us virgin island energy workshop policies to promote renewable energy & energy efficiency sarah...

US Virgin Island Energy Workshop

Policies to Promote Renewable Energy & Energy EfficiencySarah Busche & Eric LantzFebruary 16, 2010

FEBRUARY 16 – 18, 2010 GOLDEN, COLORADO

USVI Workshop, Feb. 16-18, 2010

Outline

Introduction Policy to facilitate a clean energy transition NREL’s policy analysis capabilitiesRenewable Energy Policy Policies & best practices Persistent policy problems Emerging policy approachesEnergy Efficiency Policy Common policy best practices Decoupling overviewOther Policy Related Considerations Transportation policy considerations Carbon & REC MarketsQ & A

INTRODUCTION


Policy: A Mechanism For Facilitating A Clean Energy Future

Building a foundation for the transition to clean energy Drive technological advancements & technology adoption Mandate action Incentivize decision making to align with USVI goals Aid in financing Attracting green industries, green jobs

Process for determining appropriate policies Identify clean energy goals Identify barriers to achieving those goals Identify which can be addressed through policy initiatives Analyze the costs and benefits of various policy options Implement appropriate policies


NREL’s Policy Support Capabilities

Identify best practices & policy design considerations Market & barrier analysis Track state and local policy activity – innovative policies Policy analysis, such as potential impacts on

Ratepayers Utilities State/Territory Energy reduction/RE generation Environment Jobs & economic development

BAU Case I Case II Case III

Energy Use - RE/EE Scenarios

ResidentialIndustrialCommercial

Renewable Energy Policy


Renewable Portfolio Standards

Design Basics Requirement of LSE to provide a specific percentage of their electricity from

qualified renewable energy resources Usually includes penalties for non-compliance Often met through the development of a REC market May include a resource specific set-aside, a Tiered REC system, or REC multiplier for preferred

technology/resources


Renewable Portfolio Standards (RPS)

Design Variables Target, Timeframe, Exemptions Technology eligibility Treatment of out of state/territory

generators Compliance Filing & Enforcement Bundled or unbundled RECs Compliance flexibility/waivers Compliance cost recovery Contracting requirements (gov’t

procurement, long-term contracts, credit protection)

Role of state funding


Renewable Portfolio Studies

Challenges Funding authorizations Transmission Siting constraints contract failures incentives /market uncertainty Costs (and integration costs) Managing compliance

Conclusions Policy design details matter RPS do not operate in isolation

Impacts 60% of non-hydro RE deployment since 1998 (94% Wind) Solar/technology set asides increase diversity but create challenges Compliance in 2007 was estimated at 91%


Net-metering & Interconnection

Critical to maximize the value of customer sited generation

Common Limitations Eligibility only for specific

customer classes Size restrictions Discriminatory fees or

disproportionate standby charges

Excessive redundancy Excessive application review Supplemental insurance Lack of promotion

Best Practices Customer ownership of RECs Leverage vetted industry

standards Use straightforward and

transparent policies Standardize approvals Provide a clear path to dispute

resolution


Rebates

Status and Impacts More than 38 states (as well as the

USVI) Market impact and success is mixed

New Jersey: 62 MW of solar PV in 8 years

New Jersey: One biomass power installation per year


Rebates

Design Considerations Potential for explosive growth Rebates become very expensive when

successful. Scale rebates down at specific

installation targets

Address non-cost related barriers Target technologies with

foreseeable cost reductions at scale Design rebate amounts for specific

market conditions Provide consistent funding Reevaluate and adjust as needed Fund more than just freeriders


Public Financing Programs

Status and Impacts More than 125 financing programs Public financing may offer:

long-term loans fixed rate loans relatively low transaction costs increased leniency

Loan programs serve a relatively narrow function Not associated with large RE capacity

installations But, fundamental to widespread

deployment


Public & Utility Financing Programs

Design Considerations Standardized eligibility criteria can streamline processing requirements Providing services that identify and quantify the value of specific

improvements can eliminate consumer education barriers Increased loan security provides the best lending rates and terms Technology specific terms allow loans to be structured so that a given

improvement can pay for itself High volume allows for increased dispersion of fixed overhead costs Leveraging private sector specialization (underwriting and/or energy

audits) can reduce government burden Provisions for rapid scaling support broad-based growth


Persistent Problems & New Approaches

Challenges Scale Cost Implementation Transmission Resource Diversity

Emerging Approaches SREC markets and SREC financing Property Accessed Clean Energy

Financing European style FIT


New Jersey’s Solar REC Market & PSE&G SREC Financing

SRECs must be acquired by utilities from solar electric power generation.

Because SRECs are market based, prices vary in accord with supply

PSE&G now finances solar systems and allows customers to service their loan with SRECs. Customers lock in a 10 year SREC

floor price Customers are credited additional

amounts when SREC prices exceed the floor price

PSE&G retains first priority rights to purchase SRECs for 10 years

After exhausting rebate funds the state has transitioned to an SREC market to meet its RPS obligations


Property Accessed Clean Energy (PACE) Financing

Local government finances clean energy investments and relies on the tax capacity of the property to secure the loan. Government issues bonds Property owners opt-in A special tax lien is placed

on the property Repayment occurs via property tax

payments General approach:

Is used widely for local infrastructure projects

Offers more secure loans Allows for the transfer of the loan to

a new property owner


Potential Drawbacks to PACE programs

Enthusiasm for PACE style programs abounds, 18 states have passed legislation authorizing these programs, 14 more are actively pursuing legislation but:

Mortgage lenders are uncomfortable as the secondary lien holder

Will transfers of the special lien actually occur?

PV may not meet the “savings to investment principle.”

Implications for a city or state’s credit rating?

It is not clear that PACE offers significant advantages over alternative financing innovations (i.e., solar lease or third party PPA)


Feed-in Tariffs (FIT)

European style FITs are also beginning to emerge in the U.S. FIT provides a guaranteed production payment to RE power producers

Fixed price payments or Fixed premium payments FIT policies are:

differentiated by technology include a purchase and interconnection guarantee designed to ensure moderate profitability for RE generation and provide

investor certainty compatible with RPS

Challenges include Capital investment Setting and adjusting the payment level as markets evolve Payment price differentiation Cost

Modern FIT are not to be confused with PURPA

Energy Efficiency Policy

The First Renewable


Lead By Example (LBE)

Other LBE Opportunities Government procurement

strategies Green affordable housing LEED Requirements for new

buildings

Improving EE in public buildings Demonstrate cost effectiveness & feasibility Set a goal for energy reduction based on BAU

scenario Track energy use, evaluate & report Guide available at:

http://www.epa.gov/cleanenergy/documents/epa_lbe.pdf




Energy Efficiency Portfolio Standards

Mandates energy providers to meet a portion of their energy demand through energy efficiency

Designed to facilitate investment in untapped technically and economically viable EE

Short term and long term goals, usually defined in terms of a percentage of total sales

Market based trading system Leading states are achieving 0.75-1.25% savings annually

Experiencing reductions in energy use, demand and strain on the grid Ratepayers benefit from

Reduced electricity bills Reduced need to fund capacity additions


Public Benefit Fund (PBF)

Developed to finance EE programs Funds raised through surcharge on ratepayers’ electric/gas bill Consistent funding mechanism Develop measurable targets Usually administered by the utility or a third-party Top two important factors related to a successful PBF

Amount of funding Strong legislative mandate for EE savings

Leading States Annual Energy Savings Annual Spending as a % of Utility Revenues

Vermont 1.8% 3.5%

Connecticut 1.3% 2.1%

Oregon 0.9% 2.2%

California 0.9% 1.9%

Source: Kushler et al 2009


Thinking Outside of the Box

Residential Energy Conservation Ordinances (RECO) Addressing efficiency of the existing building

stock Audit at point-of-sale/lease Ceiling for required EE improvements Stakeholder support – realtors are key!

Non-Financial Incentives Density bonus Special zoning Expedited permitting


Innovative Policies – Hawaiian example

Solar Hot Water Heating All new single-family homes required to have SWH 40% residential energy demand in HI 25% of single-family homes

Net Zero Energy Ready requirements Residential new construction Future target date – a line in the sand Mandates efficiency improvements Readies the house for RE

PV Ready Requirements Structurally capable of supporting PV Design elements & minimal equipment installation


Decoupling Overview

Traditional regulatory mechanisms incentivize increased sales for utilities – “throughput incentive” Throughput incentive is considered the biggest barrier to utility investment in

energy efficiency Decoupling breaks this incentive by “delinking” a utility’s revenues from the

amount of energy it sells Types of decoupling:

Full Partial Limited


Decoupling Basics

The Utility recovers the amount of revenue determined to be fair and reasonable by regulators & Customers pay a fair amount for services rendered (electricity, distribution, etc) Automatic/semi-automatic price adjustments Does not alter the traditional rate case process – can reduce the frequency of rate cases Reduces the financial risk for the utility Does not decouple a customer’s bill from their consumption 23 States have implemented some type of a decoupling policy, 6 states considering it

Other Policy Related Considerations


Transportation

Vehicle fleet transition Electric vehicles Hybrids Flex fueled

Financial incentives Vehicle purchase Charging infrastructure

Financial disincentivesGovernment fleets/rental fleets/etc


Carbon and REC Markets

Fundamentals: Carbon markets are specific to GHG emissions RECs are defined by legislation or certification

Compliance Markets -- $5/MWh to $55/MWh Voluntary Markets -- $1/MWh to $10/MWh

Opportunities in Carbon:* Voluntary Markets - $705 million market, $7.34/ton CO2e EU ETS - $95 billion --- limited to Kyoto signatories Kyoto CDM - $22 billion --- limited to developing nations RGGI - $254 million --- small potential in offset market WCI - Not yet active --- role of offsets TBD Others - Various initiatives are underway; concrete opportunities

have not yet been identified* Subject to change with new policy


Much more information on-line…

Net Metering: http://www.nrel.gov/docs/fy10osti/46670.pdf

Decoupling Brief: http://www.nrel.gov/docs/fy10osti/46606.pdf

RE Rebates: http://www.nrel.gov/docs/fy09osti/45039.pdf

FITs in the US: http://www.nrel.gov/docs/fy09osti/45551.pdf

State Level FITs: http://www.nrel.gov/docs/fy10osti/47408.pdf

RPS: http://www.nrel.gov/docs/fy08osti/43512.pdf

US REC & Voluntary carbon marketshttp://www.nrel.gov/docs/fy09osti/46581.pdfhttp://ecosystemmarketplace.com/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf http://assets.panda.org/downloads/vcm_report_final.pdf

Emerging carbon markets: http://www.nrel.gov/docs/fy07osti/41076.pdf

http://www.nrel.gov/docs/fy10osti/46670.pdf







http://ecosystemmarketplace.com/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf

http://assets.panda.org/downloads/vcm_report_final.pdf


QUESTIONS?

Sarah BuscheEnergy Analyst, NREL

[email protected]

Eric LantzEnergy Analyst, [email protected]

Thanks!

us virgin island energy workshop policies to promote renewable energy & energy efficiency sarah...

Documents

renewable energy policy

policy initiatives

usvi workshop

outline introduction

clean energy goals

introduction slide

clean energy future

colorado slide