragansett Electric 779,852 4,702,604
Blackstone Valley Newport Electric 76,941 1,830,671
Total 856,793 6,533,275
13.1
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Decision Point 1The RPS Structure

• Background Is objective simply verifiable
  incremental emission reductions resulting from
  particular actions, or actual achievement of net
  emission reductions?
• The answer dictates treatment of existing
  resources vintage
• In competitive markets with significant existing
  renewables, existing renewable resources have
  been included in RPS structure to prevent
  backsliding
• Historical baseline dictates both structure and
  percentage targets.
• Benchmarks Best Practices Options include
  2-tier or single tier
• 2-tier approaches use growth maintenance
  tiers, two alternative approaches
• Growth tier has rapidly increasing percentages
  over time
• CT, NJ Class 1 includes environmentally
  preferable technologies with low historical
  penetration
• MA new (post-restructuring) plus incremental
  generation from a cleaner subset of existing
  biomass
• Maintenance tier (roughly stable percentage)
• CT, NJ class 2 includes all renewables (e.g.
  most hydro, biomass, MSW) not eligible for Class
  1
• MA (tentative) would establish baseline
  requirement for existing renewables, broader
  eligibility
• Single tier likely to fail in RI without
  universal RPS requirements, renewables flow from
  elsewhere and now incremental benefit likely to
  result
• CA WI give credit but not value for existing
  renewable supply (not tradable), will not work in
  competitive market
• Recommendations/Options Use a 2-tier approach
  for RI
• Seek some regional consistency
• Consider historical contributions and eligibility

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Decision Point 2RPS Targets Magnitude,
Starting Point, Rate of Increase

• Background target depends on
• Answer to 1
• Objectives
• Eligibility (e.g. broader eligibility higher
  targets)
• Other Important considerations feasibility
  ensuring competition at the outset ensuring
  certainty in amount of current supply
• Benchmarks Best Practices
• MA starts its new RPS in 2003 _at_ 1 ½/yr
  through 2009, 1 thereafter until stopped
  baseline requirement not yet established, but
  2000 study indicates baseline of 5.7-13.3 of
  sales, depending on eligibility issues not
  decided at the time
• CT maintenance RPS requires 5.5 from Class 1
  or 2 in 2000, ramps slowly to 7 in 2009.
  Growth Class 1 tier ramps from 0.5 in 2000, at
  first slowly then more steeply to reach 6 by
  2009\
• CT legislature considering a 2-year delay while
  it fixes a problematic loophole
• CA 1 annual increase over existing level (10)
  until reach (and maintain) 20
• Recommendations/Options RI should
• Start requirement with sufficient lead time for
  development (2004?)
• base its targets on (a) answer to 1 (b)
  eligibility decisions, and (c) specific
  CO2-equivalent emissions reductions targets
  (translated to energy terms based on displaced
  emissions)

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Decision Point 3Geographic Eligibility

• Background
• Global environmental objectives suggest seeking
  GHG reductions from anywhere (may be less costly
  if implemented far from RI)
• Local environmental objectives dictates
  constraining eligible location to regional (to
  achieve reductions in smog, acid rain, etc.)
• Benchmarks Best Practices
• NEPOOL GIS creates certificates for compliance
  with regional RPS, disclosure and EPS mandates,
  for all generation within NE, and for
  source-specific energy transmitted into NE
• Recommendation
• Seek displacement of generation within NEPOOL,
  RIs electric market (NEPOOL GIS is consistent
  with this recommendation)
• Costs could be further reduced (if analysis
  suggests too high) by expanding eligibility to
  upwind regions (e.g. NY, Mid-Atlantic)
• But such expansion undermines objectives of
  regional resource diversity and energy security,
  and may assure that few if any renewables are
  built in NE

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Decision Point 4Treatment of Biomass

• Background
• Local air quality objectives suggest narrow (e.g.
  low-emission, advanced biomass) eligibility
  broader environmental benefits suggest broad
  (e.g. any biomass). Decision impacts targets,
  cost, feasibility
• Major potential biomass source is renewable
  fraction of co-firing biomass at fossil fuel
  plants
• Many low-emission advanced conversion
  technologies still in early RD or quite costly
• Benchmarks Best Practices Precedent for
  different eligibility btw. growth
  maintenance RPS
• CT NJ sustainably managed biomass (difficult
  to define) eligible for the Class 1(along with
  landfill methane), while all other biomass
  eligible as Class 2 (including MSW)
• MA new narrow biomass eligibility as
  low-emission advanced conversion technologies
  (proven difficult to precisely define
  case-by-case determinations) excludes MSW.
  Maintenance eligibility not yet defined (but
  would include MSW)
• ME requirement all-inclusive (including MSW,
  co-firing)
• Co-firing MA has allowed co-firing, but as
  entire plant must meet low-emission
  requirement, effectively foreclosed co-firing at
  coal plants which has the biggest environmental
  benefit
• Recommendation Based on recommendation 2-tier
  approach
• Maintenance all-inclusive definition of biomass
  eligibility, potentially including MSW, for a
  maintenance tier
• Growth depends on the structure chosen, but
  eligibility must be realistic with respect to
  technology availability and cost, and feasibility
  for meeting desired targets
• Critical to be more precise, clear than MA and CT
  (consider emissions threshold)
• Co-firing has significant benefits and should be
  included in both tiers

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Decision Point 5Treatment of Conventional Hydro

• Background
• Role of hydro dictated by balance of air versus
  other environmental benefits, answer to 1.
• Conventional hydro (not pumped storage) plays
  substantial role in regions supply mix, provides
  substantial air and diversity benefits.
• Some facilities have non-air impacts of major
  concern to some stakeholders
• Many large plants have low OM costs, not exposed
  to closure at market prices
• Many other plants cannot meet OM costs with
  available revenues
• However, size is not the only determinate of cost
  and viability
• Benchmarks Best Practices hydro eligibility
  can be broad, narrow, or excluded - clearly an
  open issue
• MA excluded hydro from its new, included
  naturally flowing water and hydroelectric in
  broader definition to which maintenance
  requirement would apply
• CT all licensed hydro in Class 2
• NJ (on an interim basis) all hydro under 30 MW
  as class 2
• ME all hydro under 100 MW
• The RI draft bill excluded hydro
• Most Federal RPS proposals have excluded hydro,
  or given it some form of partial credit
• Recommendations Consider
• Maintaining historical contribution of hydro
  through eligibility in the maintenance tier
• Eligibility exclusion to avoid windfalls to those
  plants not requiring additional revenue to
  continue operation
• Incremental hydro not requiring new impoundment
  in growth tier

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Decision Point 6Treatment of Resources Not
Exposed to Market Forces

• Background For existing renewables, does the
  resource need financial support to continue
  providing benefits?
• may wish to consider eligibility exclusion for
  resources with long-term PURPA contracts which
  confer certificates to buyer, or IOU-owned
  renewables included in captive customers rate
  base (i.e. where not open to competition)
• Benchmarks
• NJ Hydro and waste-to-energy qualifies as Class
  II only if located in a state that allows retail
  competition
• Options Depends in part on previous decisions.
• Administrative challenges to determining with
  precision which resources are exposed
• targets for a maintenance tier might have to be
  adjusted if such exclusions were made

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Decision Point 7Eligibility of Off-Grid, or
Customer-Sited Renewables

• Background
• Off-grid resources dont directly offset
  grid-based fossil fuels
• but may displace electric loads if alternative to
  line extension or displacing off-grid
  fossil-fueled generation usage
• Customer-sited grid-connected renewable
  generation clearly creates benefits sought
• Benchmarks Best Practices
• MA allows off-grid customer-sited generation if
  located in MA
• Recommendation So long as supported by the
  NEPOOL GIS
• Allow off-grid generation if located in RI
• Allow customer-sited generation if located in (a)
  RI, or (b) NE,

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Decision Point 8Interaction with Federal RPS

• Background
• Federal RPS being considered
• Should define how Federal and State RPS would
  interact
• RI RPS is likely to be higher standard than
  Federal
• Benchmarks Best Practices WI Only RPS to
  consider interaction (so far)
• Generation used to meet Federal RPS may also be
  used to meet WI RPS if WI-RPS-eligible
• Excludes generation used for other state RPS even
  if also required by Federal RPS
• Options The interaction depends on the
  specifics
• If Federal RPS passed that provides sufficient
  support to serve the role of a maintenance RPS
  tier by protecting the historical contribution of
  renewables the region, may be acceptable to do
  away with, phase out or reduce RI maintenance
  tier
• RI should consider whether the RI RPS should be
  additive to Federal RPS or whether compliance
  with the RI RPS by a retailer should offset,
  supplant, or be incremental to any Federal RPS
  requirement

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Decision Point 9Contracting Standards for
Utility (DS/SO) Supply

• Background In competitive markets (particular
  those with generation divestiture) where utility
  supplier selected via short-term bids, few (if
  any) credit-worthy parties positioned to offer
  contracts of sufficient term to allow financing
  of new renewables
• Especially important where renewables are scarce
  and more costly
• Benchmarks Best Practices
• CA NV require long-term contracting by
  regulated utilities to assure financing emerging
  as a best-practice
• Has been recognized by many as biggest problem
  with MA new RPS
• Recommendations/Options
• PUC should implement requirements for procurement
  of RPS portion of default and standard offer
  supply (or just corresponding certificates) over
  sufficient term to support the ability for
  renewables to get financed
• Consider a minimum 10 year contractual commitment
  requirement

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Other Issues to be Addressed in 1st Draft

• Energy basis (not capacity)
• Line loss treatment
• Eligibility
• retrofits/expansions
• Fuel cell w/non-renewable fuel
• Penalties price caps
• Use of penalty/cap funds
• Exemptions?
• Applicability (Munis, self-generators)
• Product vs. company basis

• Compliance flexibility
• Certifying generator eligibility
• Administration, tracking compliance mechanism
• SBC Interaction (cost, eligibility)
• Treatment of emission credits
• Future changes (eligibility, target)
• Minimum duration end game

Anything else important that I have missed?
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Preliminary Work PlanGoing Forward

• Finalize RPS design work plan, finalize RPS
  objectives, get direction/decisions on key
  issues, or identify modeling scenarios _at_ Mtg1
• RPS Design Outline distributed late October
• Distribute 1st Draft Findings Recommendations
  Memo on RPS design features options based on
  best practices and objectives 1 week before
  Mtg2
• Discuss 1st Draft Memo, identifying modifications
  options requiring further discussion, research
  or analysis _at_ Mtg2
• Distribute 2nd (revised) Draft Findings
  Recommendations Memo based on input at MTG 2 and
  modeling results 1 week before Mtg3
• Identify key next steps revised legislation
  implementing regulations compliance/verification
  options _at_ Mtg3
• Discuss 2nd Draft Memo, identifying
  modifications_at_ Mtg3
• Distribute 3rd (final) Findings and
  Recommendations Memo based on input at MTG 3 and
  modeling results 2-4 weeks after Mtg3
• Note more steps may be added if funded -- e.g.
  political feasibility analysis, drafting enabling
  legislation implementation regulations

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Sustainable Energy Advantage, LLC4 Lodge
LaneNatick, MA 01760tel. [phone]fax
508.653-6443bgrace_at_seadvantage.comwww.seadvantag
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