Renewable Energy Production Payments

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Renewable Energy Production Payments
Renewable Energy Working Group Bend, March 22,
2006
Carel DeWinkel Renewable Energy
Division carel.dewinkel_at_state.or.us
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Outline of presentation

• Renewable Energy Production Payments (REPPs)
• Community-based energy development (C-BED)
• A Cost scenario for REPPs to meet part of the
  REAP goal

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Renewable Energy Production Payments

• Often referred to as the European Feed-in
  law
• Prices set by a political process
• The amount of installed capacity determined by
  market forces
• This is the reverse of the RPS process
• Worldwide to date, this is the most consistent
  and successful policy tool to promote renewables

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Renewable Energy Production Payments

• Excellent tool for the development of local
  manufacturing capacity for example, countries
  with the strongest domestic wind manufacturing
  industry all had some kind of feed-in law

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Renewable Energy Production Payments

• Production based payments in the State of
  Washington for PV, wind and digesters
• In Minnesota 1.5 cents/kWh for small,
  locally-owned wind farms and now the
  Community-Based Energy Development Tariff

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REPPs Critical characteristics

• Tariff must be sufficiently high to drive
  development
• Private investors need fair and sufficient
  profitability
• Local banks often play an important role and see
  these investments as relatively low risk
• Long term contracts with minimum prices
• (often with an initial period of higher prices,
  followed by a period of lower prices after the
  loan has been paid off)
• Rate based, like public purpose charge, no state
  aid

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Critical characteristics, contd

• Prices are
• Adjusted by technology
• Adjusted by location (sites with the best
  resource gets the lowest payment to avoid
  windfall profits)
• Adjusted by plant size
• Declining annually for new projects that come on
  line
• Flexible to adjust to technological changes
• Adjusted every two years by an independent
  entity to adjust market penetration to reach the
  desired goals

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Critical characteristics, contd

• Right to interconnect (like our PURPA)
• Elimination of barriers to interconnect
• Uniform standards for interconnection
• Easy permitting and siting
• High level of transparency

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Renewable Energy Production Payments

• This policy tool
• Promotes the development of distributed
  renewable resources by smaller companies, coops
  and individual citizens
• Builds a strong constituency in favor of
  renewables (compare wind in the UK with lots of
  NIMBY problems versus Germany)
• Can be used to promote renewables in
  geographical areas where the resource is lower
  than the most optimum sites
• Can support a diversified portfolio of renewable
  energy technologies

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Renewable Energy Production Payments Why?

• An RPS will not necessarily result in more
  community-based renewable energy development
  projects
• Some RPS designs could actually make
  community-based renewable energy development
  impossible
• utilities tend to use periodic RFPs to meet RPS
  goals
• only large-scale projects qualify for most RFPs
  (some have minimum capacity requirements that
  are larger than typical community-based
  projects)
• large scale wind has lower costs to rate payers
• But, who cares about community-based energy
  development and what is it anyway?

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Community-based energy development (C-BED)

• Definition
• A community-based or locally-owned energy
  project is generally defined as an energy project
  in which one or more members of the local
  community have a significant direct financial
  stake in the project, other than through land
  lease payments, tax revenue, or other payments in
  lieu of taxes. The size of the projects is small
  in comparison to typical large generating
  projects owned by utilities or large commercial
  developers (for example, large wind farms). But
  they are bigger than the typical net-metering
  type installations for homes and businesses.

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Community-based energy development (C-BED)

• Benefits
• Increased economic benefits to rural Oregon
  (see recent OSU study for Umatilla county)
• Community-based projects might get more local
  buy-in for renewables and foster a climate for
  more renewable development (fewer NIMBYs)
• Distributed generation can be interconnected to
  smaller transmission lines, thereby possibly
  avoiding the need for additional power lines or
  help avoid transmission problems
• Smaller, multiple generating sites may help
  stabilize the grid.
• Spreading production facilities helps offset
  variability in resources such as wind and solar,
  plus it provides an increased level of energy
  security
• Small-scale projects may help develop bigger
  projects in the future

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Community-based energy development (C-BED)

• But doesnt it cost more?
• In comparison to what?
• One answer is, yes, from a simple rate payers
  perspective, a large wind farm is cheaper than,
  for example, a community-based small wind farm.
• BUT, a C-BED project may very well be cheaper
  than its fossil fuel alternatives..Lets look
  at some numbers

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Renewables Value of fuel savings and carbon
reductions only

• Fuel cost savings only, for a gas fired power
  plant with a heat rate of 7,000 Btu per kWh
• /BBL Oil /MMBtu Nat. Gas /MWh
• 60.00 10 70
• Carbon dioxide reduction, assuming a gas fired
  power plant
• 800 lbs/MWh, valued at 20/ton equals 8/
  MWh
• Total value of fuel savings and carbon reduction
  is 78/MWh or 7.8 cents/kWh

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Numbers in the REAP context

• Assume that
• we agree that the value of fuel savings plus the
  carbon reduction is 78/MWh or 7.8 cents/kWh
  (from the previous page)
• the REPP policy will only be used for projects of
  10 MW or less, to fit the OPUC decision in UM
  1129 (standard contracts, etc.)
• UM1129 proceeding results in a PURPA tariff of
  5.8 cents/kWh, but in constant real terms over
  the contract period
• the COUs as a group have the same avoided cost as
  the IOUs
• Then, from a societal point of view, we have 2
  cents/kWh available for a production payment to
  equal societys avoided cost of the fossil fuel
  alternative...

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Numbers in the REAP context, the year 2015

• 10 renewables equals 571 aMW (IOUs408 aMW,
  COUs163 aMW)
• Assume that the average REPP would be 2 cents/kWh
  and that the market of C-BED projects would grow
  to about 20 of the REAP goal, or about 115 aMW
  by the year 2015
• Assume that the REPP would be paid for by a
  Public Purpose Charge
• This would mean a ramp-up to the following costs
  by 2015
• an annual cost for the IOUs of about 14 million
  and for the COUs about 5.7 million
• Or an extra cost of about 0.04 cents/kWh to the
  rate payer
• Or a rate increase of about 0.6 (current average
  rate about 7 cents/kWh)
• Or an extra annual cost of 4 for a rate payer
  using 10,000 kWh/yr

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Numbers in the REAP context, the year 2015

• Note that the numbers shown in the previous slide
  assume that the same incentive level is needed
  for the whole period to 2015
• In reality, the avoided cost for the utilities
  will most likely go up
• Thus, unless the cost of the renewables increases
  more rapidly than the utilities avoided cost,
  the required REPP level to make new projects a
  reality will decrease
• It is possible that there wont be a need for a
  REPP for new projects by the year 2015

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And finally

• The primary incentive tools currently available
  in Oregon are all focussed on the smaller scale
  projects
• BETC with its 10 million limit per eligible
  project cost
• SELP with its 20 million limit on project cost
• The ETOs renewable budget of about 10 million
  per year
• The USDA Farm Bill with its grants, loans and
  loan guarantees
• To integrate Renewable Energy Production Payments
  for projects of 10 MW or less with these existing
  programs appears not to be overly difficult.

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Information Workshop
Renewable Energy Production Payments for small
to medium sized projects Salem, April 5, 2006
For more information, contact
carel.dewinkel_at_state.or.us