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. RPS:
Overview
• 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
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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):
1. Substantial greenhouse gas reductions
2. Local and regional air emission co-benefits
3. Providing a hedge against volatility and enhancing energy security
• Not recommended:
– Local economic development
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unrealistic due to land-use constraints, and the wrong tool for the job (SBC)
– Stimulating renewables markets
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RI too small to transform markets alone – RPS wrong tool (SBC)
– Fish/water quality benefits
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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
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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
Narragansett Electric
Blackstone Valley & Newport
Electric
Total
Renewable generation
(MWh)
Wholesale consumption (MWh)
600,190
4,702,604
9,406
1,830,671
609,596
6,533,275
9.3%
If include RI share of Hydro
Quebec contract:
Narragansett Electric
Blackstone Valley & Newport
Electric
Total
779,852
4,702,604
76,941
1,830,671
856,793
6,533,275
13.1%
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Decision Point #1:
The RPS Structure
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Background: Is objective simply verifiable incremental emission reductions resulting from particular
actions, or actual achievement of net emission reductions?
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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
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2-tier approaches use “growth” & “maintenance” tiers, two alternative approaches
Growth tier has rapidly increasing percentages over time:
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Maintenance tier (roughly stable percentage):
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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
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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
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
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Seek some regional consistency
Consider historical contributions and eligibility
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Decision Point #2:
RPS % Targets: Magnitude,
Starting Point, Rate of Increase
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Background: % target depends on:
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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 @ 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%
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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 #3:
Geographic 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 “sourcespecific” energy transmitted into NE
• Recommendation:
– Seek displacement of generation within NEPOOL, RI’s 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 #4:
Treatment of Biomass
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Background:
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Benchmarks & Best Practices: Precedent for different eligibility btw. “growth” & “maintenance” RPS
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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 R&D or quite costly
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:
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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 #5:
Treatment of Conventional Hydro
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Background:
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Benchmarks & Best Practices: hydro eligibility can be broad, narrow, or excluded - clearly an open
issue
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Role of hydro dictated by balance of air versus other environmental benefits, answer to #1.
Conventional hydro (not pumped storage) plays substantial role in region’s 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 O&M costs, not exposed to closure at market prices
Many other plants cannot meet O&M costs with available revenues
However, size is not the only determinate of cost and viability
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:
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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 #6:
Treatment 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 #7:
Eligibility of Off-Grid, or
Customer-Sited Renewables
• Background:
– Off-grid resources don’t directly offset grid-based fossil fuels
• but may displace electric loads if alternative to line extension or displacing offgrid 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 #8:
Interaction with Federal RPS
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Background:
– Federal RPS being considered
– Should define how Federal and State RPS would interact
– RI RPS is likely to be higher standard than Federal
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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 WIRPS-eligible
– Excludes generation used for other state RPS even if also required by Federal
RPS
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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 #9:
Contracting Standards for
Utility (DS/SO) Supply
• Background: In competitive markets (particular those with
generation divestiture) where utility supplier selected via shortterm 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
st
Addressed in 1 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, selfgenerators)
• 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 Plan:
Going Forward
Finalize RPS design work plan, finalize RPS objectives, & get
direction/decisions on key issues, or identify modeling scenarios @ Mtg#1
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
Mtg#2
Discuss 1st Draft Memo, identifying modifications & options requiring further
discussion, research or analysis @ Mtg#2
Distribute 2nd (revised) Draft Findings & Recommendations Memo based on
input at MTG #2 and modeling results ~ 1 week before Mtg#3
Identify key next steps: revised legislation; implementing regulations;
compliance/verification options @ Mtg#3
Discuss 2nd Draft Memo, identifying modifications@ Mtg#3
Distribute 3rd (final) Findings and Recommendations Memo based on input
at MTG #3 and modeling results ~ 2-4 weeks after Mtg#3
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, LLC
4 Lodge Lane
Natick, MA 01760
tel. 508.653.6737
fax 508.653-6443
[email protected]
www.seadvantage.com
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