### Determining a State's Contribution to the GCVTC Reg ional

Renewable Energy Goals and to what Extent a State'sRenewable Energy Programs are Helping to Meet its Contributio n

A WRAP AP2 Forum Discussion Document

I. Introduction

A central theme underlying efforts to improve visib ility in the West is that visibility degradation is a regional problem requiring a regio nal solution. At the same time, there is the recognition that the existing air quality regul atory structure contains no regional organization with the authority to implement soluti ons. Instead, this authority rests with the states. Like other aspects of the GCVTC regional ha ze recommendations, the challenge of meeting the renewable energy goals is how to assign responsibility for solving a regional problem to individual states and to how to coordina te their activities to meet the goal in the most efficient way possible.

The issue of developing regional solutions while ma intaining individual state responsibility is present in the Pollution Prevention section of the GCVTC component of EPA's regional haze rule. Section 309(d)(8)(i) of the rule requires sta tes to include in there regional haze state implementation plans their anticipated contribution to the regional renewable energy goals that 10% of regional power needs be met by renewabl e generation by 2005 and that 20% be met by 2015. In addition, Section 309(d)(8)(vi) requires a state to provide descriptions of the programs it is relying on to achieve its con tribution toward the 10/20 goals. The rule, however, does not provide guidance on how to determ ine either a state's contribution or the extent to which programs adopted by a state are hel ping to meet its contribution. As the WRAP forum charged with helping the states design p olicies to achieve the renewable energy goals, the AP2 Forum is an appropriate place to make recommendations on these issues. As a starting point for discussion, this pa per presents some preliminary ideas on how these issues might be addressed.

II. Determining a State's Contribution to the Regio nal Renewable Energy Goals

One potential way to determine a state's contributi on to the overall regional renewable energy goal is to multiply the end-use electricity consumption in the state by the regional renewable energy percentage targets. This method ba ses a state's contribution on its share of overall regional electricity demand. Under this approach, states with greater electricity use (presumably due to a larger population or great er economic activity) would make a larger contribution to the regional goals in terms of the MWh of renewable energy their renewable energy programs induce. However, when mea sured as a percentage of electricity use, all states would be contributing equally.

This approach is based on the following public poli cy rationale. The GCVTC renewable energy goals were recommended to help solve the pro blem of regional visibility degradation which is caused, in part, by conventional power pro duction. If one agrees that electricity production is driven by the demand for electricity, then ultimately it is electricity consumption that causes the problem the renewable e nergy goals are seeking to address. If one also agrees that a fair way to assign a state's responsibility for the solution of a regional problem is based on a state's contribution to the p roblem, then determining a state's contribution to the renewable energy goals based on its share of regional electricity demand is a fair way to apportion the renewable energy goa ls across the states.III. Determining the Extent to which a State's Rene wable Energy Programs are

Helping to Meet its Contribution to the Regional Re newable Energy Goals

Once a state's contribution to the regional goal isdetermined the next step is to ascertain the extent to which the state's renewable energy pr ograms are helping to meet its contribution. It is suggested here that, for the pu rposes of counting a programs contribution toward a state's share of the regional goal, the lo cation of the production or consumption of the renewable energy is not important. Instead, a p olicy should count toward a state's contribution so long as it induces increased renewa ble energy production or consumption anywhere within the region. Several examples will h elp illustrate the concept.

Example 1 : Suppose the cost of producing renewable electrici ty is 2¢/kWh more than the cost of producing conventional electricity. To elim inate this cost differential and spur renewable energy development, State A adopts a 2¢/k Wh renewable energy production tax credit. As a result of the tax credit, a power supp lier invests in a renewable production facility in State A, the power from which is sold a nd consumed in State B. In this case, the renewable energy production would count toward Stat e A's share of the regional renewable energy goal.

Example 2 : Again, suppose that the cost of producing renewab le electricity is 2¢/kWh more than the cost of producing conventional electricity . A power supplier in State B commits to deliver a renewable energy product to customers wil ling to pay a 2¢/kWh premium. To supply the power for the product, the power supplie r invests in a renewable energy production facility in State A. In this case, the r enewable production would count toward State B's share of the regional renewable energy go al.

In each of the above examples a single policy adopt ed by single state was responsible for inducing the renewable energy production. The situa tion is more complicated when multiple polices across multiple states are responsible for the increase in renewable energy production. Consider the following example.

Example 3 : Again, suppose the cost of producing renewable el ectricity is 2¢/kWh more than the cost of producing conventional electricity. Sup pose that state A offers a 1¢/kWh production tax credit that narrows, but does not el iminate, the cost differential. Because of the tax credit, power suppliers in State B are able to offer their customers renewable energy from a State A production facility at a premium of 1¢/kWh rather than 2¢/kWh. In this case, both the State A production tax credit and the will ingness of State B consumers to purchase renewable energy at a premium have combined to increase renewable energy production in the region. Because 50% of the renewable/convention al cost differential is made up by State A and 50% is made up by State B, 50% of the r enewable energy production is counted toward State A's contribution to the region al renewable energy goals and 50% is

counted toward State B's.

III. Conclusions

The ideas presented in this paper are preliminary a nd intended as a starting point for discussion. Alternative approaches for determining a state's contribution to the regional renewable energy goals exist that are not discussed in this paper. For example, rather than using the "bottom up" approach of determining a sta te's contribution based on its share of overall regional power demand, as is suggested here , some within the Forum have suggested that a "top down" approach may be more ap propriate. The idea behind the "top down" approach would be to survey the renewable ene rgy potential in the region, identifywhere the renewable energy production necessary to meet the regional goals could come

from, and then, using available policy tools, desig n a least-cost regional strategy for meeting the goals. A state's progress toward achiev ing the goals would be measured by the extent to which the state was adopting its part of the overall strategy. This type of "top down" approach should also be developed and discuss ed within the Forum.

In addition, in this paper, the method for determin ing the extent to which a state's renewable energy programs are helping to meet its c ontribution to the regional renewable energy goals is illustrated with some very simple e xamples. In reality there are likely to be many factors that will complicate this determinatio n, especially in situations where different policies across different states are acting togethe r to cause the renewable energy development. Moreover, for policies such as disclos ure, that provide consumer information rather than a direct financial incentive, quantifyi ng the effects on renewable energy development may be difficult. In short, much more w ork is needed on this topic.