# Presentation: 513199

## Key RPS Design Issues and Experience to Date

**Karlynn S. Cory**
**Strategic Energy Analysis Office – NREL**
- SEAC Analysis Seminar Series
- July 26, 2006

## Overview

- RPS Overview
- Resource Availability
- REC use and tracking
- Out-of-state generation
- Solar RPS provisions
- Tweaking RPS rules

## Renewable Portfolio Standard (RPS) Overview

- The Common Foundation
- Requires retail electricity suppliers to supply a min. amount of retail load with eligible renewables
- State-by-State Differences
- Eligibility (technology, geography, technology tiers/bonus, new and/or existing)
- Timing (rate of increase, end date/continuous)
- Compliance (RECs, interaction with vol. mkt.)
- Implementation (L-T contracts/rate recovery, compliance waivers, penalties, cust.-sited)

## RPS Activity Over Time

- Source: Ryan Wiser, LBNL

**Recently Adopted RPS:**  _2004_: CO, HI, MD, NY, RI; 2005: DC, DE, MT
**Recently Revised RPS:**  _2004:_ CA, NJ, NM, PA; 2005: CT, NV, TX; 2006: WI, ME, NJ

## RPS Requirements: in 20 states

- Adapted from Ryan Wiser, LBNL

## Renewable Energy Certificate (REC) Basics

- Separates Environmental Attributes & Energy
- RECs are not subject to transmission constraints
- Simplifies oversight/auditing by state regulators
- REC Tracking – Operational and Proposed
- Texas Renewable Energy Credit Program (07/01)
- NEPOOL’s Generation Information System/GIS (10/02)
- PJM’s Gen. Attribute Tracking System/GATS (10/05)
- New York (expected in 2006; will be GIS, GATS compatible)
- Western Renewable Energy Generation Information System/WREGIS (expected early 2007)
- Midwest Renewable Energy Tracking System/M-RETS (expected early 2007)

**Notes:**
RECs = Green tags = Environmental attributes = Tradable Renewable Credits = TRCs

## Differences in REC Treatment

- Shelf-life of RECs
- _Quarterly_: New England/NEPOOL GIS
- _Annual or more_ (depends on state): GATS
- _3 years_: TX
- Shorter REC life  Allow REC Banking
- _2 yrs:_  MA (30% max), RI (30% max.), PA
- _3 yrs_: DE, DC, MD
- Award multiple RECs for early development or for specific technologies (e.g. solar PV)
- Are RECs double-counted for RPS?
- Contractual rights to PURPA QF output (ME, CA)
- Voluntary consumer-purchased RECs count towards RPS compliance (Half of total - TX)

**Notes:**
REC definitions vary by state/region:

## Impact of Divergent Treatment of RECs

- _Result_: Small, fragmented, illiquid markets
- Not much market transparency
- No true REC spot market (everyone bid in supply/demand and receive/pay a “market clearing” price);
- Mostly bilateral contracts (some public auctions)
- REC trading between regions (“seams”)
- _Technical_: security and compatibility of (a) data and (b) imported/exported REC (unbundled RECs in bundled system)
- _Political_: leakage of benefits to outside states; unwanted competition from out-of-state renewables
- North American Association of Issuing Bodies is attempting to standardize REC definitions

**Notes:**
Standardization of basic rules and minimum standards through North American Association of Issuing Bodies (NAAIB)

## RPS Best Practices - RECs

- RECs can allow RPS compliance flexibility
- Early compliance RECs (prior to start year)
- Longer shelf-life or banking for more than one year
- Separate contracts for energy and RECs
- RECs should not be double-counted
- Cannot count both energy ***and**** *RECs for compliance
- Emissions attributes should be bundled in RECs
- Voluntary consumer-purchase RECs should not also be allowed for RPS compliance
- _Additionality_: Consumer is purchasing to “make a difference,” incremental to the RPS requirement
- Address REC trading between REC systems

## Limiting Out-of-State Generation

- In-state requirement
- HI, IA, MN (original Xcel mandate)
- Physical delivery is required – but to where?
- _Direct interconnection to state:_ NV, TX
- _In-state delivery requirement_: AZ, CA, MN, MT, NM, NY, WI
- _Control area_: **NEPOOL**: CT, MA, ME & RI; **PJM**: DE, NJ
- _Neighboring regions_: CT (*after 2010:* NEng., PJM, NY, upper ME); & DC, MD & PA (PJM or neighboring state)
- _No requirement_: CO
- Match transmission on a “timing” basis:
- _Hourly_: New England
- _Monthly_: PJM, NY (under reconsideration)

## Encouraging In-State Facilities

- In-state RPS provisions
- _Extra credit for in-state_:  AZ (1.5x kWh), CO (1.25x),             NV (2.4x solar; 1.15x other RE)
- _Customer-sited set-aside_:  AZ (4.5%), CO (half of 0.4% solar set-aside), MT (75 MW), NY (2%)
- _Customer-sited is eligible (any RE tech.)_: CA, DE, MN, NV
- _RECs awarded if a utility invests in/provides incentives for in-state solar manufacturing_: AZ (25% CF x nameplate capacity)
- Other provisions to encourage in-state renewables
- _Rebates, tax credits_: in-state applications only
- _Net metering_: 40 states allow meter to spin backwards
- Many limit project size or have other criteria (e.g. resid. only)
- _System benefits fund_: funds often target in-state behind-the-meter projects and in-state industry

## Limit Out-of-State vs. Support In-State

- Both are geared to insure in-state benefits
- Local generation increases local reliability & could help system reliability (if located in congested area)
- Jobs and other economic benefits
- Hedge against fossil fuel prices
- Lower pollutant emissions
_**BUT**__ – “dormant” Commerce Clause_: Can’t favor in-state over equivalent out-of-state commodity
- Some states restrict RPS eligibility of out-of-state facilities
- Some states encourage in-state facilities as RPS eligible
- Are these provisions legal?

## Solar Provisions

**Solar Provisions**

**RPS-Based Solar Provisions**
- _RPS Solar Set-Asides_: CO (0.4%), DC (0.386%), NV (1%), NJ (2%), PA (0.5%)
- _RPS Solar Extra Credit_: AZ (1.5x in-state, pre-2005), CO (1.25x in-state renewables), DE (3x), MD (2x), MT (2.4x), NV (2.4-2.55x), NM (3x)
**Non-RPS Solar Provisions (compliment RPS)**
- _System rebates_: 17 state & 14 utility programs
- Offering $0.50/Watt to $5+/Watt depending on unit size
- For residential, commercial and/or industrial customers
- _Sales, property or corporate tax credits_: 35 states
- OH, NY and MA offer all three types of tax breaks for solar applications

## Solar Output Verification

- Most solar is located behind the meter
- Power is used before it reaches the grid
- Customer’s net use decreases
- How to verify output if behind the meter?
- New meter dedicated to recording solar output
- Revenue quality meter ~$100
- Automated reporting ~$600
- Performance estimates (e.g. PVWatts)
- Spot audits comparing performance to record
- Satellite remote sensing (explored by NREL)

## Customer-Sited Solar – Who Owns the RECs?

- PURPA QF Contracts
- _FERC_: Avoided cost contracts do not automatically convey RECs; states can decide the question using state law (can’t use PURPA as justification).
- _Existing contracts_: States allocate RECs to power purchaser
- _New contracts_: Most states award RECs to QF unless otherwise stated in contract
- Net Metering and Distributed Generation
- Most states allow customer-generator to retain RECs
- _MN, ND, NV_: net excess RECs go to utility (MN, ND provide compensation)
- _MD, DC_: RECs will be shared between utility and customer

- Source: Holt, Wiser, Bolinger – April 2006

## Solar Best Practices

**Solar Best Practices**

- Customer rebates appear to be the best way to encourage new solar systems (e.g. CA, NJ)
- RPS set-asides (specific solar goal) in combination with penalties may work better than extra credit
- Output verification is needed – who will pay?
- Make customer-sited REC ownership clear in regulations and contracts
- Because solar is usually distributed, states may have a better argument for in-state limitations
- Not on the “interstate” transmission system

## Tweaking RPS Policies...

- Rule Changes Creates Uncertainty
- _Compliance waiver possible_: AZ, HI, MN, MT*, NV (implied), PA, WI
- MT uses clearest language (“short-term waiver” if utility demonstrates undertaking “all reasonable steps to procure renewable energy credits under long-term contract,” or if “additional” renewables will endanger system “reliability”)
- _Reasonable cost threshold_: CA, NY (budgetary limitation)
- _Cost cap_: CO (1% rate increase), NM (1-2% rate increase)
- _Updates to biomass eligibility_: CT, MA
- _PTC passage:_  NY, WI – limitations if PTC is not re-authorized by Congress

##  ...vs. Enforcement of RPS

- Strong Enforcement Provisions
- _Alternative Compliance Payment/Penalty_: CT (5.5¢/kWh), DE (2.5-5¢/kWh), DC (1-2.5¢/kWh; 30¢/kWh - solar), MD (1.5-2¢/kWh), MA (5¢/kWh + inflation), MT (1¢/kWh), NJ (5¢/kWh & solar: 30¢/kWh), PA (5¢/kWh or 200% of solar PV), RI (5¢/kWh + inflation), TX (5¢/kWh)
- _Cannot recover:_ ACP (MT, PA), $ to come into compliance (AZ)
- _PUC penalties possible_: NV, WI (up to $500k), ME (payments into RE fund)

## Encouraging Market Certainty

- Clarify vague eligibility definitions
- Using specific technologies, and/or thresholds
- Choose appropriate safety valves
- Well-defined penalties provide the most certainty
- Not a good idea to reduce any RPS requirement
- Can consider postponing if not enough supply (e.g. RI)
- Compliance waivers increase market uncertainty
- Cost caps create certainty for ratepayers, but requirements might not be met if set too low
- Have strong enforcement penalties
- Without them, the market could lose confidence

## Conclusions -1

_**RECs**_
- RECs provide RPS compliance flexibility
- RECs should not be double-counted
- Need to address REC trading between REC tracking systems
_**In-State vs. Out-of-State**_
- Limiting out-of-state or encouraging in-state facilities could face legal challenges
- Distributed solar may be eligible for in-state limits

## Conclusions - 2

_**Solar**_
- Rebates are proven to encourage solar
- Solar set-asides might work as well, if proper penalties are established and enforced (no data yet)
- Make customer-sited provisions clear
- Measurement/verification issues
- Who pays to verify output?
- State laws regarding REC ownership
_**Implementation**_
- Clarify vague definitions in regulations
- Limit opportunities to tweak rules (market uncertainty)
- Strong enforcement penalties encourage compliance

## Thank you for your attention!

**Thank you for your attention!**

- Karlynn Cory
- Strategic Energy Analysis Center – NREL
- 1617 Cole Blvd., MS 1533
- Golden, CO 80401-3393
- P: (303) 384-7464
- E: Karlynn_cory@nrel.gov