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MAINE
PUBLIC UTILITIES COMMISSION
REPORT and
RECOMMENDATIONS on the PROMOTION of
RENEWABLE
RESOURCES
Presented
to the
Utilities
and Energy Committee
December
31, 2003
TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................... 5
I.
INTRODUCTION ............................................................................................................... 12
II. OVERVIEW ......................................................................................................................... 14
A. Promotion of Resources Prior to
Electric Restructuring .............................. 14
B. Promotion of Resources Under the
Restructuring Act ................................. 14
1. Current Portfolio
Requirement ..................................................................... 15
2. Voluntary Research and
Development Fund ........................................... 16
C. Policy Goals and Considerations ....................................................................... 17
1. Policy Goals and
Objectives ......................................................................... 17
2. Implementation
Considerations.................................................................... 19
A. Renewable Portfolio
Standard ............................................................................ 21
B. System Benefit Charge.......................................................................................... 23
C. Standard Offer Supply........................................................................................... 25
D. Net
Billing.................................................................................................................. 26
E. Small
Generator Aggregation............................................................................... 28
F. Customer
Rebates................................................................................................... 29
G. Green
Product Demand......................................................................................... 30
IV. FUELS
AND TECHNOLOGIES..................................................................................... 31
A. Biomass..................................................................................................................... 32
B. Municipal Solid Waste............................................................................................ 36
C. Efficient Cogeneration........................................................................................... 38
D. Grid-Scale
Hydroelectric (above 5 MW) ............................................................ 40
E. Small-scale Hydroelectric (below 5MW) .......................................................... 43
F. Grid-Scale Wind........................................................................................................ 45
G. On-Site Wind............................................................................................................. 46
H. Grid-Scale Solar....................................................................................................... 49
I. On-site Solar............................................................................................................. 49
J. Peat............................................................................................................................. 51
K. Landfill Methane Gas.............................................................................................. 52
L. Geothermal................................................................................................................ 53
M. Tidal or Wave............................................................................................................ 54
N. Fuel Cells................................................................................................................... 55
V. OTHER
STATE MECHANISMS..................................................................................... 57
A. Massachusetts......................................................................................................... 57
1. Massachusetts RPS........................................................................................ 57
2. Massachusetts SBC........................................................................................ 58
B. Connecticut.............................................................................................................. 59
1. Connecticut RPS.............................................................................................. 59
2. Connecticut SBC............................................................................................. 60
VI.
RECOMMENDATIONS................................................................................................... 61
A. Maine’s Current
Portfolio Requirement............................................................. 61
B. Policy
Goals and Objectives ................................................................................ 61
C. Resource
Support Mechanisms.......................................................................... 62
1.
Grid-Scale Resources..................................................................................... 62
2.
On-Site Applications........................................................................................ 72
3. Emerging Technologies................................................................................. 76
D.
Legislation ................................................................................................................ 76
Table of Appendices
Entities that Provided Comments and Input to Report ................................................... A
Maine Generating Facilities .................................................................................................... B
Resources Serving Maine’s Customers in 2002 ............................................................... C
Economic Impact of Some Eligible Resources ................................................................. D
States with
Resource Portfolio Standards ......................................................................... E
Constitutional
Issues Associated with In-State Location Requirements ................... F
System
Benefit Charge-Funding for Renewables in Other States .............................. G
Other
State’s Net Billing Terms ............................................................................................. H
Rebates and
Tax Incentives in Other States ........................................................................ I
Government
Purchases of Renewable Generation in Other States ............................. J
Draft
Legislation ........................................................................................................................ K
During its
2003 session, the Legislature enacted Resolve, Relating to Renewable Resources.[1] This Resolve directs the Public Utilities
Commission (“Commission”) to examine mechanisms to ensure an adequate and
reliable supply of electricity for the State and to promote the State’s use of
renewable and indigenous resources. In
particular, the Resolve asks the Commission to examine mechanisms that would
provide adequate support for biomass generation, hydroelectric facilities with
a capacity less than 30 megawatts or less, and fuel cell generation. The Commission was directed to include an
analysis, including cost impacts, of the most effective forms of the following
mechanisms:
to supply standard offer service.
Additionally, the Resolve directs the Commission to examine mechanisms used in other states and their adaptability for use in Maine, to consult with entities with expertise or substantial interest in the promotion of renewable resources, and to present any consensus positions or alternatives if consensus cannot be reached. The Resolve requires that the Commission submit its report and recommendations to the Joint Standing Committee on Utilities and Energy by December 31, 2003.
The report describes current legislative requirements for Maine’s RPS and summarizes the resources currently used to provide electricity to Maine’s customers.
The report presents the policy objectives that may be obtained through use of a resource support mechanisms: environmental benefit, resource diversity, resource security, system reliability, reliability of supply, and economic development. The Commission urges the Legislature to establish the policy objectives in order to guide the choice of what, if any, resource support mechanism should be adopted.
II. CONSENSUS
The
Commission hosted numerous meetings to gather information and recommendations,
released a draft report, sought written comment from interested entities, held
a meeting to further discuss the matters raised in its draft report, and
assessed the possibility of achieving consensus on appropriate resource support
mechanisms. The Commission has
concluded that, due to differing interests, the variety of options, and the
complexity of the issues, no broad based consensus could be reached. Accordingly, this report presents several
alternative mechanisms that could satisfy a range of legislative policy goals
and objectives.
III. RESOURCE SUPPORT MECHANISMS
The
report reviews the attributes of a variety of resource support mechanisms,
including the three mechanisms specified in the Resolve. The mechanisms explored in the report are:
Renewable Portfolio Standard (RPS): The report
discusses the relationship of an RPS to the competitive market, the effect of
market power, the difficulty of ensuring a pre-determined cost, ways to cap
cost exposure, the ability to ensure specified quantities of each resource,
flexibility, effectiveness with respect to grid-scale and on‑site
facilities, difficulty of limiting to in-state resources, and administration.
System Benefit Charge (SBC): The report discusses the
ability to ensure a pre-determined cost, the difficulty of ensuring
pre-determined quantities of each resource, flexibility, means of determining
funds distribution, effectiveness with respect to grid-scale and on-site
facilities, ability to limit to in-state resources, contribution differences
among customer groups, and administration.
Standard Offer Supply: The report describes three methods by which
standard offer purchases can be used as a resource support mechanism and their effect on standard offer prices,
fairness, market impact, and administration.
Net Billing: The report discusses net billing and methods
to expand the scope of net billing.
Small Generator Aggregation: The report discusses the
difficulties faced by very small generators in reaching the market and
describes ways of removing these difficulties.
Customer Rebates: The report describes buydown and tax credit
rebate mechanisms used in some states to support targeted resources.
Green Product Demand: The report discusses credits for green
product purchases and a “green standard offer.”
IV. FUELS AND TECHNOLOGIES
The report
describes the barriers, effective support mechanisms, potential goals, current
in-state capacity, and potential support cost for the following fuels: biomass, municipal solid waste, efficient
cogeneration, grid-scale hydroelectric, small-scale hydroelectric, grid-scale
wind, on-site wind, grid-scale solar, on-site solar, peat, landfill gas,
geothermal, tidal, and fuel cells. A
table at the beginning of section IV summarizes the issues associated with each
fuel.
V. OTHER STATE MECHANISMS
The report
describes resource support mechanisms used in other states. It focuses on Massachusetts and Connecticut
because they are New England states with comprehensive renewable programs that
include both an RPS and an SBC. A
variety of appendices summarize support mechanisms used in other states.
VI. RECOMMENDATIONS
The Commission
emphasizes that this report makes no recommendations as to fundamental public
policies regarding the promotion or subsidization of particular categories of
generation resources. The Commission
believes that the decision to direct the State’s resources to achieve any
particular policy objective (e.g., a cleaner environment or a greater degree of
energy self-sufficiency) is an essentially legislative, as opposed to Commission,
function. Thus, this report focuses on how
each of several possible policy objectives could be achieved, but
does not offer advice on assessments concerning whether any of those
objectives should take precedence over any other demands on Maine citizens’
resources.
o
Maine’s Current
Portfolio Requirement The
Commission recommends that the Legislature repeal Maine’s portfolio requirement
in its current form.
o
Policy Goals and Objectives The Commission recommends that the Legislature assess
and establish electric generating resource policy goals and objectives and
determine whether resource support mechanisms should be established, the
generating resources that should be promoted to serve public policy goals, and
the amount of public funding that should be devoted to support generating
resources.
o
Resource Support Mechanisms The Commission recommends either an RPS or an SBC if
the Legislature decides to adopt a mechanism funded by electricity consumers to
support grid-scale facilities. The
Commission recommends against the use of purchases to supply standard offer
service as a mechanism to support generating resources.
o Recommendations for
Grid-Scale Resources
Renewable
Portfolio Standard
Cost capping mechanism: The Commission recommends that an RPS be
adopted only if it includes an alternative compliance mechanism as a cap on
consumer cost exposure.
Regional deliverability: The Commission recommends that electricity used to
satisfy a Maine RPS be delivered to the New England or Maritimes control areas.
Credit trading: The Commission recommends that a Maine
RPS allow for renewable credit trading if a reliable system is in existence.
Exclusion of certain resources: The
Commission recommends that cogeneration, hydroelectric facilities above 5 MW,
and facilities with qualifying facility contracts be excluded from any newly
designed RPS because public assistance is not necessary to support their
development and operation.
Resource tiers: The Commission recommends that resource
tiers be included in an RPS if the policy goals include promotion of particular
categories of resources.
Biomass: The Commission recommends that a separate
biomass tier be included in an RPS if the Legislature determines that
electricity consumer funded support should be directed to Maine’s biomass
industry. A reasonable portfolio
percentage for this purpose would be 10% with an alternative compliance
mechanism set at $0.015 per kWh.[2] The mechanism should be reviewed after two
years to determine whether it is satisfying its public policy goals at an
acceptable cost to consumers.
Municipal Solid Waste (MSW): The Commission recommends that municipal solid waste facilities be included in the biomass tier if the Legislature determines that electricity consumer funded support should be directed to these facilities.
Other Resources: The
Commission recommends that an “other renewables” tier be adopted if the
Legislature determines that electricity consumer funded support should be
provided to developing resources and smaller hydroelectric facilities. The tier would include wind, solar, tidal,
wave, geothermal, small hydroelectric, landfill gas, and fuel cells. A reasonable portfolio percentage for this
purpose would start at 2.0% in 2005 and grow at a half percent a year until it
reaches 4.0% in 2009 with an alternative compliance mechanism set at $0.025 per
kWh.[3]
System
Benefit Charge
Resource
categories: The Commission recommends that a separate biomass
category be included as part of an SBC if the Legislature determines that
electricity ratepayer funded support should be directed to Maine’s biomass
industry. The Commission recommends that municipal solid waste facilities be
included in the biomass category if the Legislature determines that electricity
ratepayer funded support should be directed to these facilities. The Commission recommends that an “other
renewables” category be included as part of an SBC if the Legislature
determines that electricity ratepayer funded support should be directed to
developing resources and small hydroelectric facilities. The category would include wind, solar,
tidal, wave, geothermal, small hydroelectric, landfill gas, and fuel cells.
Maine facilities: The Commission recommends that the
distribution of funds collected through an SBC be restricted to electric
generating facilities located within Maine.
Funding levels:
Biomass, MSW, Other Resources: The Commission recommends as a reasonable
SBC surcharge for the biomass (and MSW) category $0.001 (1.0 mill) per kWh on all kilowatt-hour sales in the State
to produce an annual funding level in the range of $11 million and for the
“other renewables” category $0.0007
(0.7 mills) per kWh on all kilowatt-hour sales in the State to produce an annual
funding level in the range of $7.5 million if the Legislature determines that
electricity ratepayer funding should be directed at these categories of
resources.
Distribution of funds:
Biomass,
MSW: The Commission recommends that funds to facilities in
the biomass category (as well as MSW if included in the category) be
distributed based on a pre-established amount per kilowatt-hour that varies
with actual market prices as determined through periodic Commission proceedings
if the legislative goal is to spread available assistance among facilities.
Other Resources: The Commission recommends that funds to
facilities in the “other resources” category be distributed on the basis of
competitive bids in which the lower bids are funded up to the total funding
amount if the legislative goal is to maximize energy from the qualifying
resources.
Standard Offer Supply
Fairness: The Commission recommends that the Legislature not
adopt any resource support mechanism that uses only standard offer load to
support renewable resources as it would be unfair to standard offer customers
and other mechanisms exist to more fairly apportion the burden among Maine’s
electricity consumers.
Preferred Design: In the event that the Legislature decides to use
standard offer load as a resource support mechanism, the Commission recommends
that an RPS applicable only to standard offer providers be adopted and that
cost exposure be capped through an alternative compliance mechanism.
Green Product Demand
Green standard offer: The
Commission recommends that a green standard offer not be adopted at this time.
Green retail credits: The Commission recommends that the entity administering an SBC be authorized to adopt a program in which customers that buy a green product are exempted from the SBC up to a specified cap.
o Recommendations for
On-Site Applications
The Commission recommends against the expansion of net
billing as a means to provide public support for on-site renewable resources.
The Commission recommends the adoption of a small generator aggregation mechanism to provide wholesale market access to small generators.
The Commission recommends that a Clean Energy Fund program including customer rebates, grants and other initiatives, be established if the Legislature decides that certain on-site applications should be supported through a surcharge on utility rates.
Net Billing
Arbitrary Subsidy: The Commission recommends against the
expansion of net billing at this time either through an increase to the net
billing kW limit or an expansion of the applicable load because net billing
represents an arbitrarily determined subsidy and other mechanisms exist that do
not involve subsidies or that can better target subsidies. The Commission recommends that the expansion
of net billing be reconsidered if other support mechanisms are shown to be
ineffective.
Net billing expansion: If the Legislature determines that net
billing should be expanded to support specified on-site resources, the
Commission recommends that the kW limit be increased to 1 MW, that applicable
load for net billing not be expanded by removing the proximity requirement or
by allowing the load of associates to be netted against generation, and that a
cap on net billing generation of 0.5% of each utility’s peak load be
instituted.
Small Generator Aggregation
The
Commission recommends that a mechanism be adopted that requires standard offer
providers in the ISO-NE portions of Maine to purchase the output of generators
with a capacity of 5 MW or less at applicable clearing prices with utilities administering
the process through settlement procedures.
Customer Rebates and Other Initiatives
The Commission recommends that a Clean Energy Fund be
established if the Legislature determines that small (1 MW or less) on-site
applications of photovoltaics, wind power and fuel cells should be promoted
through public assistance. The fund would initially be funded by a 0.1 mills
per kWh surcharge on T&D rates to produce an annual funding level of $1.1 million, and would be administered as
part of the Commission’s energy efficiency program. The funding level would be
reviewed after two years.
o Recommendations for
Emerging Technologies
Clean Energy Fund: The Commission recommends
that the funding for renewable resource research and development occur through
mandatory surcharges on utility rates and administered as part of a Clean
Energy Fund if the Legislature determines that public assistance should be
directed to emerging renewable technologies.
VII. DRAFT LEGISLATION
Draft
legislation to implement the Commission’s recommendations as discussed in this
section is contained in Appendix K to this report.
During its
2003 session, the Legislature enacted Resolve, Relating to Renewable Resources.[4] This Resolve directs the Public Utilities
Commission (“Commission”) to examine mechanisms to ensure an adequate and
reliable supply of electricity for the State and to promote the State’s use of
renewable and indigenous resources. In
particular, the Resolve asks the Commission to examine mechanisms that would
provide adequate support for biomass generation, hydroelectric facilities with
a capacity less than 30 megawatts or less, and fuel cell generation. The Commission was directed to include an
analysis, including cost impacts, of the most effective forms of the following
mechanisms:
to supply standard offer service.
Additionally, the Resolve directs the Commission to examine mechanisms used in other states and their adaptability for use in Maine, to consult with entities with expertise or substantial interest in the promotion of renewable resources, and to present any consensus positions or alternatives if consensus cannot be reached. The Resolve requires that the Commission submit its report and recommendations to the Joint Standing Committee on Utilities and Energy by December 31, 2003.
To provide the Legislature with the information and background necessary to fully examine its policies on electric generation resources, this report will discuss a number of resource support mechanisms in addition to the three mechanisms noted above. The report will address mechanisms and considerations related to both larger-scale generation facilities and small on-site units. Many of the issues associated with distributed generation (DG) that have been raised before the Legislature in recent years will be discussed in this report.
As
part of its efforts to gather background information for this report and to
solicit the views of interested persons, the Commission participated in
numerous meetings and discussions with entities having expertise or interest in
issues regarding the promotion of renewable and indigenous power,[5]
and conducted research on mechanisms employed in other states to support or
promote renewable power. The Commission
released a draft report and sought written comment from all interested
entities. The Commission subsequently hosted a meeting to further discuss the
matters raised in its draft report and to assess the possibility of achieving
consensus on appropriate resource support mechanisms for use in Maine. Due to differing interests, a variety of
options, and the complexity of the issues, the Commission’s discussions and
meetings revealed that no broad based consensus could be reached for inclusion
in this report. Accordingly, this
report presents several alternative mechanisms that could satisfy legislative
policy goals and objectives.
This
report is structured as follows:
·
Section II –
Overview: Discussion of past and
current mechanisms used in Maine to promote renewable and indigenous resources,
the impact of those mechanisms, and the various policies and goals that should
be considered in adopting resource promotion legislation.
·
Section III –
Resource Support Mechanisms: General
review of the attributes of a variety of mechanisms that can be used to support
and promote renewable and indigenous resources, including the three mechanisms
specified in the Resolve.
·
Section IV - Fuels
and Technologies: Discussion of
individual renewable and indigenous fuels and technologies, current barriers to
their development and use, and appropriate mechanisms to support the fuel or
technology.
·
Section V – Other
State Mechanisms: Description of
mechanisms used to support renewable resources in other states.
·
Section VI –
Recommendations: Discussion of
viable approaches to the promotion of renewable and indigenous resources given
legislatively specified policies and goals.
Prior to the restructuring of Maine’s
electric industry,[6] the State,
through its Public Utilities Commission, had substantial control and influence
over the resources used to supply electricity to Maine’s public. This occurred through the Commission’s
oversight of vertically integrated electric utilities that had the obligation
to provide electricity through a least cost mix of generating (as well as
demand-side) resources.
Beginning in the early 1980s, the
Commission’s oversight of utility resource acquisition was guided by several
legislative directives that promoted resource diversity and the development of
renewable and indigenous generating resources.[7] By the time the industry was restructured,
these policies resulted in an overall resource mix serving Maine’s public that
consisted of almost 50% renewable power. [8]
This result, however, has come at a
substantial cost. Due to mis‑estimates
of the future cost of electricity generation, policies to promote the
development of renewable resources (as well as cogeneration) have contributed
to high electricity rates in this State and have resulted in substantial
ongoing “stranded costs.” These stranded
costs currently account for approximately 30% of transmission and distribution
utility rates and will continue in rates for years to come.
The State’s ability to impact the mix of
generating resources through the oversight of utility planning and acquisition
came to an end with the implementation of the Restructuring Act. By opening the provision of generation
supply to competition and requiring the State’s utilities to exit the
generation business, the Restructuring Act rendered the traditional mechanisms
to influence the State’s generation mix inapplicable.
Recognizing this result, the Legislature
included a generation resource policy statement and two implementing provisions
in the Restructuring Act. The
Legislature stated its policy as follows:
In order to ensure an adequate and reliable
supply of electricity for Maine’s
residents and
to encourage the use of
renewable, efficient
and indigenous resources, it is
the policy of this
State to encourage the generation
of electricity
from renewable and efficient
sources and to
diversify electricity production
on which the
residents of this State rely….[9]
The Act’s primary
implementing provision is the eligible resource portfolio requirement.[10] The other provision is a renewable resource
research and development fund supported by voluntary ratepayer contributions.[11]
The current portfolio requirement
mandates that each competitive electricity supplier meet at least 30% of its
retail load in Maine from “eligible resources.” Eligible resources are defined in statute and consist of
resources typically considered
renewable, as well as
“efficient” cogeneration resources that may be fueled by fossil fuels. An eligible resource is not required to be
located in the State, but its energy must be delivered to the New England grid
and designated as serving load in Maine.
The
portfolio requirement has ensured that at least 30% of Maine’s electric load
has come from some combination of the resources designated in the
Restructuring Act. The following graph displays the resource
mix used to serve Maine’s retail load during 2002.[12]
The
experience to date, however, reveals that the current portfolio requirement is
not satisfying the policy of promoting the generation of electricity from
renewable and efficient resources that would not otherwise occur. The primary reason is that the “supply”
represented by the list of eligible resources is significantly greater than the
“demand” created by the 30% requirement, and retail suppliers are able to
satisfy the portfolio requirement through facilities that can supply power at
or near the prevailing market price.
The consequence is that Maine’s current portfolio requirement produces
no (or very little) financial premium over market for eligible facilities.
Because the current portfolio
requirement has no significant impact on prices paid to generators, it appears
to have little impact on Maine’s retail rates.
The requirement does, however, cause an administrative burden to retail
suppliers and may represent a barrier for other suppliers to enter Maine’s
retail market.
2. Voluntary Research and Development
Fund
As required by the
Restructuring Act, a program is in place
whereby Maine’s electricity consumers can make voluntary contributions through
their electric bills to fund renewable resource research and development
(R&D) and demonstration community projects using renewable energy
technologies. The Act specifies that
funds for renewable resource R&D be distributed to the University of Maine
System, the Maine Maritime Academy or the Maine Technical College System, and
that funds for demonstration community projects using renewable energy
technologies be distributed to Maine-based nonprofit organizations. The State Planning Office (SPO) has the
statutory responsibility to administer the program.
To date, ratepayers throughout
the State have contributed in excess of $100,000 to the R&D fund. The SPO has contracted with the Maine
Technology Institute (MTI) for the distribution of the funds to take advantage
of MTI’s existing grant process infrastructure and to leverage additional funds
that may be available to grantees. MTI
has recently awarded funds for a demonstration project intended to accelerate
deployment of renewable energy systems using hydrogen generators, storage, and
fuel cells.
C. Policy Goals and Considerations
1. Policy
Goals and Objectives
Mechanisms used to promote
particular electric generation resources or technologies involve, for the most
part, public support through what are essentially ratepayer or taxpayer
subsidies. Most resource support
mechanisms involve increasing electricity prices to the general public to
provide financial benefits to private entities whose activities are deemed to
serve the public good. Accordingly,
legislative policy goals and objectives need to be considered and established
when determining whether to adopt mechanisms to support certain categories of
generating resources. In addition, the
Legislature should consider the means by which policy goals and objectives can
be accomplished at the lowest cost to Maine’s consumers. The following are potential policy goals and
objectives that the Legislature may wish to consider:
·
Environmental
Benefit: Renewable resources are generally considered less
environmentally harmful relative to fossil fuel resources. In particular, electricity generation in the
United States is considered one of the largest contributor to global climate
change and generation using renewable resources is viewed by some as critical
in meeting energy needs without exacerbating the climate change problem[13]. However, most renewable resources do have
some environmental impacts and, in some cases, those impacts can be greater
than for other forms of generation.[14] There is currently an active debate
concerning the relative environmental benefit and harm of various categories of
resources.
·
Resource
Diversity: Renewable resources can provide greater diversity in
the region’s energy mix. This tends to
reduce over-reliance on dominant fuel sources (natural gas and oil) and may
help to stabilize electricity prices to some degree in that the costs of
renewable resources generally do not vary with oil and gas prices. However, the addition of renewable resources
to the regional mix is unlikely to affect the cost of electricity unless it
changes the system’s marginal units. It
is the cost of the marginal units[15]
that determines clearing prices and these prices are the primary determinant of
the market cost of electricity. Based
on the current mix of resources in the region, it is unlikely that even an
increase of several hundred megawatts of renewable resources would alter the
marginal units or have a significant impact on market prices. Thus, the addition of renewable generation
is not likely to moderate the impact on ratepayers of increases in fossil fuel
costs, at least for the foreseeable future.
·
Resource Security: Renewable
resources reduce reliance on foreign sources of fuels and are less vulnerable
to international crises and terrorism.
·
System Reliability:
Renewable resources tend to be smaller units that are
distributed geographically throughout the system. As such, they can provide enhanced voltage support, reduced line
losses, and aid the process of restarting the system after major
disruptions. In the past, some
renewable facilities were specifically located at weak points in the grid to
increase system reliability. However,
if located in parts of the system that were not designed for electricity
transmission (as opposed to distribution), or if the grid must be upgraded to
adjust harmonics, voltage fluctuations, or reactive power to maintain power
quality in the vicinity, new generating facilities can increase system
costs. Moreover, the intermittent
nature of some renewable sources reduces their system reliability benefit.
·
Reliability of
Supply: The development of additional renewable resources in the State
would contribute to a reliable supply of electricity. However, Maine currently has a substantial over supply of
generation sources and a high percentage of renewable resources relative to the
national average.
·
Economic
Development: Maine historically has had a relatively large
number of renewable resource facilities spread throughout the State. These resources have had an economic
development impact in their communities through the creation of jobs and an
enhanced tax base.[16] Additionally, some of these facilities have
provided a societal benefit by providing a means for the disposal of wood and
municipal solid waste. However, the
promotion of facilities in Maine that would not otherwise run or be constructed
could have a negative impact on other facilities in the State that might, as a
result, be forced to operate in fewer hours or to close down. Additionally, higher electricity costs that
result from the promotion of renewable resources have an overall negative
impact on the State’s economy, and the benefit in terms of jobs and local taxes
should be viewed in light of the amount of subsidy necessary to maintain the
operation of existing facilities.
2. Implementation Considerations
In addition to overall policy
goals, there are a variety of considerations that should be evaluated in
determining which resources or technologies receive support through public
subsidies and the mechanisms for providing that support. The following are the primary
considerations:
·
Cost:
Resource support mechanisms,
as mentioned above, are essentially public subsidies and, as such, the
potential cost of support mechanisms should be carefully examined.[17] Thus, the Legislature should consider the
cost to accomplish its policy goals, as well as the impact of increased
electricity costs on Maine’s public.
The Legislature should also consider whether the subsidy is likely to be
a temporary mechanism to aid in the development of a resource or permanent in
that the resource is likely to always need financial assistance.
·
Commercial
Viability: The primary purpose of the resource support
mechanisms that are the subject of this report should be to provide assistance
to resources or technologies that are not commercially viable or that will not
operate without such assistance. A
resource or technology that can cover its costs through the market price of
electricity or that will operate for other reasons in the absence of public
assistance does not require a resource support mechanism to promote its
continued operation.
·
Ratepayer Payback: Providing ratepayer
support for renewable generators raises the question of whether there should be
a mechanism for ratepayers to share the benefits should those generators not
only become commercially viable but very profitable. This could occur if there were substantial and sustained
increases in fossil fuel prices. As
discussed above, the market price of electricity is primarily determined by the
cost of the marginal units in the region.
As such, a sustained increase in the cost of fossil fuel would result in
increased revenue (and perhaps significant profits) for renewable generators
(rather than renewable generation moderating the impact of fossil fuel
increases on ratepayers). Because
renewable generators would have received support from ratepayers during lower
fossil fuel cost periods, there is a policy question of whether some of the
benefits that renewable generators receive during periods of higher fossil fuel
cost should flow back to ratepayers.
The argument for sharing benefits becomes stronger to the extent support
for renewable generation is premised on the notion that resource diversity will
provide insurance against high fossil fuel prices.[18]
·
Prior
Contracts: Generating facilities that have pre-existing
qualifying facility contracts with utilities will continue to operate
throughout the remainder of the contract term regardless of the price they
receive. Consequently, assistance
through a resource support mechanism is not necessary to ensure their continued
operation.
·
Existing/New
Resources: Resource support mechanisms can be used to maintain
existing facilities within the State or to stimulate the development of new
facilities.
·
Established/Emerging Technologies: Resource
support mechanisms can be used to assist established technologies that are not
yet commercially viable or to promote the development of emerging technologies
through research and development with the eventual goal that the technologies
will become commercially viable.
Funding through taxes or utility rates: There are a variety of mechanisms
that can be used to support generation resources and technologies. As mentioned above, such mechanisms can be
funded through taxes or electricity prices.[19] The Commission’s general position, as stated
to the Legislature on previous occasions, is that the promotion of basic public
policies such as environmental improvement or economic development should be
funded through general tax revenues rather than electricity rates. The Commission recognizes, however, that
electricity rates are a common funding mechanism for the support of renewable
resources and technologies and are often considered a second best alternative
to the use of tax funds. This report
focuses on electric consumer funding mechanisms because the Commission’s
expertise lies in the regulation of utility rates and in the development of a
competitive retail market for electricity.
This section of the report reviews a variety of resource support mechanisms and their respective attributes. In considering the mechanisms that might be appropriate to serve legislatively established policy goals, it is useful to distinguish among the following categories of resources and technologies:
·
Grid-Scale: Facilities
that are designed primarily to provide power to the electric grid for sale
through the wholesale market or to unaffiliated retail customers.
·
On-Site: Facilities
that are designed to provide electricity for on-site use.
·
Emerging
Technologies: Technologies that are in the development stage and
are relatively far from economic applications.
As discussed below,
appropriate mechanisms to support particular resources or technologies will
depend on the categories to which they belong.
A. Renewable Portfolio Standard
A renewable portfolio standard (RPS)[20]
is a commonly used mechanism to promote the use of renewable resources. The mechanism works by requiring retail
electricity suppliers to meet a specified percentage of their load within a
state through designated categories of resources. An RPS can be an effective resource support mechanism if designed
properly to accomplish legislative policy goals. By mandating that a specified percentage of a state’s resource
mix comes from resources that are presumably above market cost, the mechanism
results in an increase in the retail cost of electricity supply for consumers.[21]
The following are the primary attributes of
an RPS:
·
Market mechanism: An RPS uses the competitive electricity market to
accomplish legislative goals (i.e. specified percentages of designated
categories of resources in a state’s energy mix) in a manner that tends to
minimize costs to electricity consumers.
The mechanism is intended to cause generators to compete to provide
designated resources at the lowest cost.
Lower cost facilities would receive the benefits of the RPS, while
higher cost facilities may receive no benefit.
·
Market power: The cost of
an RPS can be inflated by the exercise of market power if ownership or control
over facilities within a designated category is concentrated. This would limit effective competition
within the category, potentially resulting in prices rising above costs. The possibility of market power would make
it extremely difficult to effectively design an RPS to support all of the existing
capacity within a particular resource (e.g., all of Maine’s existing biomass
capacity). If an RPS percentage is
chosen so that all facilities within a specified category must operate, there
would be little or no competitive price discipline as the RPS mechanism
contemplates in that all facility owners would know that their output must be
purchased.[22]
·
Cost unknown: The
cost to electricity consumers of an RPS cannot be known with any
certainty in advance. A reasonable
estimate of the cost might be obtainable after the fact; this would have a
greater likelihood if the NE-GIS[23]
produces a transparent market for eligible Maine certificates.
·
Cost can be
capped: The cost exposure for electricity consumers can be
capped by including an alternative compliance mechanism. Such a mechanism would provide competitive
suppliers with the option of paying a pre-specified amount per megawatt-hour
into a fund in lieu of complying with the RPS.
The fund would then be used to support the same policy goals as the
RPS. Consumer cost exposure would be
effectively capped at the alternative compliance amount.
·
Ensures specified
quantities: An RPS, by its design, will ensure that a
legislatively specified amount of designated categories of resources will be
included in a state’s energy mix.[24]
·
Flexibility: An
RPS can be structured to promote several categories of resources through the
use of “tiers.” For example, given
policy goals of maintaining at least a portion of existing biomass capacity and
encouraging new wind facilities, an RPS can be structured with two tiers—one
requiring that x% of load be met with existing biomass and another requiring
that y% of load be met with wind power.
·
Grid-scale facilities: An RPS is
effective primarily in supporting grid-scale facilities. The mechanism is not as effective in
supporting resources, such as photovoltaic and wind installations, that are
designed to meet a customer’s on-site needs.
·
Maine
facilities: Any attempt to limit RPS eligibility to
facilities located in Maine or to establish reciprocity requirements would
raise serious constitutional questions, because the Commerce Clause of the U.S.
Constitution generally prohibits states from enacting laws that discriminate
against interstate commerce or amount to economic protectionism.[25] In addition, use of funds from an RPS
alternative compliance mechanism to support only in-state facilities would
raise similar constitutional issues.
·
Administration: An
RPS requires relatively little public effort to administer. The Commission could continue to administer
a State portfolio requirement without additional resources. However, if a capping mechanism is included,
it is possible (depending on market conditions) that a significant number of
suppliers may opt for the alternative of paying into a fund. If this turns out to be the case, there may
be a substantial administrative burden related to distributing funds consistent
with legislative policies that would require additional resources for whatever
entity is responsible for that task.
B. System
Benefit Charge
A system benefit charge (SBC) is also a
commonly used mechanism to support renewable resources. The mechanism is a surcharge on the bills of
transmission and distribution (T&D) utility customers. The funds collected are then distributed to
support generation resources according to previously established criteria.[26] An SBC can be an effective mechanism to
support designated categories of resources to accomplish legislative policy
goals. By its nature, an SBC is a surcharge
that results in a direct increase in T&D utility rates for electricity
consumers.[27]
The following are the primary attributes of
an SBC:
·
Cost known: The
surcharge is established in advance.
Accordingly, the cost to ratepayers is known with certainty.
·
Quantities
unknown: The amount of renewable generation that will
result from the mechanism cannot be known in advance, but can be known after
the fact.
·
Flexibility: An
SBC can be structured to accomplish a variety of policy goals. For example, a policy goal of promoting
two categories of resources can be accomplished by segregating the funds with
specified amounts dedicated to each category.
The mechanism can also be designed to maximize the amount of energy
generated from a particular category (e.g. through a bidding process) or to
provide support more broadly throughout the category (e.g. specifying an amount
per kilowatt-hour that all generators in the category receive).
·
Fund
distribution: Under an SBC, it can be difficult to determine the correct
amount of funding that individual generators should receive. The correct amount of funding depends on
individual generator costs and on prevailing market prices. If the funding amount is too high, the
generator would receive more public assistance than necessary. If the funding amount is too low, the
assistance will not result in the commercial viability of the resource as
intended. A bidding process for limited
funding would help address proper fund distribution.
·
Facilities/technologies: An
SBC can be effective in supporting grid-scale facilities, on-site applications,
and emerging technologies.
·
Maine
facilities: An SBC can be designed so that only Maine facilities
benefit through the receipt of funds.[28]
·
Consumer
contribution: Because an SBC is a surcharge on tariff
T&D rates, customers that are on discounted rates or special rate contracts
would not contribute to the State’s resource promotion policies to the same
extent as customers who take service under tariff rates. In contrast, the cost of an RPS flows
through to consumers’ competitive supply prices and will thus tend to be paid
by all electricity consumers.
·
Administration: An
SBC requires significant resources to administer. An SBC involves the distribution of funds to entities according
to specified legislative policies and specific administrative rules. The required resources would depend on the
size of the fund. The Commission could
administer an SBC fund as it does the energy efficiency program, but this would
likely require significant additional resources (including additional
personnel).
C. Standard
Offer Supply
The Resolve asks the Commission to examine
the use of purchases from Maine’s renewable generators to serve portions of the
standard offer load as a potential support mechanism. There are three basic methods by which purchases to supply
standard offer can be used as a resource support mechanism:
All of these methods are feasible and could
be designed to effectively support renewable resources. However, it is possible that the standard
offer may terminate in the future if efficient competitive retail markets
develop in all sectors. If this occurs,
standard offer could no longer be a vehicle to support renewable resources.
Use of the standard offer as a resource support mechanism is essentially a variation of an RPS and thus shares its basic features (discussed above). In addition, use of the standard offer has the following attributes:
·
Standard Offer
Prices: The mechanism would raise the prices of standard
offer service in that it is presumed that the cost of resources in the
designated categories would be above market cost.
·
Fairness: Only
standard offer customers (who tend to be residential and small business
customers) would pay the cost of the State policy of supporting renewable
generation. Customers that take service
from competitive suppliers (who tend to be larger businesses and industrial
customers) would not contribute to the cost of the policy. Such a situation raises questions of
fairness.
·
Market impact: The
mechanism would artificially raise standard offer prices and tend to increase
migration into the retail competitive market (assuming the existence of retail
suppliers in the applicable sector). If
such migration occurs, there will be increasingly less support for the
designated renewable resources as electricity consumers leave the standard
offer.
·
Administration: The
first two methods would likely require some additional resources for the
Commission to administer.
D. Net Billing
Net billing is a commonly used metering and
billing practice applicable to consumers that use renewable generation to serve
their own electricity needs. As such,
it is only applicable to on-site generation applications (rather than
grid-scale facilities).
Under a net billing arrangement, a customer’s
generation over a month is netted against the customer’s usage. The customer is billed each month only for
the difference between usage and generation.
If generation exceeds usage, the customer receives a credit that can be
used to offset future usage. In effect,
a net billing customer is compensated for its excess generation at the retail
price of electricity, which includes delivery.
Because the retail price of electricity is substantially greater than
the value of generation supply, net billing represents a subsidy in the form of
lost T&D revenues. Thus, the
benefit to net billing customers is funded by T&D utilities and their
ratepayers.
Net billing is available in 38 states and has
been available in Maine (through Commission rule) since the mid-1980s. The purpose of net billing has been to
promote the use of small renewable resources for an individual customer’s own
use. In Maine, the generation resource
must be 100 kW or less and in the proximity of the load to qualify for net
billing.[29] Currently there are approximately 65 net
billing customers in Maine.[30] The majority are solar installations of 4 kW
or less; there are also wind generators that are typically 10 kW facilities and
hydroelectric facilities between 10 kW and 100 kW. The current cost of net billing to T&D utilities and their
ratepayers is relatively modest, estimated at less than $50,000 per year.[31]
Net billing is an extremely advantageous
program for customers that have renewable generation under the 100 kW
breakpoint and enough load to make the net billing offset worthwhile. It is also relatively easy to administer
through Commission oversight of T&D utilities and the standard offer, and does
not represent a substantial burden for T&D utilities.
During the past legislative sessions, the
issue of expanding the net billing program has been raised. There are two basic means to expand the
program:
1) Increase the net billing limit to (for example) 1 MW;
and
2) Expand the load that can be offset by eliminating
the proximity requirement and including loads of
affiliates or associates.
The expansion of the net
billing program would increase the cost to utilities and ratepayers. If it were assumed that an additional 10
customers with generating facilities that averaged 500 kW began to net bill,
the cost in additional lost revenues to T&D utilities would likely be no
more than $600,000 per year. However,
the number of additional net billing customers over time cannot be known. To address concerns over this uncertainty,
the cost of expanding net billing can be effectively capped by limiting the
number of customers or the total customer load that can have net billing
arrangements.[32]
E. Small Generator Aggregation
Small generators, by virtue of their size,
confront unique difficulties in accessing the competitive wholesale
market. These difficulties are faced by
both renewable and non-renewable generators that are in the 5 MW or less range.[33] The difficulties arise because electricity
marketers are generally unwilling to purchase the output from small generators
due to the significant administrative costs associated with contracting with a
number of small facilities that provide little volume. Additionally, the cost for small generators
to sell directly into the ISO-NE market is economically prohibitive.
Several years ago, there appeared to be some
marketers willing to contract with small renewable generators and some
possibility that a viable market for small renewable generation would be
sustained. Currently, however, there
appears to be little, if any, sustainable market for small generators.
There are several mechanisms that could
provide reasonable market access to small generators. The mechanisms could be made applicable only to small renewable
generation or to any other designated category of distributed generation. These mechanisms are designed only to allow
generators to receive market prices for their output. As such, they would have only a minimal (if any) ratepayer subsidy
(unlike the other mechanisms discussed in this section of the report).
Several alternative mechanisms to address
this matter have been discussed before the Legislature. The alternatives are:
·
Require T&D
utilities to purchase the output of small generators, sell the output to the
ISO-NE spot market, and reimburse the generator at the clearing price the
utility receives for the output;[34]
·
Require standard offer
providers to purchase the output of small generators;
·
Seek a third party
(presumably an existing marketer) or create an entity to perform aggregation
purchase and sale services for small generators; or
·
Require the Commission
to conduct a bid process to sell the small generator output to an open market
competitor.
As a result of recent ISO-NE rule changes
implementing standard market design, T&D utilities are no longer in the
position to aggregate small generators and re-sell their output.[35] However, a workable means exists whereby the
standard offer provider would be required to purchase the output of small
generators at the applicable clearing prices using utility administered
settlement processes. The standard
offer provider would be financially neutral to the transaction and would have
little or no administrative burden. The
utilities would have a relatively small additional administrative burden.
Use of the standard offer load in this manner
is a viable aggregation method to ensure a market for small generation in the
ISO-NE area. Due to differing market
rules (primarily the lack of a spot market), it is unclear at this point
whether a similar mechanism could work in the northern Maine market. The potential for success with the other
alternatives listed above is much more in question. The burden of administering individual contracts for small
volumes of generation would make it unlikely that a market participant would
offer to provide aggregation services.
The Commission or some other entity could bid out the output of small
generators. However, this would create
new administrative costs, and the intermittent nature of the output and
relatively small volume would likely result in prices for the generators being
below the prevailing market prices.
F. Customer Rebates
Customer rebates, funded by a surcharge on
utility bills (i.e. an SBC) or tax credits, are a common mechanism used in
other states to promote renewable resource on-site applications. [36] Customer rebates (typically referred to as
“buydowns”) are payments made to customers to offset the installed cost of
designated renewable technologies.
Buydown rebates are usually made on the basis of the installed capacity
of the facility. They are typically
applicable to photovoltaic and wind installations, but sometimes extend to fuel
cells, biomass and other resources.
Buydowns in other states commonly range from $3.00 to $5.00 per watt up
to a specified percentage of total cost, or 10% to 30% of the installation and
capital costs. In some programs, the
installation must undergo a prior inspection and payments are made over time to
ensure that the installation produces the expected amount of energy.
Customer buydown programs in other states are
often part of “clean energy fund” activities that operate similar to energy
efficiency fund implementation. In
addition to customer buydowns, clean energy fund programs include low interest
loans for facility installations, grants for developing technologies, public
education, and market development. The
Commission could administer such a program in conjunction with its energy
efficiency program, although additional resources (including additional
personnel) would likely be required.[37]
G. Green Product Demand
Several states have programs that seek to
support renewable resources by stimulating retail demand for “green”
electricity products. One approach is
to reduce the retail cost of green electricity products by providing a credit
for the purchase of green electricity.[38] The credit is funded by a surcharge on
utility bills (i.e. an SBC) and is generally paid to green marketers rather
than retail customers for administrative reasons. A second approach is to require a “green standard offer.”[39] A green standard offer is arranged for by
the state or a utility and provides all customers with a readily accessible
option to purchase a green electricity product. Finally, some states require or encourage green purchases by
state government.[40]
All these approaches are an indirect means to
promote the development of grid-scale renewable generation resources and it is
difficult to determine their effectiveness compared to other resource
mechanism. A green product credit
program would involve significant resources to implement, while a green
standard offer would create some additional administrative burden. Both could be implemented by the Commission
with some additional resources.
IV. FUELS AND TECHNOLOGIES
This section of the report discusses individual
generating fuels and technologies, current barriers to their development and
use, and possible promotional mechanisms or activities. The section examines the three resources
specified in the Resolve, the fuels and technologies that are currently
eligible for Maine’s RPS and other potential candidates for public support. The following table summarizes key issues
associated with each fuel. The sections
following the table discuss the issues in more depth.
|
Fuel |
Barriers |
Effective Support Mechanisms |
Potential Goals |
Current Capacity in ME |
|
Biomass |
· Unpredictable fuel
availability and cost · Electricity prices · Uniform disclosure label
rule – CO2 offsets ·Non-PTF charges |
· Redesigned RPS or SBC that
exclude lower-cost resources · Small generator aggregation · Elimination of non-PTF
charges |
· In-state jobs, economy
(including support for wood products industry) · Geographic diversity · Fuel diversity · Environmental benefits · Renewable |
258 MWs 12 facilities |
|
Municipal Solid Waste |
· Competition for MSW · Electricity prices · Limits to RPS value |
· Redesigned RPS or SBC that
exclude lower-cost resources |
· Environmental benefits (of
waste disposal) · In-state jobs, economy · Renewable |
62 MWs 4 facilities |
|
Efficient
Cogeneration |
· Electricity prices |
· Redesigned RPS so
percentage is closer to supply · SBC |
· In-state jobs, economy · Environmental benefits |
328 MWs 4 facilities |
|
Grid-scale
Hydro (>5
MW) |
· Fish passage requirements · Electricity prices · Non-PTF charges · Low-impact demands |
· Redesign RPS so percentage
is closer to supply · SBC · Fish passage
reconsideration or assistance · Elimination of non-PTF
charges |
· Environmental benefits · Renewable · Maintain ecosystem · Recreational benefits,
flood control · Fuel diversity · Geographic diversity · Price stability |
613 MWs 29 facilities |
|
Small-scale Hydro (<
5 MW) |
· Access to market · Electricity prices · Non-PTF charge · Fish passage requirements |
· Small generator aggregation · “Other renewables” RPS or
SBC · Increase net billing
breakpoint · Allow multiple accounts to
net bill · Eliminate non-PTF charges · Fish passage
reconsideration or assistance |
· Environmental benefits · Renewable · Maintain ecosystem · Fuel diversity · Geographic diversity |
12 MWs 36 facilities (<1 MW) 63 MWs 28 facilities (1-5MW) |
|
Grid-scale
Wind |
· Public reaction (visual) · Siting · High capital costs · Long-term contracts needed · Non-PTF charges |
· “New and other renewables”
RPS or SBC · Siting requirements
reconsideration · Elimination of non-PTF
charges |
· Environmental benefits · Renewable · Long-term price stability · Geographic diversity · Fuel diversity |
105 MWs 2 facilities (planning stage) |
|
On-site
Wind |
· Costly at small-scale · Access to market · Lack of public awareness |
· Customer rebates · Small generator aggregation · Increase net billing
breakpoint · Educate institutions |
· Support overall State
renewables policy |
On grid: 300 kW 18 facilities Off grid: Far more |
|
Grid-scale
Solar |
· High capital cost and
limited hours of sun |
· “New and other renewables”
RPS or SBC |
· Environmental benefits · Renewable · Long-term price stability · Fuel diversity |
None |
|
On-site
Solar |
· Costly · Lack of public awareness |
· Customer rebates · Educate institutions · State sponsored
demonstrations and licensing |
· Support overall State
renewables policy |
700 kW 270 facilities |
|
Peat |
· Has been costly · Concern over sludge, if
used |
· Redesign RPS to include
peat · SBC |
|
1 facility currently not
operating |
|
Landfill
Gas (methane) |
· Access to market |
· “New or other renewables”
RPS or SBC |
· Environmental benefits (of
methane removal) |
None |
|
Geothermal |
· Lack of public awareness · Lack of qualified
installers |
· State sponsored
demonstrations and licensing |
· Support overall State
renewables policy |
2 commercial 20 residential |
|
Tidal |
· Not yet viable |
|
|
None |
|
Fuel
Cells |
· High capital &
operating cost · Need improved efficiency
and lower costs |
· Customer rebates · R&D support |
· Environmental benefits · High power quality |
None |
A. Biomass
Biomass
is an eligible resource under Maine’s current RPS law. The law does not define “biomass.” In Maine,
the term has generally referred to facilities that burn wood and wood
byproducts to generate electricity.[41] Some biomass facilities are stand-alone
electric generators and some are cogenerators that use the electricity to serve
their own load as well as for export to the electrical grid. In Maine, there are nine stand-alone
biomass plants ranging in size from 15 to 46 MW and three small wood products
companies with capacities less than 2 MW (four cogenerators - three also using
coal, oil, or hydro - range in size from 40 to over 100 MW; in this report, we
consider those plants to be efficient cogenerators).[42] The 12 biomass plants have a combined
capacity of over 250 MWs. In addition,
a significant number of non-Maine biomass plants participate in New England’s
market.[43]
Maine’s existing biomass plants were built
when utilities were paying a relatively high price for electricity produced by
qualifying facilities (QF). The
majority of the stand-alone biomass QF contracts have expired, causing the
facilities to sell their electricity at substantially lower market prices. Biomass plants have relatively long ramp-up
procedures, which limits their ability to respond quickly to hourly changes in
market prices. In addition, the
availability and cost of fuel are currently unpredictable, increasing
operational costs. Because of rising
costs and falling revenues, as many as six plants are reported to have been
idled for various periods of time over recent years and at least three are
currently idle. However, at least three
stand-alone plants whose contracts have expired are operating.
Biomass plants provide benefits that extend
beyond electricity generation. First,
biomass plants allow for local disposal of wood byproducts. The economic impact to the sawmill industry
has been cited in both Maine and New Hampshire as perhaps the most compelling
reason to support the biomass industry.[44] In the absence of biomass facilities, the
200-plus sawmills in Maine would be required to establish landfills to dispose
of as much as 875,000 tons of waste produced annually or to dispose of the
waste in municipal landfills.[45] Under either of these options, sawmills
would lose the revenue they currently receive from the sale of their waste and
would incur costs estimated in the tens of millions of dollars. In addition, Maine’s biomass facilities
directly employ more than 200 people and pay over $2.6 million in local taxes.
Biomass
facilities are scattered around the State in remote locations, adding
geographic diversity to Maine’s generating mix, and they reduce Maine’s
reliance on fossil fuels.
In many states, biomass is eligible for
support through an RPS or SBC, but eligibility is generally limited to
facilities that are smaller than 30 MW, that meet certain emissions standards,
or that are fueled by sustainable biomass.
Only two of Maine’s biomass plants qualify for the Massachusetts RPS and
there is no reason to believe that any qualify for other states’ RPSs. A federal inflation-adjusted $0.015 per kWh
Production Tax Credit is available to “closed-loop” biomass operations (those
that both produce and consume fuels used to generate power), but no plant in
Maine qualifies for that credit and no facility in the country has ever taken
advantage of the credit since it was created in 1992.
A
2002 study of the biomass industry in New Hampshire[46]
indicates that biomass plants in that State cost $0.054 per kWh on average to
operate, resulting in the need for approximately $0.014 per kWh of public
support to be competitive with market generation that averages $0.04 per kWh.[47] Partial data on Maine’s biomass facilities
indicate a possible need for a subsidy ranging from $0.00 to $0.03 per kWh if
the market price is in the range of $0.04 to $0.045 per kWh, with individual
facility requirements varying significantly.
The 1999 report from Maine’s biomass committee hypothesized the need for
a subsidy in the $0.01 per kWh range.
Neither the Commission nor the 1999 Biomass Committee has had access to
individual facility costs and operation data that would allow verification of
the validity of these estimates.[48] However, based on the available, unverified
estimates, it appears that some subsidy – probably in the range of $ 0.01 per
kWh – is necessary to maintain some or all of Maine’s biomass industry. Because costs vary among plants, a fixed
cent-per-kWh subsidy would be more than is necessary for some facilities and
not enough for others. In addition,
changing market prices would change the needed subsidy level.
To
put potential subsidies in perspective, if all biomass plants operated at an
85% capacity factor and received a $0.01/kWh subsidy, the subsidy would cost
ratepayers approximately $19 million per year.[49] It appears that the need for the subsidy
would be permanent in nature unless wholesale electric energy prices rise
significantly.
Environmental
Issues: Biomass generators emit CO2, a greenhouse
gas. However, waste wood that fuels
some facilities would ultimately emit CO2 as it degraded. A biomass plant that generates in
conjunction with sustainable forest practices can be considered to be a neutral
emitter of CO2, in that new growth absorbs the CO2 in
equal or greater amounts than that emitted.[50] Biomass generation emits lower levels of NOX
and SO2 than do plants using fossil fuels.
Barriers
·
Unpredictable fuel
availability and cost: Under utility contracts, facilities could enter into
long-term fuel contracts, while under current, less-certain operating conditions,
fuel is generally purchased on a short-term basis. This situation has proven problematic to both the biomass plants
and the wood products industry that depends on the plants to dispose of its
waste stream, and has resulted in price volatility of fuel costs. In addition, wood waste is not always
located in close proximity to a plant, resulting in significant transportation
costs.[51]
·
Electricity prices: The price that facilities can receive from the competitive market for
electricity has dropped significantly below the price utilities paid under
earlier utility QF contracts. The
situation has been exacerbated by the introduction of locational marginal
pricing, which has acted to lower clearing prices in Maine relative to the
region.
·
Uniform disclosure
label rules: Because biomass generators are not automatically
assumed to be neutral emitters of CO2 for purposes of Maine’s
uniform disclosure label, “green” marketers are hesitant to include biomass in
their portfolios. When biomass has been
used in green products, some customer dissatisfaction has occurred.
·
Non-PTF charges: In BHE’s
service territory, generating plants located on non-PTF facilities must pay
non-PTF charges to transport energy to the wider grid.[52]
Support Mechanisms
·
Redesigned RPS or
SBC: A redesigned RPS or SBC that excludes lower-cost
resources would provide financial benefits to Maine’s biomass facilities. The
existence of relatively low-cost hydroelectric and efficient cogeneration
facilities limits the effectiveness of the current RPS for biomass
facilities. Massachusetts’s RPS, which
is limited to higher-cost renewables, would be advantageous for Maine biomass
plants that qualify.
·
Small generator
aggregation: A mechanism whereby a single entity aggregates
generation from all small generators and sells or disburses the aggregated
generation into the market would benefit the four biomass plants with
capacities below 1 MW. Such mechanisms
are discussed in section III of this report.
·
Eliminate non-PTF
charges: Although CMP has eliminated non-PTF charges by
socializing its non-PTF costs among all ratepayers, socializing the charge
would be relatively more costly to BHE’s ratepayers. However, socializing the charge would lower costs and make
generation more competitive for biomass facilities in BHE’s territory.
B. Municipal Solid Waste
“Municipal solid waste (MSW) in conjunction
with recycling” is an eligible resource under Maine’s current RPS law. Four eligible MSW plants, with combined
capacity of over 60 MWs, operate in Maine.
Three of the four in-state facilities still obtain relatively attractive
electricity revenues under utility QF contracts. These contracts will end between 2007 and 2018. A significant number of MSW plants located
outside Maine participate in New England’s market and are eligible for Maine’s
RPS.[53]
Revenue
for MSW facilities is produced through two means – tipping fees and electricity
sales. MSW plants typically operate 24
hours a day throughout the year, thus providing a steady source of
generation. Some burn all solid waste
(i.e., “garbage”) brought to their facilities and some remove metals and glass
before burning. The material burned to
produce electricity thus includes such things as household refuse, tires, and
wood scraps.
Three
conditions made MSW plants attractive when they were constructed: 1) a State
prohibition on new commercial landfills appeared to make alternative disposal
methods necessary; 2) a municipality could require trash haulers to deposit all
waste from the municipality’s residents in the MSW facility; and 3) utilities
paid a relatively high price for generated electricity. The effect of all these conditions has
diminished significantly.
Evaluating the current economic viability of
MSW facilities is complicated by the fact that MSW facilities have two sources
of revenue: electricity sales and tipping fees. Thus, if electricity prices fall, a MSW plant can attempt to make
up the losses through higher tipping fees.
However, the ability to raise tipping fees for commercial MSW is
constrained by the existence of a healthy competitive market for MSW; attempts
to increase tipping fees could result in haulers bringing their MSW to other
locations. In addition, municipalities
own or have an interest in three of the four facilities,[54]
so residents, not private investors, must absorb financial losses. Similarly, increased tipping fees increase
waste removal costs for local residents.
To
the extent that a MSW facility obtains higher electricity revenues because of
an RPS or other ratepayer funded mechanism, Maine’s electricity ratepayers are
subsidizing trash disposal in municipalities other than their own.
The Commission has been provided with very
limited information regarding the costs required to operate Maine’s MSW
facilities.[55] It appears that, if MSW were evaluated
solely as a source of electricity, it would be extremely costly when compared
with other forms of electricity generation and would require subsidies far
exceeding those required by biomass or wind generation. However, if tipping fees cover a significant
percentage of a facility’s cost, MSW facilities might be economically
viable. The Commission cannot judge a
reasonable or likely subsidy level.
To
put potential subsidies in perspective, if all MSW plants operated at an 85%
capacity factor and received a $0.01/kWh subsidy, the subsidy would cost
ratepayers approximately $4.6 million.
Environmental
Issues: While MSW facilities burn material that can be
environmentally harmful, in some cases they may be more environmentally benign
than alternative MSW disposal methods.
The State has developed air emission control requirements as a condition
for licensing MSW facilities. In the
absence of the facility, waste residing in landfills might emit more methane
than do MSW generating facilities.
However, landfill methane can be eliminated through flaring which may be
more environmentally benign than burning MSW to produce electricity. Finally, without adequate emission controls,
burning mercury-containing items volatizes the mercury, and ash produced by MSW
facilities contains mercury and other harmful materials that must be disposed
of in some manner.
Barriers
·
Competition for
MSW: Competition (from other in-state and out-of-state MSW facilities and
landfills) now exists for municipal solid waste, effectively capping commercial
tipping fees.
·
Electricity
prices: The price that the facilities can receive from the
competitive market for electricity has dropped significantly below the price
paid by utilities under QF contracts.
This becomes a barrier when utility contracts expire.
·
RPS value: RPS
programs in Maine and in other New England states have created no discernible
economic value for Maine’s MSW facility selling power in the competitive market. Out-of-state MSW facilities have been used
to satisfy suppliers’ RPS requirements in Maine, but the Commission is unaware
whether a premium was paid for this power.
RPSs in some states have emissions requirements for MSW plants,
limiting the eligibility of Maine’s facilities.
Support
Mechanisms
·
Redesigned RPS or
SBC: A redesigned RPS or SBC that excludes lower-cost
resources would provide financial benefits to Maine’s MSW facilities, assuming
that MSW facilities need public support to remain profitable after their
contracts expire (a likelihood that the Commission cannot judge without more
knowledge of facilities’ operating costs).
C. Efficient Cogeneration
An “efficient resource” is defined in Maine’s
RPS statute as a facility that qualifies as a cogeneration facility under PURPA
rules and that meets a specified efficiency standard.[56] As a practical matter, this definition
encompasses most, if not all, of Maine’s cogenerating facilities constructed
before 1997. Four large cogeneration
facilities, with combined capacity of over 300 MWs, generate power in Maine.[57] These facilities burn biomass for all or a
portion of their generation and use coal, oil or hydro as well. Only two of the facilities have declared
themselves, under the region’s Generation Information System (NE-GIS), to be
eligible under Maine’s RPS, even though all are presumed to qualify as
“efficient resources.”
In addition, four smaller cogeneration facilities generate at less than 1 MW capacity, burn biomass (and are included in the biomass discussion in this report) and have not declared themselves to be efficient cogenerators. At one time, all these facilities sold generation to utilities under QF contracts at prices that significantly exceed today’s market price of electricity. Two of the larger facilities still obtain electricity revenues under utility contracts that will expire between 2008 and 2012. It is presumed that no out-of-state facilities satisfy Maine’s efficiency criteria, and none has been used to satisfy Maine’s RPS.
Cogeneration is concentrated in wood products businesses such as paper mills and sawmills. These businesses account for a significant level of employment and industrial output in Maine. The merits of biomass-fueled generation are discussed in the biomass portion of this section.
Cogeneration
is a very efficient, low-cost way to produce electricity. Cogeneration facilities either use the heat
from a thermal process that is inherent in its business operation or produce
heat that fuels both electricity generation and industrial processes. Thus, the process is relatively less costly
than stand-alone generation.
Cogenerators usually use a portion of their generation to serve their
own load, selling the remainder to the market.
As a general matter, cogeneration is commercially viable without any
type of ratepayer subsidy.
The Commission has no data on the amount of electricity that is generated but not sold through the grid, but it is a significant amount. Thus, the impact caused by encouraging cogeneration cannot be estimated.
Environmental
Issues: As mentioned elsewhere, the predominant fuel used in
Maine cogeneration facilities is wood-based biomass. Because some facilities additionally use coal or oil, they have
environmental impacts associated with those fuels. However, because these facilities are relatively efficient, their
environmental impact is reduced compared with stand-alone facilities.
Barriers
·
Electricity
prices: The price that facilities can receive from the
competitive market for electricity has dropped significantly below the price
paid under prior utility contracts.
While this fact does not generally make cogeneration uneconomic, it has
significantly reduced the value of cogeneration to the industrial plant.
Support Mechanisms
·
Redesigned RPS or
SBC: An RPS redesigned so that the required percentage is closer to the
eligible supply or an SBC could provide financial benefits to cogeneration
facilities. Because cogeneration is
less costly than most other forms of generation that typically meet RPS
requirements, suppliers would likely make significant purchases of cogeneration
to meet their RPS requirement.
D. Grid-Scale Hydroelectric[58]
(above 5 MW)
Hydroelectric facilities with
capacity less than 100 MW are eligible resources under Maine’s current RPS
statute. Four hydro facilities with
capacity between 30 and 90 MWs, with combined capacity of 270 MWs, exist in
Maine. Twenty-five facilities with
capacity between 5 and 30 MWs have combined capacity of over 300 MWs. Approximately 20 facilities with a capacity
between 5 and 30 MWs (and over 20 smaller facilities) were sold by Maine’s
utilities at the time of restructuring, and are now owned by FPL Energy, PPL,
and WPS-ESI. Six of the
facilities retain utility QF contracts and are therefore receiving attractive
prices for their generation. The owners
of hydroelectric facilities sell generation at both the wholesale and retail
level.
Most of Maine’s hydroelectric facilities were constructed during the 1980s or much earlier, and no new facilities are likely to be built (although it is possible that additional capacity can be added to existing facilities). Thus, a resource support mechanism would generally act to provide assistance to existing facilities, rather than encourage new ones. Hydroelectric facilities have created ecosystems and recreational opportunities along waterways that depend upon the flow of water, and they provide flood control. They offer a reliable alternative to natural gas and are not subject to price volatility associated with fossil fuel facilities.
Because there are a number of these smaller facilities scattered throughout the State, they provide geographic diversity that offers voltage support to the utility grid. Geographic diversity, however, is only an advantage if the grid is structured to transport the generation and to accommodate the voltage support. Because these hydroelectric facilities have existed for many years, the grid is structured to benefit from their diversity. In addition, these facilities form the basis for black-start capability of Maine’s grid. Because they are of medium size and are widely disbursed, they are brought on line early in the sequence, creating a valuable contingency service.
Grid-scale
hydroelectric facilities have been among the least costly forms of electric
generation for decades. While costs
differ among plants, grid-scale hydroelectric power traditionally has cost less
than $0.03 per kWh to generate, which is comfortably competitive in the open
market. During months when water flows,
hydroelectric facilities run 24 hours per day and thus provide an inexpensive
source of base load electricity.
However, the economics of hydroelectric facilities can be significantly
affected by the amount of rainfall in a given year. Additionally, recent federal and state[59]
rules have required the installation of environmental improvements, primarily
to allow fish passage where it is determined to be needed.[60] The additional cost of fishway
accommodations has added millions of dollars to some facilities’ costs. It has been suggested that, because the
additional cost supports a societal benefit, it should be supported by societal
sources and not through utility rates.
However, although some facilities may be struggling financially, the
Commission is not aware of any grid-scale hydroelectric facility that has
ceased operations.[61]
Maine’s current RPS limits eligibility to facilities that generate at lower than 100 MWs of capacity. Hydro-Quebec (HQ) owns significant amounts of hydroelectric facilities that exceed 100 MWs in capacity. When electric restructuring began, HQ expressed considerable interest in selling its generation in Maine’s retail market. However, despite the significant amounts of hydroelectric power it owns, HQ must purchase 30% of its portfolio to meet Maine’s RPS, a factor that discouraged HQ from entering Maine’s market. Currently, HQ engages primarily in short term transactions in the American wholesale markets and has indicated that it would continue to operate only at the wholesale level even if Maine removed its RPS exclusion of facilities larger than 100 MW.
Environmental
issues: Grid-scale hydroelectric generation does not create
harmful air emissions, and thus plays an important role in reducing global
climate change impacts. Hydroelectric
facilities do, however, impact fish and the surrounding ecosystem. [62] There is substantial debate within the
environmental community as to the relative impact of hydroelectric generation,
and the term “low-impact” facility has been coined to differentiate between
facilities that are relatively benign and those that are not. The size of the facility is not the
determining factor with regard to environmental impacts; rather, each
facility’s environmental impact must be considered based on its
characteristics. The Low Impact
Hydropower Institute has developed criteria that would qualify a facility as
“low impact.” These criteria include
river flows that avoid danger to fish and wildlife, and compliance with State
and federal water quality standards.
Barriers
·
Fish passage:
State and federal requirements to provide fish passage have
added significant capital expenses for hydroelectric facilities of all
sizes.
·
Electricity prices: The price that facilities in Maine can receive from the
competitive market has been reduced as a result of the introduction of
locational marginal pricing which has acted to lower clearing prices in Maine
relative to the region.
·
Non-PTF charges: In BHE’s
service territory, generating plants located on non-PTF facilities must pay
non-PTF charges to transport energy to the wider grid.
·
Low-impact
features: Some environmental supporters are hesitant to support
hydroelectric facilities without further refinement based on case-by-case
impacts.
Support Mechanisms
·
Redesigned RPS or
SBC: An RPS redesigned so that the required percentage is closer to the
eligible supply or an SBC could provide financial benefits to grid-scale
hydroelectric facilities. Because some
hydroelectric facilities are less costly than most other forms of generation
that typically meet RPS requirements, suppliers would likely make significant
purchases of hydroelectricity to meet their RPS requirement.
·
Fish passage: The
State might increase its efforts to review fishway requirements to find ways to
remove or mitigate financial impacts.
·
Eliminate non-PTF
charges: Although CMP has eliminated non-PTF charges by
socializing its non-PTF costs among all ratepayers, socializing the charge
would be relatively more costly to BHE’s ratepayers. However, socializing the charge would lower costs and make
generation more competitive for hydroelectric facilities in BHE’s territory.
E. Small-scale Hydroelectric (below 5MW)
Hydroelectric facilities that generate very
small levels of power are scattered across Maine. There are 36 facilities, totaling 12 MWs, that generate below
1 MW and there are 28 facilities, totaling 63 MWs, that generate between 1
and 5 MWs. Some provide electricity for
a local residence or business, and many control the water level of small lakes.
All were constructed long ago, and no new facilities are likely to be built. Thus, a resource support mechanism would
provide assistance to existing plants, not encourage new ones.
A small (100 kW) hydroelectric facility might generate 22,000 kWhs per month on average. If sold at $0.04 per kWh on the open market, the facilities would receive less than $900 per month in revenue. Even a 1 MW facility generating 10% of the time would produce 72,000 kWhs and receive about $2,900 per month in revenue. Thus, any significant cost quickly erodes these facilities’ profitability.
The restructuring of the electric industry (both on
the federal and State levels) has resulted in increased financial burdens for
small facilities. For example,
insurance and metering for these customers costs as much as $500 per
month. Lack of economies of scale makes
many costs almost as high for small facilities as for large. In recent years, the Commission has worked
with CMP to eliminate some of these insurance and metering costs.
Small
hydroelectric generators also face problems associated with the sale of
generation on the open market. Most had
utility QF contracts that paid attractive prices for their generation. These contracts have gradually expired and
some facilities continue to find it impossible to operate profitably at market
prices. In addition, generators find it
difficult or impossible to contract with wholesale buyers because competitive
marketers are generally unwilling to purchase from small facilities.[63]
Even with reduced insurance and metering costs, many small hydroelectric facilities find it difficult to operate profitably, and some have ceased operation.
Environmental
Issues: Small-scale hydroelectric generation does not
create harmful air emissions, and thus does not contribute to global climate
change. Hydroelectric facilities do,
however, impact fish and the surrounding ecosystem.
Barriers
·
Access to
market: Joining NEPOOL and following the procedures for
selling into the wholesale market are costly – annual dues are $10,000 and
daily reporting and metering are necessary.
Moreover, wholesale and retail electricity suppliers are unwilling to
expend the administrative costs for such a small amount of power, leaving the
small generator with no ready access to the market.
·
Electricity prices: As utility contracts expire, lower market power prices cause generators’
revenue to drop significantly. This
situation has been exacerbated by the introduction of locational marginal
pricing which has acted to lower clearing prices in Maine. Lack of economies of scale make generation
relatively costly.
·
Non-PTF charges: In BHE’s
service territory, generating plants located on non-PTF facilities must pay
non-PTF charges to transport energy to the wider grid.
Support Mechanisms
·
Small generator
aggregation: A mechanism whereby a single entity aggregates
generation from all small generators and sells or disburses the aggregated
generation into the market would benefit small-scale hydroelectric
facilities. Such mechanisms are
discussed in section III of this report.
·
“Other renewables”
RPS or SBC: An RPS or SBC that includes resources such as wind,
solar, and fuel cells but that excludes larger, low-cost hydroelectric and
cogeneration facilities would add financial value to small-scale hydroelectric
generation by increasing the demand and therefore the price the generator would
receive for its power.
·
Raise net billing
breakpoint: Raising the net billing breakpoint from 100 kW to 1
MW could benefit some small hydroelectric facilities, but only if the
customer’s load is large enough to absorb the increased amount of
generation. Typically, a residential
customer could not benefit from an increase in the breakpoint.
·
Allow multiple
accounts to net bill: Allowing small hydroelectric facilities who net bill
to use their generation to offset the load of affiliates and associates located
elsewhere in the state, or the load of neighbors, could significantly benefit
small hydroelectric facilities. This is
especially the case if the breakpoint is increased from 100 kW to 1 MW.
·
Eliminate non-PTF
charges: Although CMP has eliminated non-PTF charges by
socializing its non-PTF costs among all ratepayers, socializing the charge
would be relatively more costly to BHE’s ratepayers. However, socializing the charge would lower costs and make
generation more competitive for small scale hydroelectric facilities in BHE’s
territory.
F. Grid-Scale Wind
Wind is an eligible resource under Maine’s current RPS statute. Two grid-scale wind projects, with combined capacity of 100 MWs, are in the permitting stage in Maine, and national studies indicate that there are a number of sites in Maine where wind conditions are favorable for grid-scale wind facilities. Because of its intermittent nature, a grid-scale wind facility is likely to sell its generation to a wholesale or retail electricity supplier rather than become a retail supplier of electricity. This gives a facility the potential to obtain a long-term sales contract, which is extremely desirable for a developer to receive financing for capital investment. A wind facility will likely be built only if it can operate at a 30% capacity factor or better. While wind is sporadic, many believe that wind patterns in portions of Maine generally coincide with peak electric load needs, making wind a useful supplement to base load generation.
Grid-scale wind technology has advanced to the point where, with the current federal Production Tax Credit, it can compete with other sources of generation. A reasonable estimate of generation costs is about $0.06-$0.07 per kWh over the long-term. At this cost, wind is close to being competitive in the current short-term generation market and offers long-term price stability. The federal government provides an inflation-adjusted $0.015-per-kWh tax credit (currently $0.018 per kWh) to for-profit wind generation. This credit lowers the cost of wind generation to about $0.04-$0.05 per kWh, which is in the range of prevailing market prices.
Those who support wind generation point to the long-term economic benefits. The price of fuel is not volatile, the fuel will not be depleted, and operating costs are relatively low because of the lack of thermal processes and complex mechanics.
The
RPS program in Massachusetts (discussed in section V of this report), which is
limited to new renewable generation, has created discernible economic value for
wind generation in Maine. In
addition, the $0.018 federal Production Tax Credit is critical to the economic
viability of wind generation. The
credit will soon expire, but it appears likely that it will be renewed.
Proliferation of wind facilities is likely to increase the geographic diversity of generation in Maine. As discussed in section II of this report, this feature provides both benefits and risks to the utility grid. Depending on the configuration of the grid in the vicinity of the facility, the generator could provide voltage support; however, the sporadic nature of wind generation limits this benefit. Alternatively, in some locations the grid must be upgraded significantly to allow for generation into (as opposed to out of) the area.
Environmental
Issues: Wind is generally viewed as an environmentally benign
source of electrical generation in that it produces no air emissions and, thus,
does not contribute to global climate change.
Objections focus on visual and migratory bird impacts.
Barriers
·
Public reaction:
Visual impacts often cause significant negative public
reaction.
·
Siting: State
siting requirements may require costly studies. For example, generators may be required to study wetland, bird
migration, and visual impacts.
·
High capital
costs: Facilities have proportionately higher capital costs
than most types of generation. However, fuel is essentially free.
·
Long-term contracts: Because wind facilities have higher capital costs, long-term contracts
(10 years or more) for electricity sales are often necessary to attract capital
investment. The generation market
generally does not offer contracts of this length.
·
Non-PTF charges: In BHE’s
service territory, generating plants located on non‑PTF facilities must
pay non-PTF charges to transport energy to the wider grid.
Support Mechanisms
·
“New or other
renewables” RPS or SBC: An RPS or SBC that includes new renewable resources
or renewables such as wind, solar, geothermal, and fuel cells but that excludes
larger, low-cost hydroelectric and cogeneration facilities, would add financial
value to wind generation by increasing demand and thus the price the generator
would receive for its power. In
addition, an RPS or SBC may reassure investors that the State is likely to
continue long-term support for wind generation and that the facility therefore
will continue to be financially viable.
·
Siting requirements:
The State might review siting requirements to find areas that
could be removed or streamlined, and might confer with environmental and local
groups to examine ways to mitigate public concern over visual impact.
·
Eliminate non-PTF
charges: Although CMP has eliminated non-PTF charges by socializing its
non-PTF costs among all ratepayers, socializing the charge would be relatively
more costly to BHE’s ratepayers.
However, socializing the charge would lower costs and make generation
more competitive for wind facilities in BHE’s territory.
G. On-Site Wind
Small 10 kW wind turbines that generate power
for use by residential and small business consumers are well established, and
newer 1 kW and 50 kW turbines are beginning to appear. For larger applications, 660 kW turbines are
well established and are far more efficient.
Pursuant to Commission rule, customers have the option to net bill
generation against their load over time.
The procedure is explained in section III of this report. Approximately 15 small on-site wind facilities,
most generating with a 10 kW turbine and with a total capacity of approximately
300 kW, net bill in Maine and a higher number exist off-grid. The amount of generation exported to the
grid is insignificant. Consumers that
are not connected to the utility grid typically maintain propane or diesel
backup to the wind generator.
Small-scale
wind is not an economic alternative if the customer is connected to the
grid. A 10 kW turbine might cost
$35,000 to $70,000 to install, and might generate 13,000 kWhs per year,
translating to a $0.15-$0.30 per kWh installation cost if recovered over 20
years. Borrowing costs and operating
costs add to the ongoing expense of the facility. Economies of scale make larger wind turbines significantly more
efficient (and therefore less costly) than smaller turbines. For example, a 660 kW turbine might cost
$700,000 to install and produce 1,500 MWhs of electricity per year, translating
to as low as a $0.03 per kWh installation cost (ignoring borrowing and
operating costs) if recovered over 20 years. With the addition of
operating costs, these turbines still remain economically uncompetitive without
some form of public support.
Eleven
states offer personal and/or corporate tax credits for the installation of wind
generators, with credits ranging from 10% to 35% of equipment and installation
costs. Six states offer direct
rebates in the form of a buydown of installation costs. Buydowns are commonly part of Clean Energy
Funds that are used to support a variety of renewable initiatives. The $0.018 federal Production Tax Credit is
not available to wind generators that are not built for profit. Small-scale wind is, however, sometimes an
economic alternative to a lengthy line extension. While rebates make some wind generation economically viable,
consumers who own small-scale generation generally do so for environmental
reasons or to avoid costly line extensions in remote locations.
In most cases, owners of on-site wind seek only to cover their own load at a reasonable price, and are not looking to sell their generation into the market. However, adopting a mechanism that facilitates smaller wind generators selling into the market would reduce the need to expand net billing (with its inherent subsidy) and thus would be a superior long-term means of encouraging small-scale generation from wind and other sources. In the near term, fewer than a handful of customers are likely to sell into the market.
Finally, some advocates believe that small
wind turbines engender favorable public reaction, and that visible State
support would offer an impetus for other environmentally benign forms of power.
Environmental
Issues: Although wind is considered environmentally benign
relative to other sources of electricity, small-scale on-site generation
produces such an insignificant amount of power that it cannot be considered a
replacement for generation produced by other resources.
Barriers
·
Costly at small
scale: A small turbine – especially one smaller than about
660 kW – is an extremely costly form of generation.
·
Access to
market. For customers who wish to sell excess generation,
joining NEPOOL and following the procedures for selling into the wholesale
market are costly – annual dues are $10,000 and daily reporting and metering
are necessary. Moreover, wholesale and
retail electricity suppliers are unwilling to expend the administrative costs
for such a small amount of power, leaving the small generator with no ready
access to the market.
·
Lack of public
awareness: Wind generation might well be attractive to
many homeowners for non-economic reasons or as a long-term generation
alternative, but some view the public as not generally aware that the
technology is available.
Support Mechanisms
·
Customer
rebates: Customer rebates in the form of a buydown or tax
credit applied against the capital investment would facilitate the initial
installation of on-site wind generators.
A rebate would reduce the costs, potentially speed the development of
economic small-scale generation, and signal the State’s support of renewables.
·
Small generator
aggregation: A mechanism whereby a single entity aggregates
generation from all small generators and sells or disburses the aggregated
generation into the market would benefit on-site commercial wind sales. Such mechanisms are discussed in section III
of this report.
·
Increase net billing
breakpoint: Increasing the net billing breakpoint from 100 kW to
1 MW might make 660 kW turbines a marginally economic form of on-site
generation for some larger businesses whose load could absorb this level of
generation. Raising the net billing
breakpoint would not be advantageous to residential consumers, whose use is
already far below the current 100 kW breakpoint. Raising the breakpoint would also be advantageous if customers
were allowed to aggregate the loads of affiliates and associates or if the
proximity requirement (discussed in section III of this report) were
removed. The amount of excess
generation exported to the grid would likely remain insignificant.
·
Educate
institutions: State sponsorship of seminars or other mechanisms to
inform financial institutions of facts surrounding wind generation could
facilitate financing of installations.
H. Grid-Scale Solar
Solar generation is an eligible resource
under Maine’s RPS statute. Grid-scale
solar generation exists in mid-western and southern states, but will not be
economically viable in Maine or New England in the foreseeable future.
Barriers
·
High capital costs
and limited hours of sun: Limited sunlight in the Northeast makes grid-scale
solar power uneconomic in New England.
·
Other: Until
grid-scale solar generation becomes less costly, it is not possible to judge
what other barriers might exist.
Support Mechanisms
·
“New and other
resources” RPS or SBC: If solar generation should become less costly, an RPS
that is limited to new resources or resources such as wind, solar, and fuel
cells would add financial value to solar generation by increasing demand and
thus the price the generator would receive for its power.
I. On-site Solar
Small, well-established photovoltaic (PV)
panels produce energy primarily in the homes of residential consumers. PV panels replace on-grid power in three
ways, each widely used: to produce
electricity for use in the home, to actively heat hot water, or to actively
provide space heat. Residential PV
installations are commonly 1 kW to 5 kW in size. When not connected to the
utility grid, customers maintain battery storage and/or propane or diesel
backup generation.
Solar
generation shares many of the characteristics of on-site wind generation. If the consumer is connected to the utility
grid, he or she purchases generation when the on-site facility is insufficient
to meet the consumer’s load and provides generation to the grid that exceeds
load. Pursuant to Commission rule,
customers have the option to net bill generation[64]
against load over time, as discussed in section III of this report. Approximately 40 consumers with solar
panels, for a total capacity of 90 kW, net bill in Maine. An additional 175 off-grid installations are
recorded through the Million Solar Roofs program[65]
and installers have found that the vast majority of installations are off-grid.
On-site
photovoltaics are not an economic alternative to electricity supplied from the
grid. A typical home PV installation
costs $20,000 or more to install, and might generate 5000 kWhs per year if
connected to the grid,[66]
making a capital cost payback of 20 years unlikely. A federal Business Investment Tax Credit of 10% of investment and
installation cost is available for all PV installations. Thirteen states offer personal and/or
corporate tax credits, with credits ranging from 10% to 35% of equipment and
installation costs. Sixteen states
offer buydowns ranging from $2 to $5 per Watt.
Buydowns are commonly part of Clean Energy Funds that are used to
support a variety of renewable initiatives.
Most states require compliance with installation standards and some
require post-installation inspection.[67] Incentives do not make PV technology
economically competitive, but are intended to provide assistance to those who
desire the technology.
Unlike wind generation, solar technology does not yield significant economies of scale through larger solar panels. Like wind, small-scale solar can be an economic alternative to a lengthy line extension, there is no fuel price volatility, and operating costs are relatively low because of the lack of thermal processes and complex mechanics. Consumers who install small-scale generation generally do so for environmental reasons or to avoid costly line extensions in remote locations, and have no interest in selling the generation. However, interest is developing in aggregating renewable credits for credit trading.
Many
states, including Maine, participate in the Department of Energy’s (DOE)
Million Solar Roofs program, a program that offers a forum for state
assistance, education, and data gathering.
Maine’s Department of Economic and Community Development (and more
recently the Public Utilities Commission) oversees solar installation licensing
exams[68].
Some believe that small solar-powered homes engender favorable public reaction, and that visible State support would offer an impetus for other environmentally benign forms of power.
Environmental
issues: While PVs are an environmentally benign source of
electricity, small-scale on-site generation produces such an insignificant
amount of power that it cannot be considered a replacement for generation
produced by fossil fuel.
Barriers
·
Costly: Producing
electricity with solar panels is extremely costly.
·
Lack of public
awareness: Solar generation might well be attractive for
non-economic reasons to many homeowners, but some believe that the public is
not generally aware that the technology is available.
Support Mechanisms
·
Customer
rebates: Customer rebates in the form of a buydown or tax
credit applied against the capital investment would facilitate the initial
installation of PVs. A rebate would
reduce the costs, potentially speed the development of economic small-scale
generation, and signal the State’s support of renewables.
·
Educate
institutions: State sponsorship of seminars or other mechanisms to
inform financial institutions of facts surrounding solar generation would
facilitate financial of installations.
·
State sponsored
demonstrations and licensing: State support of programs that emphasize public
outreach and solar home demonstrations, such as DOE’s Million Solar Roofs and
annual Solar Home Tours might increase the market for solar installations by
making the public more aware of the benefits of PVs. State sponsorship of PV electric installer certification[69]
would assist the public in obtaining efficient PV installations.
J. Peat
One peat-burning facility, with a capacity of 23 MW, exists in Maine. The facility was constructed in 1988 and the cost of generation has generally not been economic. However, consideration is being given to reconfiguring operating processes and supplementing peat with sludge, as a means of making the plant economically viable. It is reported that the plant would employ approximately 50 people in an economically depressed location. No other peat facilities operate in New England.
Neither peat nor sludge are explicitly included as eligible resources in Maine’s RPS. Peat is created in a wetlands environment over thousands of years and is not generally considered renewable. Whether peat should be considered renewable, whether peat and sludge should be considered biomass, and whether sludge is municipal solid waste have not been addressed in the context of Maine’s RPS.
Environmental
Issues: Sludge exhibits some characteristics of MSW. It emits heavy metals and requires emissions
controls as part of its permitting requirements. However, it would emit heavy metals as it decomposed, so burning
in a controlled generating facility might be a more environmentally benign way
to dispose of the sludge. Peat
emissions resemble those of biomass, and are therefore more benign than burning
fossil fuels. However, peat, unlike
sustainable biomass, cannot be considered CO2 neutral as a result of
sustainable growth practices. In
addition, elimination of a peat bog and the transport of sludge can cause
public concern.
Barriers
·
Unknown: Until
Maine’s peat facility pursues re-activation, the barriers are unknown.
Support
Mechanisms
·
Redesigned RPS or
SBC: A redesigned RPS that includes peat or an SBC could
provide financial benefits to peat-burning facilities.
K. Landfill Methane Gas
The technology to use methane gas produced by
landfills to generate electricity is well established.[70] Because generation from methane requires
natural gas, its technical potential has been limited in Maine until the recent
expansion of gas in the State. However,
approximately 17 landfill methane facilities, with typical capacities of 1 MW
to 5 MWs, exist elsewhere in New England and several facilities are under
consideration. The Commission has ruled
that landfill gas can be considered as biomass and thus is an eligible resource
under Maine’s current RPS statute.
The Commission has not investigated the costs
and competitive economic viability of methane gas generation.
Environmental Issues:
Landfill gas facilities are less environmentally harmful than the
alternative method of flaring the methane gas produced by landfills. The generation of electricity from landfill
gas does emit CO2. However,
CO2 is considered a less harmful greenhouse gas than the methane
that would otherwise be released. Thus,
these facilities create a positive environmental impact.
Barriers
·
Access to
market. Joining NEPOOL and following the procedures for
selling into the wholesale market are costly – annual dues are $10,000 and
daily reporting and metering are necessary.
Moreover, wholesale and retail electricity suppliers are unwilling to
expend the administrative costs for such a small amount of power, leaving the
small generator with no ready access to the market.
Support
Mechanisms
·
“New or other
renewables” RPS or SBC: An RPS or SBC that includes new renewable resources
or renewables such as wind, solar, geothermal, and fuel cells but that excludes
larger, low-cost hydroelectric and cogeneration facilities, would add financial
value to landfill gas generation by increasing demand and thus the price the
generator would receive for its power.
·
Small generator
aggregation: A mechanism whereby a single entity aggregates
generation from all small generators and sells or disburses the aggregated
generation to the market would benefit landfill gas facilities. Such mechanisms are discussed in section III
of this report.
L. Geothermal
Geothermal energy may be used to
produce grid-scale electricity, but only in a few western states[71]
where volcanic activity creates extremely high temperatures close to the earth’s
surface. Grid-scale geothermal
facilities create no air emissions and are a relatively economic source of
reliable baseload generation.
Geothermal
energy, from lower temperature ground sources, is also used throughout the
country to actively heat space and water, replacing electricity, oil, or gas
for that purpose. In this application,
electricity is not generated and delivered to the grid. In Maine, the most common and most economic
technology - the ground source coupled heat pump - extracts heat from well
water to heat and cool the owner’s space and water. Particularly in cases where the customer already owns a well and
cooling and dehumidification are required in addition to heating, this method
is reported to realize a payback of 5 years or less when compared to
electricity or oil used for the same purpose.[72] In 2002, at least 20 residences in Maine
installed new geothermal systems. A few
states offer tax credits or rebates for on-site geothermal installations of
this type.
A contractor must receive training to become
qualified to install geothermal technology.
Such training does not generally exist within Maine. Such training has been provided in Maine
since the late 1990s, on an “as required” basis from a qualified training
organization in New Hampshire. New
Hampshire provides governmental support for geothermal energy and training is
also available there.
Like wind and solar energy, geothermal energy
creates no air emissions, does not deplete resources, and increases fuel
diversity. While on-site applications
are economically viable for some people, many are not generally familiar with
the technology. Ratepayer support could
encourage new installations by educating the public about the technology and
motivating contractors to become proficient at geothermal installations.
Environmental Issues:
Geothermal energy is one of the most environmentally benign sources
of space and water heat.
Barriers
·
Lack of public
awareness: Geothermal energy is economically attractive
for some homeowners, but the public is not generally aware that the technology
is available.
·
Lack of qualified
installers: Electrical and space conditioning contractors must
become qualified to install geothermal technologies; many have not yet done so.
Support Mechanisms
·
State sponsored
demonstrations and licensing: State support that emphasizes public outreach and
demonstrations might increase the market for geothermal installations by making
the public more aware of its benefits.
Requiring State building activity to consider geothermal options would
add visibility and might result in additional installations.
M. Tidal or Wave
Electricity may be generated by the ocean in
two ways: through tidal movement and through wave movement. Both sources are appealing because they
would not produce air emissions and are non-depleting resources. Projects have not generally been pursued
because of high construction costs.
However, in the past three decades, tidal power projects have been
considered in locations off Maine’s coast (most notably at Half Moon) and were
considered to be economically viable.
These sources of electricity interest organizations such as the U.S.
Department of Energy as an eventual means of producing electricity with low
environmental impacts for a large proportion of the population, and continued
research in the technologies is likely to occur.
Barriers
·
High capital
costs: The technology is immature and capital costs are
high.
·
Other: Until grid-scale tidal or wave generation becomes less costly, it is not
possible to judge what other barriers might exist.
Support Mechanisms
·
“New or other
renewables” RPS or SBC: If wave or tidal generation becomes less costly, an
RPS that includes new resources or “other resources” such as wind, solar, and
fuel cells would add financial value to ocean generation by increasing demand
and thus the price the generator would receive for its power.
N. Fuel Cells
Fuel cell technology has existed since the 1800s, and government agencies such as the Departments of Energy and Defense as well as other advocates believe that fuel cells will eventually be among the most efficient and environmentally benign forms of power production. However, improvements in cost and implementation practicality must be made before fuel cells will be viable without significant subsidization. Currently, virtually all fuel cell installations are demonstration or research projects supported by state, federal, or private funds.
Existing fuel cell facilities that deliver
power to the electric grid typically have a capacity of approximately 250
kW. In Maine, such facilities would
encounter market barriers similar to those encountered by wind and hydro
facilities of this size. On-site fuel
cells with capacities of 5-10 kW also exist to serve customers’ loads. On-site fuel cells tend to follow a
customer’s load, and applications in which a customer generates to serve load
and sell excess to the grid appear to be rare.[73] On-site generators would encounter barriers
similar to those encountered by on-site solar installations. On-site fuel cells commonly use a proton
exchange membrane technology (PEM), while 250-kW facilities commonly use
phosphoric acid technologies (PAFC).
Other technologies exist.
All fuel cells require hydrogen for operation and all produce water and heat. Most commonly, hydrogen is extracted from natural gas or propane. Using pure hydrogen requires hydrogen production, storage, and infrastructure systems that are less available and far more costly than are systems that use natural gas. This is important when establishing qualifications for fuel cell eligibility in an RPS or SBC program. Some states require that fuel cells use a “renewable resource” to be eligible for an RPS. This requirement appears to limit eligibility to the higher-cost fuel cell technologies that do not extract hydrogen from fossil fuels. While encouraging more environmentally benign fuel cell development, this constraint might inhibit development of the fuel cell models that show some likelihood of becoming commercially available within a reasonable amount of time.
Environmental
Issues: Fuel cells produce power through electrochemical
means rather than combustion, and therefore emit very low levels of NOX and
CO2.
Barriers:
·
Costly: Fuel
cells of all sizes remain extremely costly.
·
No customer
rebates: Many states offer rebates, in the form of buydowns or
tax credits, to fuel cell installations and many states and utilities provide
research grants or operate demonstration projects. Maine does not offer any of these benefits.[74]
·
Access to
market: The barriers a 250-kW fuel cell facility would face
in selling its power are similar to those described for small wind and hydro
electric generators.
Support
Mechanisms
·
Customer
rebates: Customer rebates in the form of a buydown or tax
credit applied against the capital investment would facilitate the initial
installation of both on-site generation and generation for grid sale. Because significant improvements must be
made in fuel cell technology, rebates would be most effective when used for
demonstration or research installations.
·
Small generator
aggregation: A mechanism whereby a single entity aggregates
generation from all small generators and sells or disburses the aggregated
generation to the market would benefit fuel cell facilities that sell to the
market. Such mechanisms are discussed
in section III of this report.
In this
section of the report, the Commission presents a description of resource
support mechanisms used in other states.
The section focuses on Massachusetts and Connecticut because they are
New England states with comprehensive renewable programs that include both an
RPS and an SBC. The Massachusetts and
Connecticut programs illustrate a variety of typical approaches. Information on the mechanisms used in other
states is provided in Appendices E, F, G, H, I, and J to this report.
A. Massachusetts
1. Massachusetts
RPS
As part of its 1997 electric utility restructuring
legislation, Massachusetts required the adoption of an RPS. The final regulations were adopted in 2002
and are applicable to service beginning in 2003.
The Massachusetts RPS applies
only to new resources, defined as systems installed after December 31,
1997. New resources that are eligible
under the Massachusetts RPS are:
·
solar photovoltaic or
solar thermal energy;
·
wind energy;
·
ocean thermal, wave, or
tidal energy;
·
fuel cells using
renewable fuels;
·
landfill gas; and
·
low-emission, advanced
biomass power conversion
technologies[75]
The percentage requirements i