Thursday, March 03, 2011

Renewable Portfolio Standards

Renewable Portfolio Standards (RPS) or Renewable Electricity Standards (RES) are being used by states to force utilities to development renewable power resources.  These regulations require utilities to source a specified percentage of their power from qualified renewable sources. States adopt RPS programs to incentivize the development of new capacity, reduce their carbon footprints and mitigate volatility in fossil fuel prices. While such regulations have cost impacts to ratepayers, proponents argue that their benefits exceed their costs.

In the U.S., roughly 30 states have adopted such regulations. Each jurisdiction's program varies depending on local policy objectives and political climates. The U.S. has no national RPS. In recent years, House and Senate initiatives have failed to obtain support.

There are serious concerns about cost impacts. The 2007 Lawrence Berkeley report suggests that existing state RPS programs resulted in rate increases of less than 1.2 percent. A 2008 California study predicts that a more ambitious 33 percent RPS combined with significantly expanded energy efficiency would increase costs 4 percent.

Massachusetts developer Cape Wind Associates recently reached an agreement with utility National Grid to sell 50 percent of the output from its 454 MW offshore wind project at a price starting at 18.7 cents per kilowatt-hour, escalating 3.5 percent annually for the 15-year life of the contract. The contract, which has been approved by the Massachusetts Department of Public Utilities, is projected to add $1.50 to the average residential consumer's monthly bill.  This proposal, driven largely by Massachusetts' ambitious RPS, strikes many as a high price for power. The average U.S. retail rate for electricity across all sectors is just less than 10 cents per kilowatt-hour, with consumers in many states paying 7 cents or less.

The Rhode Island Public Utilities Commission's approved the National Grid and Deepwater Wind's proposed Block Island Wind Project contract at 24.4 cents per kilowatt-hour.)
Other regulatory approaches include federal and state tax credits, feed-in tariffs and long-term contracts for renewable projects' output that encourage power developers to build new renewable projects. These measures are not mutually exclusive with portfolio standards.

Maryland Gov. Martin O'Malley is asking lawmakers to underwrite a plan for Maryland to generate some of the nation's first offshore wind power. His plan would incentivize a $1.5 billion field of giant turbines about 11 1/2 miles off Ocean City. It would require Maryland utilities to buy power from the wind farm at a price far above the current market rate and at which its developers agree they could turn a profit.

According to the governor's office, the cost of the subsidy would be spread among all Maryland electric customers in the form of monthly surcharges. The fee has been estimated at $1.44 a month for residential customers, but an analysis released by legislative budget analysts Wednesday night pegged the initial fee at $3.61 a month. For the state's largest industrial power users, the surcharges would add up to tens of thousands of dollars a month.

O'Malley's offshore wind proposal would essentially force the start of a new energy market in Maryland. Under the governor's plan, utility companies would be required to buy wind power at one fixed price for at least 20 years. That price would be set by the state's Public Service Commission next year. The plan assumes that developers will be awarded federal leases late this year or early in 2012, that construction would begin in 2014 and that the first turbines would begin spinning in 2016.

According to cost modeling by the governor's office, which assumes the PSC signs a 25-year contract, Maryland pegs offshore wind costs when the power comes online at about 16.4 cents per kilowatt hour, or more than 60 percent higher than the rate at which most utilities in the state are buying power. Like Delaware, the model assumes the developer receives an annual price increase of 2.5 percent to cover inflation.

But Maryland's budget analyst says the governor's model doesn't factor in all of the costs. The analyst's report estimates an "effective rate" of 21 cents per kilowatt hour for Maryland offshore wind power in 2016, rising to 23 cents by 2040.

By comparison, long-term projections released in January by the U.S. Energy Information Administration forecast that traditional electric power costs - now at an average of 11.1 cents - will fall slightly over nearly the same period.

There is also disagreement on how much residential utility bills would likely increase as a result of the wind project. The state originally forecasted an increase of $1.61 a month, but adjusted that downward by 17 cents, saying transmission charges would decrease. Utilities, however, say transmission charges are unlikely to decrease for very long and probably not by that much. The budget analyst projected the cost at $3.61 a month, or $43.31 a year, in 2016. The amount would decrease significantly over the life of the contract, to $1.91 a month, or $22.95 a year, in 2040.

The prospect of building wind farms off Maryland's shores has lured companies such as Bluewater, a wind power firm now owned by NRG, one of the country's biggest utilities. Bluewater has proposed building an offshore wind farm that would provide energy for as many as 136,000 households from turbines 12 miles off the Maryland shore. The company also has proposals for New Jersey and Delaware.

Bluewater has bid on 175,000 acres off Maryland. There were seven competitors, including Maryland Offshore LLC, a joint venture of Apex Wind Energy, based in Charlottesville, and Beowulf Energy LLC of Easton, Md., which employs Enright.

(Electric Light & Power, Todd J. Griset, Jan-Feb, 2011,  Wash Post, 3/3/2011)

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