Posts Tagged ‘renewable portfolio standards’

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Is subsidising renewable energy is a good way to wean the world off fossil fuels?

November 17, 2011

Michael Giberson

The Economist is hosting an online debate on the motion, “This house believes that subsidising renewable energy is a good way to wean the world off fossil fuels.” Matthew Fripp of the Environmental Change Institute at Oxford University has presented the affirmative case for the motion, Robert Bradley, Jr., of the Institute for Energy Research has argued the negative.

In closing arguments, Fripp makes what seems to be the best possible case for a combination of directed renewable energy subsidy (either renewable portfolio standards or feed-in tariffs) and gradually increasing carbon tax. While actual policy is unlikely to be as gradual, certain, and efficient as Fripp suggests, it seems desirable for policymakers to at least try, right?

That is, it seems desirable for policymakers to aim for gradual, certain, and efficient policy support for renewable energy assuming we accept the goal of weaning the world off fossil fuels. Bradley doesn’t.

Against a proposition that is formally about the means to an end, Bradley closes by arguing against the end. He argues cheap energy is good energy:

Good public-policy intentions are not enough …. Higher-quality, less-expensive energy enhances living …. This fossil-fuel dividend, if you will, enables a variety of lifestyle enhancements, including those for better health. Wealth is health, and human health should be at the core of environmentalism.

To me Fripp’s polished policy scenario is unappealing in part because of how appealing he makes it seem. (!) I’m not at all ready to turn the energy industry over to a central planning bureau, even Fripp’s ideal which would limit its interventions to minimally intrusive ways of promoting renewable power while a carbon tax was phased in and then disappear. Government attempts to manage the economy tend to destroy economic value; Fripp hasn’t convinced me government has overcome the knowledge problems and coordination problems inherent in economics action.

When renewable energy sources earn a place at the “high-quality, less-expensive” table, we’ll all be wealthier and healthier for it. In the meantime, in a world with significant problems of poverty and disease, wasting resources to install inefficient technology on large scale is destructive of wealth and health.

NOTE: At the moment I’m posting, the reader voting shows 49% in agreement with the motion and 51% opposed. Today, November 17, 2011, is the last day for reader voting. My recommendation: if you like government planning for the energy economy, vote Yes; if you prefer wealth and health, vote No.

Posted in Electricity, Energy markets, Environmental policy, Politics | Tagged , , , | 9 Comments »

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California regulators approve generous contract to multinational corporation at California ratepayer expense

November 11, 2011

Michael Giberson

Discovering that renewable power mandates can be expensive, California-style: “California Approves Solar Contract Despite High Cost“:

Ultimately, the commissioners voted for Abengoa’s contract mainly because Abengoa already has spent five years and $70 million to develop Mojave Solar and has gotten all the permits and financing to start construction. They noted that getting permits and financing are so tough that many other renewable energy projects had floundered as a result.”

This is their reasoning? So the high-cost contract is sort of a bailout for Abengoa because otherwise they’d take a loss?

A few details about the project are included in the California PUC staff’s recommendation to deny PG&E’s request to stick its customers with this bill. The staff concluded: “approving the PPA would have PG&E’s ratepayers incur significantly higher costs than might otherwise be necessary to meet PG&E’s RPS targets. [PG&E's own assessment] clearly shows that the contract is not competitive.”

Abengoa takes in billions of Euros in revenue every year – we don’t need to feel bad that a project or two they’ve pursued have turned out to be uneconomic. The company doesn’t need charity from California ratepayers.

Solar PV prices are at least temporarily down sharply from a few years back, but the Mojave Solar project is a concentrating solar power (i.e. solar thermal) project. While other solar thermal projects have switched technologies to reduce cost, not Mojave Solar. Many of the CPUC commissioners viewed this additional technological diversity a reason to make consumers pay extra:

“It’s worthwhile to spend a little more on projects like the Mojave Solar so the (state’s) renewable portfolio doesn’t rely heavily on a single technology. In other words it’ll be more balanced,” said Michael Peevey, the commission president who led the effort to approve the Mojave Solar contract.

Every once in a while I think, “Gee, wouldn’t it be nice to find some small California college near the coast to work for?” And then I go spoil the fantasy by reading about California energy policy.

Posted in Electricity, Environmental policy, Politics, Regulation | Tagged , | Comments Off

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Arizona regulators can require utilities to buy renewable power even if it raises consumer rates

April 8, 2011

Michael Giberson

The Arizona Court of Appeals has ruled that the Arizona Corporation Commission was acting within its authority when it decided to require utilities to secure a portion of their electric power from renewable resources. The Goldwater Institute had argued that the Commission’s authority was limited to setting rates and that the renewables mandate involved the Commission in decisions appropriately left to company management. Energy policy decisions such as renewable energy mandates should be made in the state legislature, Goldwater said.

In reaching the renewable power mandate the Commission suggested the decision protected consumers by diversifying the state’s energy sources away from fossil fuels, the prices of which are sometimes variable and which sometimes lead to rate increases. The Court concluded, therefore, that the Commission was considering rates when it mandated renewable power purchases.

The court “also brushed aside complaints by Goldwater”, in the words of the news article, that the Commission was meddling in decisions that should be left to management. From the court decision:

The managerial interference doctrine is a judicial construct designed to protect regulated corporations from overreaching and micro-management of their internal affairs by the Commission. It would be anomalous, to say the least, to allow APS customers to claim interference with managerial prerogative when APS itself disavows, and even embraces, the alleged “interference” by the Commission.

This part of the Goldwater complaint was always a long shot. Regulated electric companies have long learned that the state’s ability to regulate rates meant the state had the ability to regulate other terms and conditions of service, which meant that the state could regulate just about whatever it wanted. Regulated utilities generally find it advisable to work with, rather than against, their regulators.

NOTES:

Posted in Electricity, Law, Regulation | Tagged | Comments Off

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We don’t need a geothermal portfolio standard

February 7, 2011

Michael Giberson

The new Jan./Feb. 2011 issue of the Electricity Journal is now available, and it contains the usual range of interesting things to consider.

Take, for instance, the article “Redefining Renewable Portfolio Standards: The Value of Installed Renewable Capacity.” The article observes, reasonably so, that some sources of renewable power can dependably generate power around the clock, while others are somewhat less dependable. And we can all agree that dependable power is somewhat more useful that less dependable power, other things being equal. But soon enough we depart this firm foundation and begin speculation on how we can rig power markets and renewable power policies to increase the role played by geothermal energy.

To which the appropriate response is: “Say what?”

It is as if the article does not realize that their are broader environmental goals at issue in renewable power policy. In fact, the only mention of the word “environment” in the article is in reference to “creat[ing] a suitable investment environment for developers” (p. 15; the article does mention greenhouse gases two times on p. 17).

By the end of the article the author is asserting that “States with geothermal resources should tailor their renewable portfolio targets to encourage geothermal development to the extent possible.” I guess I missed the benefit-cost analysis earlier in the paper, but when did anyone besides the geothermal power industry conclude it was in the public interest to encourage geothermal development “to the extent possible”? Actually, the author is a bit more generous, allowing that his ideas would equally apply to other dependable renewable resources like biomass and landfill gas.

We’d be better off if our environmental policy was more focused on solving environmental problems and less focused on boosting one segment of the power industry at the expense of other segments of the industry (and, ultimately, power consumers).

 

 

Posted in Energy markets, Environmental policy, Regulation | Tagged | 5 Comments »

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The differences between renewable energy and renewable power in North Carolina

October 12, 2010

Michael Giberson

Under North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard, poultry waste burned to boil water to generate steam to turn a turbine generating electricity will earn RECs which can be sold to electric utilities needing to meet the state’s new renewable energy standard. Also under the law, poultry waste burned to boil water to generate steam to be used directly as process heat in factories does not qualify to earn RECs. The distinction may frustrate plans to use the poultry waste as an industrial fuel.

The Raliegh, N.C. News-Observer reports:

An energy company that wants to burn poultry waste for fuel has lost its bid to use the bird droppings as a green energy resource because of a quirk in North Carolina law.

A ruling by the N.C. Utilities Commission means that Peregrine Biomass Development will scrap plans for now to build several industrial boilers in the state. The company had planned to burn chicken droppings as an organic fuel to generate steam for factories and other industrial applications….

Peregrine’s business model had counted on a dual revenue stream. The company had planned to sell steam to industrial customers and at the same time sell renewable energy certificates from the projects to Progress Energy, Duke Energy or regional power agencies. The renewable certificates are a subsidy to encourage development of the state’s renewable sector. Electric companies and power agencies are required to buy a certain amount of the certificates to meet the state’s renewable energy targets.

The state’s 2007 renewable energy law considers poultry waste a type of renewable resource – but only as long as the poultry waste is used to generate electricity. Peregrine’s use of poultry litter didn’t qualify as a renewable, the utilities commission ruled Friday, because the company planned to generate steam or boiling water, not electricity.

An irony here is that Peregrine’s projects would qualify for the REEEPS subsidy if they planned to boil water to generate electric power and then use the electric power to boil water, even though the extra step would involve significant additional up-front cost and be a much less efficient use of the energy source.

John Whitehead at Environmental Economics wonders what “bureaucratic-political rent seeking led to this decision” by regulators, but I suspect it is just an example of how hard it is to provide simple incentives in a complex world. State lawmakers were trying to encourage the electric power industry to rely more on renewable energy sources, so they wrote a law about electric power.  Peregrine’s approach was outside their immediate scope of interest at the time. Perhaps Peregrine can incorporate a cogeneration component to their projects, and claim a subsidy that way, or if the projects will reduce overall energy consumption they might qualify as energy efficiency programs.

By the way, the energy efficiency component seems to me to be a – what is a nice way to say “scam” – in the making. In the regulatory rule-making process at the state utility commission, Duke Energy argued that because it will take time to measure and verify energy efficiency results the utilities should be able to rely on estimates of reduced energy consumption in annual compliance reports, with “actual results” incorporated into subsequent reports. The commission added the following language to the regulations: “REPS Credits for energy efficiency may be based on estimates of reduced energy consumption through the implementation of energy efficiency measures, to the extent approved by the Commission.” (p. 60 in this NCUC order).

So essentially, a utility can get credit for its estimated reductions in energy consumption due to energy efficiency plans implemented, and maybe (though the changes to the regulations say nothing about this) eventually, a subsequent report will list “actual results.” At the least this mechanism allows a way for the utility to borrow credits from future years (by over estimating results now and then over-complying later to make up for the post-verification adjustment), but nothing in the rule governs this potentially significant program component other than the phrase “to the extent approved by the Commission.”

The whole thing is a mess, and not just because of the poultry waste.  Better policy pursues the externalities associated with electric power production – the law here mentions diversity among energy resources and improved air quality as among the policy goals – and let producers and consumers sort out the complexities.  Sure, implementing Pigovian taxes and Coasian bargains can be messy, too, but then sorting out the mess seems to be more about identifying and solving problems rather than about how to fit nicely into the economic framework imagined by lawmakers and regulators.

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged | 3 Comments »

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Texas wind power: It isn’t about the RPS

May 18, 2010

Michael Giberson

Texas did it again, it achieved it’s target for new renewable power generation capacity years ahead of schedule. And so, of course, as it becomes increasingly obvious that the Texas Renewable Portfolio Standard (RPS) is essentially irrelevant to growth in wind power, the Texas RPS is increasingly held up as a success and model for other states and the federal government.

From Brighterenergy.org:

The State of Texas exceeded its 2025 renewable energy target 15 years early last year.

The Electric Reliability Council of Texas (ERCOT) said on Friday that there was a record increase in voluntary participation in the state’s renewable energy certificate program in 2009.

Nearly 15 million renewable energy credits [RECs] were retired last year, with just 6.79 million needed by retail electricity providers to satisfy the state’s renewable portfolio standard for the year.

A further 8.14 million RECs were voluntarily retired, surpassing 2008’s record of 6.77 million.

The figures came as ERCOT submitted its annual report on the scheme to the Texas Public Utility Commission.

With more than 10,000 megawatts of renewable energy capacity on the Texas grid – mostly wind power – the state has reached its 2025 target 15 years early, and has doubled the target set for 2015.

The original mandate for 2009 was just 2,000MW, which was achieved three years early.

“Successful”

ERCOT interim CEO Trip Doggett said: “The Texas program was the first of its kind in the nation when it began in 2001, and it is now recognized as one of the most effective and successful in the nation.

“It’s also one of the biggest influences on the rapid growth of wind energy in Texas,” added Mr Doggett.

Other than the popular but faulty post hoc ergo propter hoc logic, what is the evidence?

Sort of like the 45 mph minimum speed limits on some Texas highways, the constraints are so far from binding that it is hard to see how they are relevant.

I think a better explanation of the growth of wind power in Texas (and about 95% of the Texas REC-qualifying renewable power capacity is wind power) is the combination of federal Production Tax Credit subsidies + reasonably good quality wind resources near transmission lines.  The CREZ transmission expansion plan is likely the next most important factor.  REC monies along with other state and local tax exemptions are far smaller considerations, perhaps tipping the balance in favor of development for a few projects.

What is my evidence? Oh, actually, what I have is more of an inference and interpretation drawn from a number of mostly anecdotal sources.  Nothing really reliable to show.  But given the lobbying for a national RPS, it makes a difference whether or not the Texas law is the model it is held out to be.

I’m sure someone has put together the story somewhere.  Anyone know of anything?

Posted in Energy markets, Environmental policy | Tagged , | 5 Comments »

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Does the Wall Street Journal employ anyone who understands energy markets? Three rejoinders

September 4, 2009

Michael Giberson

In Grist, Adam Browing asks, “Does the Wall Street Journal employ anyone who understands energy markets?“  Browning’s question and his answer seem just a little off, as I’ll discuss below, but first an excerpt from Browning:

Actually, I think they do.  I think Keith Johnson knows quite a bit about energy markets.  Which makes this hit job on solar subsidies, published before the Senate considers national renewable energy legislation, so disturbing.

After chronicling the problems of the Spanish solar industry, the article goes on to say:

“Clean-energy skeptics, however, point to Spain as a cautionary tale of a government policy … with disastrous consequences.  … California and New Jersey, which lead the U.S. in solar power, are among states that have used subsidies similar to the ones in Spain to make solar power more attractive”

This is in fact incorrect.

Spain used a singular policy, a fixed price, standard offer contract known as a feed-in tariff.

California, on the other hand, has several different policy mechanisms, and each one is market-based.  They look nothing like Spain at all.

My first reaction: Browning isn’t asking about energy markets, per se, but the design of energy subsidies.  Really he complains about the WSJ‘s characterization of public policy tools.  Browning is director of The Vote Solar Initiative and a former EPA official, so I’d expect him to be aware of various environmental policy tools.  Energy markets – maybe not so much.

My second reaction: Does he really say that California’s policies look nothing at all like Spain’s feed-in tariffs, even though one of California’s policies is a feed-in tariff?  He describes it as a market-based feed-in tariff later in this very post, and in another post at Grist he says it is “kind of like a feed-in tariff, but different.”  So I guess that is it: it is “kind of like a feed-in tariff,” but nothing at all like Spain’s feed-in tariff.

Huh?

Then he trumpets the fact that “most” of the recent utility contracts signed by California utilities with solar power providers (with the aim of complying with the state’s Renewable Portfolio Standard mandate) have been “under the price of natural gas.” He repeats this claim again –  “clean energy, cheaper than natural gas” — and again — “Solar is getting cheap—cheaper than fossil fuel alternatives—and Congress has nothing to fear by getting aggressive on clean energy.”

But the contract he offers a helpful link to, between PG&E and First Solar, clearly describes that part of the project plan is to cash in on Federal subsidies for solar power projects.  In addition, the contract clearly states that the project is eligible for “above-market funds (‘AMFs’)”, which is California regulatory-speak for a pool of money available to help utilities meet RPS mandates when proposed projects are more expensive than other alternatives in the market. In fact, the reference point isn’t actual fossil fuel project proposals presented in actual market competition but rather a “Market Price Referent” established in regulatory processes.

My third reaction: This is “cheaper” only if we ignore the subsidies.

[Separately, on The Vote Solar Initiatives' "four key buttons that must be pushed in order to make the [solar power] market work”, I’d say only “(2.) Standardized interconnection procedures” is a clear winner.  The Spain example discussed by the WSJ shows some limits of policy (1.), a kind of demand-push-assume-economies-of-scale-follow approach.  “3. Net Metering” and “4. Fair Rate Design” are just attempts at providing distributed, small subsidizes through regulated rate structures.

In my view we can’t subsidize the market into becoming more efficient.  Yes, their are problems associated with fossil fuel use.  Better to identify the externalities associated with generating technologies actually causing third-party harm, and push for policies which get the parties responsible to pay for the harm.  Wasting resources will not save the earth.]

[HT to Keith Johnson of the WSJ's Environmental Capital]

Posted in Electricity, Environmental policy | Tagged , , | 3 Comments »

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Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals

August 13, 2009

Michael Giberson

Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals according to a guest post by Omar Abbosh on the Financial Times Energysource blog, at least in the absence of a single, integrated electric power market in Europe.  Abbosh, a managing director at Accenture, notes that generous feed-in tariffs have led Germany to build a lot of solar and wind power capacity, but renewable energy output would be significantly higher had those wind power turbines been built in the U.K. and the solar power systems installed in Spain.

I’m putting a slightly more negative spin on the feed-in tariff issue than Abbosh himself does (in part as a reaction to the “unequivocally superior” comment discussed earlier), so I’ll give Abbosh the final word:

To reach our renewable targets more cost effectively, Europe must implement a consistent policy framework to drive renewable generation to those areas with greatest natural advantage. Options include centrally coordinated carbon contracts and feed in tariffs.

Options include a feed in tariff? Well, he is right that a Europe-wide feed in tariff would likely do a better job than more localized feed in tariffs of locating renewable energy resources where they would produce more output.

Of course, one goal of renewable power policy in Europe is to reduce greenhouse gas emissions, and locating wind and solar where they produce the most output doesn’t necessarily imply the largest reduction in greenhouse gas emissions.  It is possible, for example, that solar power generation in Germany offsets mostly coal-fired plant output while in Spain it would offset natural gas fired generation.  I’m speculating, so my illustration may be in-apt, but the point remains.  Apparently it is harder to distort the market in just the right way than it looks.

(Oh, I forgot that I was giving Abbosh the last word.

Sorry.

Now back to his post:)

However, we advocate the introduction of European Renewable Energy Certificates (RECs).

Under a European RECs system, each nation would agree to levels of electricity generation from renewables, based on the availability of the natural resource in question.  Certificates would be allocated to renewables generators, who would then sell them on an EU-wide trading platform to suppliers unable to meet their obligations. …  As a market-based approach, European RECs would be compatible with the EU’s existing Energy Trading System (ETS).

… Only by replacing distorting national subsides with a coordinated and consistent policy can Europe achieve its renewables targets and continue to lead the climate change debate.

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged , , , , | 3 Comments »

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A problem with market-based approaches to emission reductions

April 29, 2009

Michael Giberson

Market-based approaches to regulating emissions are the new conventional wisdom, according to Robert Stavins, and it would be hard to disagree. Among proponents of regulating greenhouse gasses in the United States, the big debate is over which of two market-based approaches to regulating emissions should be pursued: emission tax or cap-and-trade. Is anyone proposing “best available control technology”? Market-based approaches have become favored in part because of some high profile successes, notably the cap-and-trade program for SO2, seen as achieving its goal at a considerable cost savings compared to alternative approaches to regulation.

The primary strength of market-based approaches comes from the decentralizing of compliance decision-making, which enables each entity responsible for compliance to pursue the lowest-cost means of meeting the requirement. This strength, though, may also be the biggest problem with market-based approaches, at least when proponents of regulation hope to achieve goals beyond efficiently addressing externalities associated with emissions.

At TNR’s THE VINE, Bradford Plumer asks, “If Carbon Caps Are Coming, Why Mandate Renewables?“, and reports some of the responses he received.  Rich Sweeny asked the same question at Common Tragedies a while back.  In both cases it appears to be the case that proponents of greenhouse gas regulation are worried we might achieve the targeted reductions too easily, i.e. while still burning a lot of coal, not cutting back on consumption, and not garnering enough market share for renewable power. That is to say, some proponents of regulating greenhouse gasses hope to not only to reduce externalities, they have additional preferences about other people’s future energy choices that they want to control through the public policy process.

From Plumer:

Hummel explained that in wholesale electricity markets, the price of carbon would need to get very high—around $60/ton—before pushing dirty coal out onto the margins. So a renewable standard is a good way to manage a steady transition away from coal long before reaching that point.

In the comments responding to Sweeny’s discussion:

Cap and trade purists don’t seem to understand that there is something out here in the real world called an electricity market, and that under any politically viable national cap, coal use is barely touched.

Once we get beyond “internalizing the externality” in economists’ language, or more plainly, once the third party effects of actions are taken care of, the further ambitions of these regulation proponents sound like a bad mix of industrial policy and meddlesome preferences. The problem with market-based approaches, from the point of view of some folks, is that they don’t help enforce these further ambitions for social reform.

Actually, in my view, this “problem” is another great strength of the market-based approach.

Posted in Energy markets, Environmental policy | Tagged , , , , , , , , | 3 Comments »

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