Renewables Portfolio Standards: A Focus on Western States Ryan H. - - PowerPoint PPT Presentation

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Environmental Energy Technologies Division • Energy Analysis Department

Renewables Portfolio Standards: A Focus on Western States

Ryan H. Wiser

Lawrence Berkeley National Laboratory

RHWiser@lbl.gov (510.486.5474) AWEA Wind Power Finance & Investment Workshop March 27, 2007 San Francisco, California

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Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

What Is a Renewables Portfolio Standard?

Renewables Portfolio Standard (RPS):

• A requirement on retail electric suppliers…
• to supply a minimum percentage or amount
• f their retail load…
• with eligible sources of renewable energy.

Typically backed with penalties of some form Often accompanied by a tradable renewable energy credit (REC) program, to facilitate compliance Never designed the same in any two states

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Environmental Energy Technologies Division • Energy Analysis Department

State RPS Activity Significant in Recent Years

CO

(2007)

1983

• 1991

1994 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

IA IA MN

(2002)

AZ NV

(2001)

ME

(2000)

MA

(2003)

WI

(2001)

PA

(2001)

CT

(2000)

TX

(2002)

NJ

(2001)

MN AZ

(2001)

NM

(2002)

NV

(2003)

NM

(2006)

CA

(2003)

CT

(2004)

MN

(2005)

RI

(2007)

NY

(2006)

MD

(2006)

HI

(2005)

NJ

(2004)

NM

(2006)

PA

(2007)

MT

(2008)

DE

(2007)

DC

(2007)

NV

(2005)

TX

(2007)

• 1996

NJ

(2006)

WI

(2010)

AZ

(2007)

CA

(2007)

WA

(2012)

2007

• HI

(2010)

MN

(2010)

Enactment (above timeline) Major Revisions (below timeline)

( ) Year of First Requirement

WI

(2000)

CT

(2005)

CT

(2006)

NM

(2015)

Source: UCS; revised by Berkeley Lab

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Environmental Energy Technologies Division • Energy Analysis Department

State RPS Policies: 21 States and D.C.

Additional renewable energy “goals” established in IL, IA, VT, and ME

WI: 10% by 2015 NV: 20% by 2015 TX: 5880 MW by 2015 PA: 8% by 2020 NJ: 22.5% by 2021 CT: 10% by 2010 MA: 4% by 2009 ME: 30% by 2000 NM: 20% by 2020 CA: 20% by 2010 MN: 25-30% by 2020-25 IA: 105 aMW MD: 7.5% by 2019 RI: 16% by 2019 HI: 20% by 2020 AZ: 15% by 2025 NY: 24% by 2013 CO: 10% by 2015 MT: 15% by 2015 DE: 10% by 2019 DC: 11% by 2022 WA: 15% by 2020 WI: 10% by 2015 NV: 20% by 2015 TX: 5880 MW by 2015 PA: 8% by 2020 NJ: 22.5% by 2021 CT: 10% by 2010 MA: 4% by 2009 ME: 30% by 2000 NM: 20% by 2020 CA: 20% by 2010 MN: 25-30% by 2020-25 IA: 105 aMW MD: 7.5% by 2019 RI: 16% by 2019 HI: 20% by 2020 AZ: 15% by 2025 NY: 24% by 2013 CO: 20% by 2020 MT: 15% by 2015 DE: 10% by 2019 DC: 11% by 2022 WA: 15% by 2020

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Environmental Energy Technologies Division • Energy Analysis Department

State RPS Program Context

• Load Covered: Roughly 40% of U.S. load covered by a

state RPS

• RPS Development: Most policies emanated from state

legislation, but some from regulatory action (e.g., NY, AZ) and two from state ballot initiatives (CO, WA)

• RPS Application: RPS typically applies to regulated IOUs

and competitive energy service providers; publicly owned utilities often – but not always – exempt

• Regulated vs. Restructured: Initially concentrated in

restructured states, but now roughly half in monopoly markets

• Operating Experience: Experience with policy is growing,

but few states have >5 years experience

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Environmental Energy Technologies Division • Energy Analysis Department

A Focus on Western States

• Most Western states already covered

by an RPS

• Arizona, New Mexico, California and

Hawaii recently increased the stringency of their standards

• Colorado and California considering

further increasing their RPS standards

• Oregon considering RPS this

legislative session

• Montana trying to “fix” inadequate cost

cap language under their RPS

• WREGIS REC-tracking program

expected to be operational in 2007

NV: 20% by 2015 NV: 20% by 2015 NM: 20% by 2020 CA: 20% by 2010 HI: 20% by 2020 AZ: 15% by 2025 CO: 10% by 2015 MT: 15% by 2015 WA: 15% by 2020

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Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

Half of All Wind Project Development in the U.S. from 2001-2006 Was RPS-Related

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2001 2002 2003 2004 2005 2006 2001- 2006 Annual US Wind Development (MW)

Other (economical, green power, IRP, etc.) RPS-related Renewable Energy Fund-related

Half of all US wind power capacity built from 2001-2006 was RPS-related

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Environmental Energy Technologies Division • Energy Analysis Department

Recent Examples of Impact of RPS Policies

• n Wind Power Development in the West
• Wind contracting activity beginning
• 90 MW NM project in 2006 contracted with APS

Arizona

• 41 MW installed in 2006, more on the way

Hawaii

• 428 MW installed in 2006, in advance of RPS

Washington

• 90 MW installed in 2006 (for AZ)
• 140 MW installed in 2005

New Mexico

• 60 MW installed in 2006
• ~775 MW in pipeline/negotiations

Colorado

• 211 MW installed in 2006
• ~3,000 MW new wind under contract

California

• 135 MW installed in 2005, in advance of RPS

Montana

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Environmental Energy Technologies Division • Energy Analysis Department

Looking Ahead, Existing State RPS Policies Could be a Major Driver of New Renewables Capacity

Source: UCS

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000

C a l i f

• r

n i a N e w J e r s e y M i n n e s

• t

a T e x a s N e w Y

• r

k P e n n s y l v a n i a M a s s a c h u s e t t s W a s h i n g t

• n

W i s c

• n

s i n A r i z

• n

a N e v a d a N e w M e x i c

• C
• l
• r

a d

• M
• n

t a n a R h

• d

e I s l a n d W a s h i n g t

• n

, D . C . D e l a w a r e I

• w

a C

• n

n e c t i c u t H a w a i i M a r y l a n d M a i n e

2020 New Renewables Capacity (MW)

UCS estimates ~45,000 MW of new RE capacity required by 2020 under existing state RPS policies, if all goes well 14,200 MW of this capacity expected in Western region

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Environmental Energy Technologies Division • Energy Analysis Department

New/Revised RPS Policies in the West May Add to These Totals

• California (33% by 2020)

~ 7,500 MW above current RPS by 2020

• Colorado (20% by 2015)

~ 900 MW above current RPS by 2015

• Oregon (25% by 2025)

~ 2,600 MW by 2025

Source: Union of Concerned Scientists

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Environmental Energy Technologies Division • Energy Analysis Department

Wind Expected to Fare Very Well, But May Not Always Be the Hands-Down Winner

Most RPS requirements have been met with wind so far, but increased competition in some states from geothermal (Nevada, California), and solar thermal (California, Southwest) in particular

California’s RPS procurements are governed by “Least Cost, Best Fit” criteria ...and... Wind may not always provide the “Best Fit” (even if “Least Cost”)

New, Repowered, or Re-Started Capacity, by Technology (minimum MW, IOUs only)

solar thermal 899 MW wind 782 MW PVc 0 MW geothermal 266 MW small hydro 6 MW biogas 35 MW biomass 134 MW

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Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

The Most Important (and obvious) Lesson Learned to Date

Elegant, cost effective, flexible policy to meet RE targets Poorly designed, ineffective, or costly way to meet RE targets

?

The legislative and regulatory design details matter!!! An RPS Can Be A…

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Environmental Energy Technologies Division • Energy Analysis Department

RPS Design Varies Substantially From One State to the Next

Product- or company-based application Application to LSEs - Who must meet targets? Resource diversity requirements or incentives Duration of purchase obligation Start date Percentage purchase obligation targets Structure (e.g., single tier or multiple tiers) Basis (energy vs. capacity obligation)

Structure, Size and Application

Treatment of off-grid and customer-sited facilities Treatment of multi-fuel facilities Definition of new/incremental generation Eligibility of existing renewable generation Resource type eligibility Geographic eligibility

Eligibility

Cost recovery for regulated LSEs Contracting standards for regulated LSEs Implementing future changes to the RPS Flexibility mechanisms (banking, borrowing, etc.) Cost caps Enforcement mechanisms Compliance filing requirements Certification of eligible generators Compliance verification (TRCs or contract-path) Regulatory oversight body(ies)

Administration

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Environmental Energy Technologies Division • Energy Analysis Department

Variations in Design Are Driven By Different Goals, Market Circumstances, Political Influences

• Unfortunate result is uneven historical and expected

market impacts of state RPS policies

• Some RPS policies seemingly working well…

– Texas, Minnesota, New Mexico, others

• Other policies are under-performing so far…

– Under-compliance in Arizona, Nevada, Massachusetts, and California so far – Other policies have largely supported or will support existing (not new) renewable generation (ME, MD, etc.)

• Many others are just getting underway, but there are

reasons to be concerned

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Environmental Energy Technologies Division • Energy Analysis Department

Design Pitfalls in the West

Lenient Geographic Boundaries/Eligibility Restrictions

• Can enlarge the market for RECs, but may also moderate need for

new wind and reduce local benefits

Force Majeure Clauses and Cost Caps

• Compliance flexibility should be encouraged, but new RPS policies

increasingly including a lot of “wiggle room” to possibly allow escape from full compliance (e.g., MT, HI)

Funding Caps

• Where funding caps are in place, they may be insufficient to allow the

RPS to be achieved (AZ, CA)

Application to Publicly Owned Electric Utilities

• Publicly owned utilities often exempt or provided more lenient

requirements (CA, NM, NV, CO, MT, etc.)

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Environmental Energy Technologies Division • Energy Analysis Department

Design Pitfalls in the West (cont.)

Inadequate Enforcement

• Where full compliance is apparently not being achieved (NV,

CA)...will penalties be used to enforce compliance?

Policy Instability

• Uncertainty in RPS duration, target, or eligible technologies can

impede development (e.g., CA, others)

Transmission Bottlenecks

• CA, NM, CO trying to be more proactive with transmission planning/

construction, but transmission remains a key barrier in many states

Design Complexity

• Is the complexity inherent in the California RPS worth it?

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Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

RPS-Driven REC Markets Are Not Particularly Relevant in the West, Because...

$0 $10 $20 $30 $40 $50 $60 A u g

• 2

O c t

• 2

D e c

• 2

F e b

• 3

A p r

• 3

J u n

• 3

A u g

• 3

O c t

• 3

D e c

• 3

F e b

• 4

A p r

• 4

J u n

• 4

A u g

• 4

O c t

• 4

D e c

• 4

F e b

• 5

A p r

• 5

J u n

• 5

A u g

• 5

O c t

• 5

D e c

• 5

F e b

• 6

A p r

• 6

J u n

• 6

A u g

• 6

O c t

• 6

D e c

• 6

Average Monthly REC Prices ($/MWh)

CT Class I Massachusetts NJ Class I Texas MD Class I DC Class I

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Environmental Energy Technologies Division • Energy Analysis Department

Two Types of RPS Markets Exist, and Western States Are Predominantly Regulated

Regulated Markets

Dominated by long-term bundled contracts for electricity and RECs Utility RFP solicitations or bilateral negotiations, with PUC oversight

Restructured Markets

More often dominated by short-term trade in RECs to multiple parties, without PUC oversight Developers often sell electricity and RECs separately WREGIS will provide increased REC-tracking functionality starting in 2007, but is unlikely to alone be sufficient to jump start the RECs market in the West

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Environmental Energy Technologies Division • Energy Analysis Department

Regulated Markets: RPS Helps Create Buyers for Renewable Energy

• RPS’ can yield profitable/financeable long-term deals, but…
• Often an RFP-driven environment, with fierce competition

among developers for contracts

• Emerging concern that utilities are selecting low-priced

contracts that may fail to yield operating projects

– CA: Of 2,121 MW of new RE under contract – 7% cancelled; 55% delayed; 38% on track – NV: As of early 2006, of 414 MW of new RE under contract since RPS began; 57% cancelled; 37% delayed; 6% online or on track

• In other cases, PPAs impose contractual requirements

(construction milestones, performance, credit) that some view as unduly severe likely to favor the larger developers

SLIDE 24

Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

State RPS Impacts Relative to Possible Federal RPS Policies

Aggregate impact of existing state RPS policies likely to be somewhat modest (by some standards): increased RE equates to ~3% of national electricity demand by 2020, meets ~16% of load growth over 2006-2020

100 200 300 400 500 600 700 800 900

1978 1984 1990 1996 2002 2008 2014 2020

Billion kWh

Historic EIA + existing state RPS (UCS) + 1/2 of new state RPS potential (UCS) Senate 10% RPS Senate RPS + existing + 1/2 new states 20% by 2020 RPS

*In addition to hydro and MSW. Sources: EIA and UCS Percent of U.S. Sales

4.0% 11.1% 9.4% 5.9% 7.3% 17.2%

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Environmental Energy Technologies Division • Energy Analysis Department

Federal and State RPS Policies

• Multiple RPS policies proposed at Federal level, and

Federal RPS has passed Senate in the past

– Standard levels of 10-20% are in play, but with numerous exceptions/exemptions

• No unique insight into likely fate of RPS this legislative

session, or in any future session

• But... If a Federal RPS is passed, then interactions

between state and federal RPS policies become key

• Federal pre-emption seemingly unlikely, but also

somewhat unclear whether states would require that in- state utilities purchase at levels above the Federal RPS... issue not addressed in most state RPS policies

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Environmental Energy Technologies Division • Energy Analysis Department

Presentation Overview

• 1. Overview of State RPS
• 2. RPS Impact on Project Development
• 3. RPS Design and Design Pitfalls
• 4. Impact on Renewable Energy Contracting
• 5. Federal RPS Implications
• 6. Conclusions

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Environmental Energy Technologies Division • Energy Analysis Department

Conclusions

• State RPS policies, in West and
• therwise, are a principal form of

support for wind projects, and are becoming increasingly popular

• A state RPS can effectively deliver

wind power and associated benefits at a low cost

• RPS is opening markets for wind,

but not without corresponding risks

• Designing an effective RPS requires

careful attention – the devil is in the details!!!