Stimulating Renewables Stimulating Renewables Do We Need A Federal RPS?Do We Need A Federal RPS?

David K. OwensExecutive Vice PresidentEdison Electric Institute

NARUC Summer Meeting 2007July 2007

Energy Mix 2005Energy Mix 2005

Electricity Generated from Electricity Generated from RenewablesRenewables

Benefits: Fuel supply diversification Renewables becoming bigger part of fuel mix

• Wind, solar, geothermal, and biomass Generally less environmental impact According to EIA non-hydro renewables: 2.9% Today 3.7% by 2030

• Biomass produces 1.5% of generation• Wind 0.4%• Geothermal 0.4%• Solar 0.01%

Largely CO2 emission freeAll resource options are needed to meet our energy challenges

Electricity Generated from Electricity Generated from RenewablesRenewables

Challenges: High initial capital costs

• Need tax credits or other incentives

Geographic limitations

Intermittent nature of supply (i.e., wind and solar)

Transmission availability

Frequent expiration of production tax credit

Environmental and aesthetic challenges

States Already Stimulating States Already Stimulating Renewables Through RPSsRenewables Through RPSs

State RPSs already mandating renewables, based on their own unique circumstances and available resources• 24 states and DC have RPS• 90+ electric companies in over 30 states have implemented or announced

green pricing programs• 48 states support programs that offer incentives, grants, loans or rebates to

consumers using renewable energy resources

Electricity suppliers in 9 states with competitive retail markets are offering green power products to consumers

Bottom line • State RPSs balance available renewables with consumer benefits• States balancing fuel diversity and energy supply

24 States & D.C. Mandate 24 States & D.C. Mandate Renewable Portfolio Standards Renewable Portfolio Standards

(RPS)(RPS)

Congress Stimulating Renewables Congress Stimulating Renewables Through Through Production Tax Credits Production Tax Credits

(PTC)(PTC) A long-term extension of the PTC could be the single most effective

action Congress could take to promote renewables

Credits are a proven means of getting renewable generation built and brought online• Current PTC to expire on 12 / 31/ 08• Short-term, start-and-stop tax credits discourage utilities, developers,

manufacturers and investors from maximizing the potential of renewable technologies and other resources

• Extending the credit for at least 5 years will provide the necessary stability to the private sector to plan and finance renewable energy projects

– Senate Finance energy tax bill provides 5-year extension (inflation adjustment deleted for future projects)

– House bill includes a 4-year extension but it changes the calculation of the credit for future projects.

Congress Stimulating Renewables Congress Stimulating Renewables Through Through Investment Tax Credits Investment Tax Credits

(ITC)(ITC) Another vehicle for stimulating development of renewable and

decentralized technologies is extending ITC beyond 2008

Senate and House tax bills would support such extension• New 10% ITC for combined heat and power (Senate)• Solar 30% ITC extended for 8 years (House and Senate)• Geothermal ITC permanent (House) • Utilities would be able to claim solar and geothermal ITC (House)

Senate failed to get cloture on its tax package during energy bill debate

House tax bill expected to be considered as part of House energy bill later this month

Renewables Key to Climate ChangeRenewables Key to Climate ChangeCEO PerspectiveCEO Perspective

Source: GF Energy 2007 Electricity Outlook Entering the Climate Zone June 18, 2007

Commitment To RenewablesCommitment To Renewables Non-hydro renewables

increasing

Wind is fastest-growing renewable

Wind farms operate in 32 states with > 10,000 MW

2005

Note: Numbers exceed 100% due to rounding.Source: U.S. DOE/EIA Form EIA-906, Power Plant Report, Form EIA-920 Combined Heat and Power Plant Report; 2005 preliminary data*Includes agricultural byproducts, landfill gas, municipal solid waste, sludge waste and tire-derived fuels .

A Federal RPS?A Federal RPS?Key QuestionsKey Questions

Should a Federal RPS preempt existing state programs?

Which renewables should be included?

Should energy efficiency count?

What should be the target percentage?

What is the timeframe for implementation?

Who should be required to meet a Federal RPS standard?

One-Size-Fits-AllOne-Size-Fits-All RPS Doesn’t RPS Doesn’t WorkWork

Individual states have chosen energy resources based upon local factors• Geographic availability of renewable energy resources• Technologies, including energy efficiency• Timetable for implementation• Ability to integrate into grid• Cost implications• Economic development implications• Environmental implications

Federal RPS Mandate Could Federal RPS Mandate Could Undercut or Preempt State EffortsUndercut or Preempt State Efforts

Each state RPS plan includes carefully considered• Resources and technologies to be included• Timetables• Targets based on what makes sense in that particular state• Impacts on consumers

Mandating a national target, timetable and technologies could undercut or preempt state efforts• E.g., 10 of the 25 existing state plans would fail to meet currently

proposed federal RPS target of 15% by 2020• All state RPS plans include eligible resources that would not be counted

under federal proposals

A federal RPS mandate that does not provide the flexibility to be inclusive of state programs would undermine state programs and increase costs

A Federal RPS Will Do Little For A Federal RPS Will Do Little For Energy IndependenceEnergy Independence

10% RPS mandate would save the equivalent of less than one gallon of gasoline per household per year! (EEI estimate based upon EIA analysis of electricity savings from oil-fired generating plants)

Only 3% of electricity comes from oil• Mainly in Hawaii and Alaska or for backup• Electricity industry is not a significant contributor to our oil dependence• Plug-in hybrid vehicles and other electric transportation technologies should

be part of our plan to reduce dependence on foreign oil– Direct offsets to dependence on petroleum products

Federal RPS Results In A Federal RPS Results In A Wealth TransferWealth Transfer

Many retail electric suppliers / retailers will not be able to meet an RPS requirement through their own generation• They will have to purchase renewable energy credits or renewable

generation from others

Potentially massive wealth transfer

Consumers in states with little or no renewable resources . . . to

. . . Federal government or states where renewables are more abundant

RPS Mandate Will Also Require RPS Mandate Will Also Require Additional Indirect CostsAdditional Indirect Costs

New high-voltage transmission lines often must be built• Wind turbines usually located in remote areas requiring transmission over

long distances to populated areas

Transmission expansions can cost ~ $1-3 million / mile• Problems include crossing federal lands, and private lands “Not In My Back

Yard” (NIMBY)• Transmission one of the most significant challenges to promoting growth in

renewable generation– Adequacy, siting, financing and construction of transmission

System upgrades to accommodate the intermittency

SummarySummary Renewables must be part of our overall energy strategy for meeting

our energy and climate change challenges

Extension of the federal production tax credit and investment tax credit for renewables is essential

Existing state programs carefully balance• Availability of renewable resources and technologies• Cost effectiveness of such technologies • Environmental benefits

Federal RPS would undermine state programs and increase costs to consumers