Renewables:

RPS panel says legislation could help increase security, reduce emissions, and lower costs

After a heated battle in the Senate, language for a national renewable portfolio standard did not make it into the Senate's final energy package. Now, as the House takes up energy legislation, will the discussion over a renewable portfolio standard be revived? During today's E&ETV Event Coverage, RPS proponents explain how a national standard could increase energy security, reduce emissions and lower costs. Panelists include: Leon Lowery of the Senate Energy and Natural Resources Committee; Chris Namovicz of the Energy Information Administration; Marilyn Brown, professor of energy policy at the Georgia Institute of Technology; and Richard Glick, director of government affairs at PPM energy.

Transcript

Carol Werner: Good afternoon everyone. My name is Carol Werner. I'm the director of the Environmental and Energy Study Institute. And we are very pleased to welcome you to this briefing this afternoon and particularly given how bad the weather is outside and how many people we may have in here who are absolutely very, very wet. So, anyway, thank you very, very much for coming to this briefing to discuss a very important issue that is before the Congress as we speak. And our title this afternoon is "Can a National Renewable Portfolio Standard Increase Energy Security, Reduce Emissions and Lower Costs?" So, we have a very illustrious, expert panel with us this afternoon to really discuss this issue. As probably most of you know, the whole issue of a renewable portfolio standard or a renewable electricity standard, as many people are seeing, was before the Senate earlier this year and did not make it into the final bill that passed the Senate. But we are going to be saying energy legislation going on for a long time I think. And what's really going to be an issue now is what is the House going to do as the House takes up energy legislation on the floor later this month and certainly during the rest of the session of Congress. And as we also know, the renewable electricity or renewable portfolio standard is a measure that has been adopted by a number of states across the country over the course of the last several years. And there are now 23 states that have renewable portfolio standards. They are all different and so, therefore, they have accomplished different things and there are different issues associated with each of them. But the basic idea behind them is that there should be a certain amount of power that should coming from renewable energy sources in terms of the generation of electricity in this country and in these various states. The standards that have been enacted across the country cover about 40% of power generation in those states. The panel that we have this afternoon will be taking a look from what has happened in the Senate and in the Senate a renewable portfolio standard has passed the Senate in other Congresses and has been an issue for many years in the Senate. And Senator Bingaman has been a stalwart supporter of a renewable portfolio standard and our first speaker is going to provide that perspective, and that is Leon Lowery, who is with the majority staff, working for Chairman Bingaman on the Senate Committee on Energy and Natural Resources. Leon?

Leon Lowery: Thanks, thank you Carol. I've known Carol a long time. When I first came to town she and I shared an office way out north of DuPont Circle working on -- I don't know what she was working on then. I don't remember. Okay, well that was security, here she still is. I think it's a little unfair that I get to go first because that way I get to steal everybody else's stuff. They did all the work and I'll tell you what they're going to say and then they'll just have to say, yeah, yeah. I also think that it's unfair that on top of that I get to walk over underground and don't get to get out of the cab and get soaked on the way in here. Life's hard sometimes, you know? Carol's right, we have passed a renewable portfolio standard in the Senate for the past three Congresses. I think in 2001 we had 56 or so votes against weakening amendments. The Democrats were in the majority in 2003. That was the year we passed the bill from the Congress before, so we kind of didn't have any votes on the floor. In 2001 the energy bill skipped the committee in the Senate. And in 2003 it skipped the floor in the Senate. And in 2005 we finally got it right and got a bill out, but it didn't contain a portfolio standard even though we had passed one on the floor of the Senate. I'd like to talk just a little bit about why Senator Bingaman is so seriously committed to a portfolio standard and has pursued it for so long and intends to continue until we get it done. Carol alluded to it to some extent. There were three questions in the title. Does it improve energy security? Does it reduce emissions? And what was the other one? Lower costs and the answer is yes, yes, and yes. It does all three. So, if you can accomplish all those goals at the same time why not? You know, when you think about energy security and the concentration that we have these days on - the dependence on foreign supplies of energy of all kinds, not just oil, natural gas increasingly, other forms of energy, maybe ethanol with Brazil being a big exporter. You reflect on the fact that domestic energy supplies cure that. And there's just nothing that's more domestic than the sun shines down on the ground that grows the crops and the wind that blows over it and the water that waters it. You can't get more domestic than that. It represents a real step away from dependence on all kinds of foreign sources of energy and from dependence on fossil fuels to which, as the President acknowledges, we have become addicted. So, energy security, we clearly, clearly improve. Emissions is sometimes debated, but it's clear that from a number of modeling studies, that emissions are reduced. Let me say something about the Energy Information Administration. They do a great job, completely bipartisan. I know, because they treated me just the same when I was in the minority as they do now that I'm in the majority. But they do a great job and do it for everybody, and help us with a lot of information and analysis of hard questions, as do many other people. But their studies indicate that carbon dioxide emissions would be significantly lowered by a renewable portfolio standard. A number of other studies indicate the same thing. I'm going to talk a little bit about all of these studies in a clump in a minute. And as to the costs, we'll get to that in the questions about the studies. Everybody's got battling models, they go back and forth. And I think, under any objective analysis, or analysis of the studies that have been done, the portfolio standard is a clear winner on economic benefit for the country. I think most Americans believe that a lot of our energy comes from renewable sources. You ask percentages and they'll say, "Oh, well, I don't know, 40, 50 percent, 60 percent," because it just makes sense to them that we would be doing that. But, in fact, according to the Energy Information Administration from non-hydro renewable sources, wind, solar, geothermal, ocean, biomass, starting in 1970 we were at 2 percent. We passed PURPA in 1978, we were at 2 percent. PURPA, the Public Utility Regulatory Policies Act, was intended to spur the development of renewable resources and alternative resources of energy. One of Senator Bingaman's favorite charts is a chart that shows this percentage over the years, what percentage of electricity generation comes from renewables, from coal, from oil, from natural gas, used to be oil, from nuclear power. Gas goes up like this. Coal goes up like this. Nuclear power is there at about a steady 20 percent. And way over here, in 1970, it starts at 2 percent for renewables. Goes right straight across the bottom of the chart all the way out to about 2030, still at 2 percent. Maybe up a little bit now that some things have been done. Even with all of the activity recently, still at 2 to 3 percent of our supply. Senator Bingaman looks at that chart and says, "We've tried to do things in the past. They haven't worked. We need to do something else." So what we designed was a standard that requires that 15 percent of the electricity generated and sold in this country come from renewable resources by 2020, and that requirement extending to 2030. We would set it up at the Department of Energy; have the secretary develop a monitoring system. The monitoring systems are fairly easy, everybody keeps track of how much electricity gets sold and where it comes from anyway, already, so that's not too hard to do. But, also attach to that a credit-rating program so that if folks can exceed their requirement, in other words, if they can generate 20 percent of their electricity from renewables they can sell credits. They can either sell the excess 5 percent or use that renewable electricity themselves and sell credits to somebody else. So that for every utility in the country, no matter where located, no matter what the access to renewable sources is, you can use the cheapest resources that are available, always, to meet the requirement. That's the point of the credit trading system. And we worked together with a lot of people who do trading of these kinds of things, SO2 allowances, state renewable credits. And have tried to develop a credit-rating program that will actually work and actually minimize the cost of renewable resources, minimize the cost of meeting, making compliance. We capped the cost at two cents a kilowatt hour, adjusted for inflation. And what that means is that if natural gas costs six cents a kilowatt hour and wind costs eight cents a kilowatt hour, that's high, the difference between the two is the value of the credit. So in this case, the credit would be valued at two cents. You create a national market where through bidding into the market you sort of levelize this differential across the country so that you've got a national market value for the renewable credits. It's pretty simple. I think it will work. It's working in a lot of states. Well, you ask, well, why should we bother if it is in 23 states and the District of Columbia as Carol said? Well, another thing that the EIA report and many other reports indicate is that no matter how many different state programs you develop you can't drive a national market that will minimize the costs for everybody everywhere without a national system, without a national credit trading system. And you won't accomplish the renewable generation that you're trying to get built. All the states together can't come up to over about 6 or 7 percent according to EIA; all of the states are going to be willing to do it. We need a federal renewable portfolio standard, both to minimize the cost and to accomplish these goals. As to the economics, many people argue that it's unfair from one part of the country to the other, because some parts of the country have huge renewable resources and other parts of the country don't. That's just not true. There's not a single part of the country, and I come from Alabama, my daughter lives down there, my mother lives down there, so I care about the effect on them. There's not a single part of the country that doesn't have abundant renewable resources. Sure, everybody thinks of it as wind. This is just all about wind and solar. Well, interestingly, according to the EIA, our portfolio standard that we introduced this year would have resulted in a 50 percent increase in wind generation and a 300 percent increase in biomass generation. There's already twice as much biomass generation in the country as there is wind generation, twice as much. That means at the end of the program there would be four times as much biomass as a result of this program, as there is wind generation. Now, you go to the National Renewable Energy Lab studies and the EIA studies and other studies and see where the biomass exists. The Southeast is one of the most densely biomass potentialed, that's a terrible word, forgive me, regions of the country. There are tens of thousands of megawatts of electricity being generated in the Southeast right now at paper and pulp mills, on farms. There's an enormous potential for the use of farm waste, corn stover, rice hulls, waste from all kinds of wood manufacturers. So there's not this disparity in resources. Sure, the solar is concentrated most in the Southwest. The wind is best up in the Midwest. What's interesting though is Georgia Tech just did a study with the Southern Company they issued last week that indicates there's a really good wind resource just off the coast of Georgia. And they're developing a project to do a test of the facility, just out off the coast; the water is shallow, 14 to 17 mile an hour winds, steady pretty much all the time. That's better than a lot of the resources that are being developed already, so there is potential in every part of the country. A little bit about the economics. There's studies that have been done that were introduced on the Senate side of our portfolio standard that indicated that there would be something like a cost of $250 billion over the life of this project for customers of electric utilities. Well, there's lots of other studies that indicate something very different. And the only way they got to that number was to assume first that the only thing that's economically viable is wind. And second, that wind is so far away that you can't get it everywhere. And third, that it will take a lot of transmission to carry the wind. So you have to add the cost of all transmission that's going to get built in the country to the cost of the wind, whether it's carrying other resources or not. So that you wind up with a price for wind that doesn't even beat the cap price. So everybody just pays the cap price all the time. You know, Lawrence Berkeley Labs didn't find that. EIA didn't find that. Union of Concerned Scientists didn't find that, that you pay the cap price all the time. Right now, in New Jersey, wind credits are at something like seven-tenths of a cent a kilowatt hour. That's not the cap price. EIA, in the 2005 study of our 10 percent portfolio standard, determined that the price of natural gas would go down enough, from the portfolio standards, think about it, you just reduced the demand for natural gas by substituting something else for generation from natural gas. You reduced the price enough that you've saved money on both natural gas, for customers who use natural gas, and the price of electricity. Lawrence Berkeley Lab, Ryan Weiser did a study in 2005 where he had 15 different modeling exercises of different portfolio standards, every one of them came to the same conclusion, that the price of natural gas goes down. Sometimes it goes down to where the price of electricity only increases by an extremely minimal amount. And often the price of natural gas goes down enough that it lowers the price of electricity. Wood Mackenzie, a natural gas consultancy, they've got no stake in this thing. They don't have an ax to grind. They're not advocating for a renewable portfolio standard. They're trying to inform the gas industry. They did a report a couple of months ago that indicated that a 15 percent renewable portfolio standard would lower the price of natural gas from 16 to 23 percent between now and 2026, save over $100 billion, even after you net out the capital costs. Now, does the economics work? Now, think back once more to that interregional debate. The claim is that there's a cash transfer, a wealth transfer from the Southeast, on the part of Southeasterners to the upper Midwest where all the wind is. Well, even if it were true, even if that were true aren't you still seeing the lower price of natural gas in the Southeast? And you're not paying for it. You're not doing the things to accomplish it. Where is the wealth transfer in that case? It's headed in the other direction. This is a fair program. It will work. It has economic benefits. We need to do it. We're going to put a price on carbon, when we do that this will make even more economic sense. There's nothing that we can do to reduce the price of carbon, that saves money, except do this. Now, if we can accomplish those goals, energy security, 10 percent lower carbon dioxide emissions by 2020, that's what Wood Mackenzie said, by 2025, and save customers money, wouldn't we be foolish not to?

Carol Werner: And thank you for addressing a lot of the questions that we so often hear being raised and for anticipating those particular concerns. Our next speaker is going to talk about one of those studies that Leon was just mentioning, and that is Chris Namovicz, who is the operations research analyst at EIA, the Energy Information Administration, which was charged with doing a study. When Senator Bingaman asked for an analysis of the proposal, EIA undertook an analysis and Chris is here to talk about that.

Chris Namovicz: Thank you Carol. I wasn't the only one involved in the study. My colleague, Bob Smith, who's in the audience as well as Jeff Jones, who I don't think it's in the audience, were both instrumental, as well as, of course, my boss, Alan Beamon. For those of you are not familiar with EIA, I think Leon talked about us a little bit. We are an independent statistical and analysis agency within the Department of Energy. By independent, that means that our administrator, Guy Caruso, has the sole discretion to approve anything that we publish, any reports or statistics or analyses that we report. We do not report to the secretary of energy or other agencies within the Department of Energy. We do analyze proposals for policymakers, both within the administration and especially members of Congress in the Senate. We, however, do not design, develop, or advocate for policies. So, the disclaimer here is anything in this presentation should not be construed as being an endorsement for or against any given policy, including the one that I'm going to be talking about. Since Leon did such a good job talking about the proposal I won't have to do too much in the details. I just want to highlight, on this slide, some of, from at least a modeling perspective, what we find are some of the key provisions that were in the proposal. I'm going to talk, in a couple of slides, about the exemptions for hydro and small utilities. There's also a provision that gives distributed generation renewables triple credits in the credit trading program. This is primarily represented within our analysis through customer sited photovoltaics. The requirement that we were asked to analyze expires in 2030, sometimes called a sunset provision. You might hear me use that term. And, in addition, Leon talked a little bit about the renewable energy credits, so that's kind of a key aspect. That it's not a 15 percent requirement on each individual utility, that they have to generate that much renewables, they can trade the credits so that low-cost providers can over comply and sell credits without selling the actual generation to people with higher renewables costs. I guess at that point we were asked to look at it the government credit price was 1.9 cents. I think in the final bill it was up to two cents, so I guess they were already doing some inflation adjusting in that. We use something called NEMS, or the National Energy Modeling System to conduct most of our analyses of policy, as well as to publish our Annual Energy Outlook, which is sort of our baseline look at future energy markets, through 2030. It's a comprehensive model of the U.S. energy supply system. It has supply sectors, including renewables of course, nuclear, oil, natural gas, coal. It has the key demand sectors, represented in some that have detail transportation, industrial, commercial, and residential, as well as the conversion sectors, which would be your petroleum refining and electricity generation. Most of the energy prices and quantities are determined within the model, except for the world oil price, which is an external input to the model. And we are, of course, able to model our PS policies as well as a host of other energy policies. There are some aspects of policies, including this one, that we're not able to model. In particular this one, one of the key that we're not able to model is the double credits for Indian lands. I'll talk a little bit about that towards the end. Although we do have some capacity to model state RPS programs, we did not model those in our Annual Energy Outlook 2007 reference case, which is the baseline for this analysis. So their impact is not included in this analysis. The way we account for the exemptions of the utilities with under 4 million megawatt hours of sales and those with existing hydroelectric and MSW, municipal solid waste generation, since we don't have the capability to model each utility separately and aggregate them, is we remove that generation from the bases before calculating the share. And that has the effect of reducing from the top line, which is supposed to be blue, to the bottom line. The top line is, of course, the familiar 15 percent goal. The bottom line is our effective goal after exemptions and exclusions, which works out to be about 12 percent by 2030. Going over some of the key results, some of which Leon already highlighted for me in advance, we find that the target is achieved. This effective 12 percent target is achieved at all points. However, the actual generation is this bottom green line, that's the qualifying renewable generation that is actually achieved. There's additional compliance achieved because this green line includes one credit per kilowatt hour for photovoltaic distributed generation. But, in fact, those earn three credits, so when you award those three credits you move up to this middle blue line. And then there's also some purchasing of government credits beyond 2020 at that 1.9 cents per kilowatt hour per credit level. Of course, once you hit 2020 and start purchasing the government credits the marginal credit price for everybody becomes the 1.9 cents. This is actually in 2005 dollars, so it doesn't look quite like 1.9 cents. However, prior to that the credit price, when the targets are a little bit lower, is well below that two cent level. So, one of the key questions that people always want to know is what happens to the generation mix? Of course, you're expecting that renewables will increase, and they do, but what's displaced, and we find that the primary fuel displaced over on the left is coal. There's also a little bit of natural gas and nuclear displaced in the middle there. There's not much petroleum to begin with, so there's not much petroleum displaced. Zooming in on the renewable portion of that, as Leon pointed out, the primary source of compliance in this proposal comes from biomass. And that's actually a mix of dedicated biomass plants that are essentially built to burn primarily biomass fuel, as well as the co-firing of biomass in existing coal plants. In addition, especially with the triple credit, solar generation goes up quite a bit and wind generation goes up by 50 percent. Solar, because of the triple credit, although it produces about 8 percent of the qualifying renewable generation, accounts for 20 percent of the actual credits awarded. The second question people want to know about is what happens to the energy markets, the prices that people pay, the money that they're spending on energy? We find the red line up here is the RPS electricity price. The blue line is the AEO. There's a slight increase in the electricity price, especially after 2020, with the RPS. However, especially between 2015 and 2025 there is a slight decrease in the natural gas price, although that tends to revert back to the AEO in the last few years of the policy. The coal price, if you could see it in color you could see that there's a slight divergence between the two lines, but it's a very insignificant impact on coal price. And cumulative expenditures in the end-use sector, for both electricity and natural gas, increased by about a third of a percent or $18 billion. And that's cumulative expenditures from 2005 to 2030. The structure of the power industry, their cost structure also changes a little bit. The fixed costs go down by almost $4 billion, which is somewhat counterintuitive since renewables tend to be higher capital costs and lower operating costs. And the variable costs go up by about $12 billion, or less than a tenth of a percent. Primarily the fixed costs are going down because you have distributed generation, which is outside of the electric sector knocking down the capacity requirements for the electricity sector. And the variable costs go up because of the purchases of credits, both from the government and from the distributed generation sector. The net effect obviously is that the total costs of the power industry do go up a little bit, less than 1 percent. And, finally, Leon talked about emissions, SOX and NOX emissions, sulfur and nitrogen and mercury emissions are all controlled under national cap and trade, emission systems, emissions programs. So the effect of an RPS on those emissions is not really to reduce the emissions, but it does affect the credit prices within those programs. It's basically reducing the costs, the apparent costs of controlling sulfur and nitrogen and mercury emissions trade. In effect, it's transferring some of that cost from the sulfur or nitrogen credit to the RPS credit. However, carbon dioxide emissions are not currently controlled under a national cap and trade system or any other kind of national program. And, as Leon pointed out, they are reduced by almost 7 percent in 2030 and cumulatively, from 2005 to 2030, by almost 2 percent. There are some uncertainties in the analysis. I talked about the Indian lands provisions. We're not able to model - if we were able to model them, to the extent that Indian lands are used to cite renewable energy projects that will tend to decrease the overall compliance costs of the program. It will also probably result in less actual renewable generation. Future costs and performance for everything is uncertain. For renewable energy, a lot of these technologies are very new. And wind has some good commercial experience, but a lot of the solar technologies that we're modeling have very little commercial experience. Some of the biomass technologies we're modeling have very little commercial experience. So it's hard to get a handle even on what the current costs are, let alone what the costs are going to do in the future. Across the entire electricity sector costs are uncertain for new construction. They had been declining quite steadily over the last 20 years, but in the last couple of years costs across the board for wind, natural gas, and coal have been going on. We're assuming right now that that's a short-lived phenomenon and they'll revert back to their historical declines within the next five to 10 years. That's an uncertainty whether they will or not. And for renewables, in particular, costs tend to be very location specific. And we have a national model. We do have regional representation, but it's hard to model the very localized cost differences in renewables, even with the regional representation. Natural gas prices, being a key fuel in the electricity market, that it, in a large sense, sets the marginal price, will have an effect and that's highly uncertain. The effect that that has on the analysis is not necessarily intuitive. Higher natural gas prices, many intuitively think, should make renewables more competitive and they may in fact do that, but the other thing higher natural gas prices would do is make coal more competitive. Meaning that the cost of renewable energy is no longer competing against the relatively high operating fuel cost of natural gas, but now competing against the relatively low operating costs of a coal plant. So, in fact, higher natural gas prices may make the program more expensive and lower natural gas prices may make the program less expensive. We found in the 2005 analysis our natural gas prices were somewhat lower than our 2007 analysis. And, in fact, the renewables did have a more positive economic evaluation in that analysis. And that's one of the big reasons why. So, if you have any questions after the session I understand there will be a Q&A session after everybody has spoken. You're free to call me or e-mail me. And if you'd like to read the report or any of the other reports that we do for Congress or the Annual Energy Outlook, that's our Web site. Thank you.

Carol Werner: Well, as we know, there are a variety of RPS provisions that have been enacted across the country and, as Leon talked about, the one that had been offered in the Senate this year and discussed. And at the same time, there are other designs that have also been proposed that are all similar, but a little bit different. And, indeed, over here on the House side there is a proposal often referred to as the Udall-Platts, H.R. 969, that has 121 cosponsors now in terms of renewable portfolio standard, that has a little bit different design. And our next speaker, Dr. Marilyn Brown, is going to talk about some of those perspectives in terms of looking at some of the variation recommendations that have come from some other groups. As well as raising the whole issue about the role of energy efficiency in a sustainability standard. Dr. Brown is a professor of energy policy at Georgia Tech and also a visiting distinguished scientist at Oak Ridge National Laboratory, where she had been doing many incredible things on energy policy for many years. Marilyn?

Marilyn Brown: Well, it's a great pleasure to be here. I'm delighted to have a chance to share my views on the future of a renewable portfolio standard nationwide. And Chris reminded me I really ought to say that my views, when they are policy advocacy, are from my position as an academic at Georgia Tech and not related to my position as a distinguished scientist at Oak Ridge National Laboratory. The outline of my talk includes, first beginning by summarizing why we need a national RPS. I'd like to talk about some national RPS design recommendations that have recently been published by the National Commission for Energy Policy. This national commission released a report in April which was a set of recommendations to the president, an update on their 2004 recommendations. And in this update issued in April this year, they move from a position of silence on a national RPS to advocacy of a national RPS. I am a commissioner, and so I was very pleased to be part of that change. And I'm also going to talk about the design recommendations of a report recently released called "Renewing America" that was co-authored by Chris Cooper, who's here, and Benjamin Sovacool, here in the white shirt. And they also have briefing books that they were able to distribute to a number of you. And they've reminded me that if you'd like copies just let them know and they'll get them to you. And then third, I'm going to talk about including efficiency in a national portfolio standard, what the pros and cons of that might be. And there I'm going to be drawing from a recent article that I published in the Electricity Journal with co-authors Dan York and Marty Kushler from the American Council for an Energy-Efficient Economy. So I recommend that you take a look at that. It actually was an issue dedicated to the debate over a national RPS. It's a very good set of about eight articles. So, the current renewable portfolio standard landscape is chaotic, different goals by different time periods, allowing different eligible resources that are applied to different subsets of the electricity sector, measured in different ways, and on and on. If our interstate highway system was structured like our renewable energy market drivers would be forced to change their engines, maybe their tires, and probably their fuels every time they cross state boundaries. That's a Ben Sovacool story. Clearly, it's not efficient for the market to be facing such diverse rules. We need a national portfolio standard for many reasons. First and foremost is that I believe we need to increase fuel diversity, we need to reduce CO2 emissions and we need to improve the environmental impacts of energy provision in this country. And, in fact, we have seen that those states with RPSs in place have been responsible for a great deal of the growth in recent years in renewable power. And if, in fact, 20 percent of our electricity in 2020 were to be provided by renewables, then we would be displacing the equivalent of 71 million cars from the nation's highway. We'd be providing something like 40 to 50 gigawatts of new renewable energy portfolio. Now, those numbers don't quite mesh with Chris's numbers because his analysis indicates that the cost of renewables becomes so high eventually that you need to buy a government credit, I think is what's going on. So you're not seeing the renewable investment, you're just seeing dishing out money to pay to not meet the credit. You can explain that better Chris I'm sure. But in my opinion, as we pay a premium to buy down the cost of renewable power production through the economies of scale and learning curves, through experience, we will see a lot of new renewable energy investment. And not just buying government credits. OK, that's point number one. Number two, the improved marketplace efficiency that would come from having standardized rules of engagement, a national standard. Three, would be that we would not necessarily increase electricity prices. It's really not clear what the net impact would be even if it were all renewables. And, certainly in my opinion, if we were to allow energy efficiency as part of that portfolio we would likely see electricity prices reduce and electricity bills decrease. People would be consuming less and paying less. And fourth, states have provided an excellent laboratory for RPS policy experimentation. The time is right, we have enough experience now accumulating from all of the states, 23 with mandatory standards, and additional states with voluntary standards. And we even have several states now with efficiency standards that I'll talk about. So the National Commission on Energy Policy and the Network for New Energy Choices, both issued these reports that I mentioned, which talk about how to design a national RPS. What should we look for? What are the lessons learned from the states? One lesson that is in common, I did a crosswalk between the recommendations of these two reports and they are just about identical. And they were developed entirely in isolation from one another. The first is that these standards should apply to all retail electricity providers, not just investor-owned utilities, not just publicly owned utilities. You shouldn't exempt municipalities or rural electric cooperatives. All of those electricity providers, or what you call in the industry the load serving entities, should be required to meet a renewable portfolio standard. The national standard should not preempt state programs. The national standard should create a floor allowing states to surpass that and exceed that, allow for double compliance so that what helps make the federal goal also would allow the state goals to be made, but then more on top of that should those states choose. The portfolio standards should be neutral in terms of technology. It ought to simply specify the renewable resources that would be qualified and don't go after picking and choosing the winning technologies. Avoid tiers. You'll see, as I describe some of the standards that exist in the states, sometimes they say, well, here they're qualifying renewables, but in the second tier you've got to have at least 4 percent solar or something like that. So, my recommendation and the recommendations in these two reports are that there should be technology neutrality. Should provide credit for early action. You don't want to penalize utilities that are out there investing early in renewable energy resources. One of the ways that this is being done in some states is by allowing that the early action, that is previous investments, reduce the total power against which the renewable portfolio is then applied. So you could do that. And that's been suggested for energy efficiency too. So, if you do a lot of efficiency you bring down that total generation, energy or load, and make the renewable standard meet that lesser amount. Another is that you'd want to allow for national trading, including efforts to standardize the monitoring and the verification of credits. The national REC trading market would provide utilities with great flexibility in meeting their standard. And last is to include the express provision assuring retail electricity providers get a rate of return or a cost recovery and a fair rate of return. There are examples in the states where a fair rate of return has been designed in markets that have both been restructured and those that are currently still operating under traditional regulation. So, in every type of state regulatory environment you can arrange for cost recovery and fair rate of return, but the states would have to play a role in that, to make sure that happens. OK, so what about efficiency? You know, if the goal is to reduce CO2 and to provide fuel diversity, then why not include energy efficiency? It's the fastest, cheapest, cleanest resource. There are monitoring tools that have been used for decades by the electricity industry and states to verify and ensure the performance of the efficiency programs. Besides creating more renewable electricity generation it would provide another option for utilities, more options to meet targets, it would minimize costs and maximize profits, and it would allow renewable resource poor, relatively speaking, states to meet standards through efficiency improvements. Resource poor states have been viewing the RPS, the national RPS standard as an economic development program for everyone else. They're very worried. Are they just going to be sending money elsewhere to buy credits? Certainly not if energy efficiency were included and I would hope not even with just a purely renewable based standard. But I did want to speak a little bit to the renewable resource across the nation. And there are three here that are characterized; wind, biomass, and PV. And this list of bulleted states shows you where there appears to be insufficient resources. Now, this map characterizes those states, the situation, and it is incomplete in that I don't show offshore wind resources, because they are very poorly characterized. And it may be that Georgia has some, it's unclear. We need a better handle on that. But as it stands, the Southeast really does just seem to have biomass, at least some of the states. The geography of renewable energy resources is very uneven, in contrast to the geography for energy efficiency. First, energy efficiency is really affordable, in fact, profitable. This was a graph from a study done by Mackenzie that was published a few months ago. It's a supply curve for CO2 mitigation. Everything below the curve pays you back. It's profitable, like insulation and fuel-efficient trucks and high-efficient motors. In fact, seven of the nine, it says six there, that's a mistake. It's should say seven. Seven of the nine options, lighting, air-conditioning, water heating, fuel-efficient vehicles, standby losses I think is the one I made the mistake on, they're all below the line. That is, they're profitable and they're all efficiency. Standby losses for instance, Amory Lovins estimates that if we were to reduce standby losses in this country we could shut down 20 power plants. So these resources are big. The cheapest megawatt is a negawatt, the megawatt we don't produce. So, cost competitive efficiency exists in every state. It's a great equalizer. I think it could be a very useful tool to gain the political support of regions that are otherwise fighting an RPS. Experience with a sustainable energy portfolio standard is growing. These are the standards that combine renewables and efficiency. And there are also states that have just energy efficiency resource standards. Those are the two acronyms there. The first state to have a sustainable energy portfolio standard was Hawaii. In 2001 they passed an RPS and in 2004 they added efficiency to that portfolio standard. And since then they have increased their investments in efficiency. Pennsylvania was the next to design a sustainable energy portfolio standard. In 2004 they designed and integrated new statewide policy, renewables and efficiency all eligible to meet their goal. Unfortunately, depending on your point of view, included in their eligible resources was waste coal generation and that has picked up most of the fuels to meet their current goals. We're hoping that years out they'll be turning more to efficiency. So what I'm talking about are the black states, the sustainable energy portfolio standard states. The third state, actually my favorite in terms of how the design for this integrated system has played out, is the state of Nevada, which, again, had an RPS and added efficiency. And they have done so well in promoting efficiency that their expenditures went from 16 million in 2005 to 30 million in 2006. They are really moving that market forward. Other states, you can see, there are six states that have energy efficiency resource standards in place. The latest one is Minnesota, which just passed, I think last week or the week before or pretty recently. And then there are three other states that have pending legislation to establish an energy efficiency resource portfolio. So, experience is growing. So, in conclusion, we need a national portfolio standard. It would add energy resource flexibility if we were to include efficiency, reduce costs and improve the equity of meeting the standard across the states of the nation. Thank you.

Carol Werner: Thank you Marilyn. OK, we will now turn to the fourth member of our panel before we open it up for your questions. And this gives us an opportunity to hear from Richard Glick, who is with PPM Energy, where he is the director of Government Affairs. And Rich and I have also known each other for many years. We first met years ago when you were over working on energy policy issues in the Senate on the Senate Energy Committee.

Richard Glick: I feel kind of like the old Moe Udall jokes about everything has been said that needs to be said, but not everyone has said it. And I know I'm finishing fourth here, so I will try to be pretty quick so we can get to the questions and answers and I'll skip over some of the stuff that I was going to go over because it was already covered. But what I really want to focus on, and the reason I want to focus on this is because the House may be taking up an RPS amendment on the House floor, hopefully some time by the end of the month, before the end of the month. And so what I would like to do is kind of address some of the issues that were raised during the debate over on the Senate side, as you probably know in the Senate it never got a vote, but there was a two-day debate on this issue. And there were a lot of issues raised and a lot of issues raised primarily by utilities that oppose the RPS. So, I want to kind of address their myths so to speak and address them with facts. Just a quick, really quick 30 seconds on PPM Energy. We are primarily a wind power developer, so obviously we like our national RPS. We are the second biggest wind developer in the U.S. We were just about a month and a half ago purchased by Iberdrola, which is a big Spanish utility. And Iberdrola is actually the worldwide leader in wind energy. They have about 6400 megawatts of capacity overall in the world and they plan on becoming a very big player in the U.S. Obviously, since we're number two, we're striving to be number one, one of these days. And here is just a quick map of our assets across the United States, our wind assets. We're pretty much spread out across the country, except for the Southeast. In terms of background, I think we covered most of this already. Leon pointed out that renewable energy, non-hydro renewable energy, is still at a very low number despite all the policies that we have tried to develop and implement over the years. Certainly, the biggest reason for that clearly is cost. I mean utilities by power and generate power, presumably for the most part based on what the cheapest resource is. And even though we made great strides in improving costs, bringing down wind cost significantly and even some of the other technologies, the fact is that we're still not quite competitive yet with the fossil generation technologies. And there's all sorts of reasons for that. In addition to that, some utilities are getting very comfortable with wind and other renewable resources, others kind of lagging behind. And that lack of comfort also presents a barrier as well towards generating more renewable energy. Certainly, everyone probably in this room knows that we currently in the tax code have a renewable production tax credit, which has greatly helped to alleviate the delta, the difference between fossil fuel generation and renewable generation. But there are some policy issues there. Mostly for financial reasons the tax credit hasn't been extended for long periods of time. The House bill actually has a proposal for a four-year PTC extension, which would be great, but there's still a lot of uncertainty out there, market uncertainty. And that's where the portfolio standard comes in. It really creates a long-term measure of certainty for investment in terms of renewable energy. It essentially creates the market, the demand for renewable energy and that really greatly helps. And as has been mentioned numerous times now, we have a number of states, I think 23 or 24 states, that have state RPS type programs, and that certainly helped. But at the same time we really need more of a federal approach, a national approach really to deal with some of the efficiencies of interstate credit training and certainly planning renewable energy on a nationwide basis. I think we've already heard a lot about the benefits of a national RPS. I just want to focus really on two of them. One is on energy independence. We haven't really talked a lot about that. Natural gas is becoming increasingly a fuel of great concern from a national energy security basis. We use enormous amounts of it in electric generation, as a matter of fact, I think like somewhere over 90 percent of all new electric generation is fueled by natural gas. And that trend is expected to continue for a while. And our supply in the United States and in Canada is not really keeping up with our demand. So, we're on the verge, and many of you are probably aware of this in your offices and so on, we're on the verge of importing great amounts of liquefied natural gas. And there's nothing wrong with liquefied natural gas, except there are some safety concerns that people have and so on in terms of unloading and loading the fuel. But putting that aside for now the real issue is that we're importing this gas or we're going to be importing all this gas from countries that are not necessarily our greatest friends, in addition to Venezuela, a lot of countries in the Middle East. And, as a matter of fact, I know the House either has or is going to vote on a resolution soon, but there's been a proposal hanging out there for a little while among these countries to form an OPEC style cartel for natural gas. So, one way to really dramatically reduce natural gas demand is in the electric generation sector and the way of doing that, clearly, is through more renewable energy generation. And then the other benefit I really wanted to focus on a little bit is the economic benefit. There's all sorts of estimates about increased jobs, many more increased jobs as opposed to if you build traditional fossil electric generation technologies. But, in addition to that, I'm sure some of you work for offices that represent rural districts or rural areas around the country and there's great upside there, obviously, with regard to wind. We actually pay farmers essentially between $4,000 and $8,000 a turbine, which can mean a significant amount of income for them, especially in years where crop prices aren't as high. In addition to that, we're some of the greatest taxpayers in districts, in counties that don't necessarily have a very strong tax base because of the rural nature. So, anyway, just to get to the part I wanted to mention. I really want to talk about six myths that came up. There were many more, but I want to talk about the top six myths so to speak that came up during a Senate debate and I'm sure that you'll be hearing about if you haven't already from some utilities and other opponents. And not all utilities do oppose, there actually are a lot of utilities that support a national RPS, but there also are a number that don't as well. Number one, and this has been addressed ad nauseum. We probably don't have to spend a lot of time on this. But people say electric prices are going to skyrocket, Leon already told you about the Edison Electric Institute, the trade association for investor-owned utilities, that it came out with some study that's pretty ridiculous when you look at the numbers and you look at their analysis. And I listed here some of the studies that we already talked about, Wood Mackenzie, EIA is a little more modest and I think part of that is because they assume much more coal than all the other studies that people take a look at. But, generally, at the very worst, electricity prices and overall energy prices including gas prices are going to pretty much remain neutral. At the very best you're going to see significant reductions in electric prices and natural gas prices for consumers. So, clearly in terms of electric prices skyrocketing, I think that's not a very reasonable argument, especially when the Udall bill, which will probably be the proposal voted on in the House floor, contains a cost cap of three cents a kilowatt hour. So certainly to the extent that you're going to say renewable energy is going to increase our electric bills if there's a cost cap to it, it's certainly not going to increase it too much, if at all. And, as I mentioned before, the lower natural gas prices should take care of that. In addition to that, having a national RPS and allowing an interstate trading market obviously reduces the cost for renewable energy as opposed to if you're just in Nevada and you say you have to have Nevada renewable energy resources to buy. It's a lot cheaper if you can buy some of your resources in Oregon or California or someplace else, and that allows for an interstate trading system. The second myth, and this is the one that made me really mad, obviously I work for a wind company and we certainly support a national RPS, but people kept on calling it a wind portfolio standard during the Senate debate. They said if you're in a region that doesn't have wind, and I know Marilyn talked about that a little bit, but if you're in a region that doesn't have wind you're basically screwed, you're going to end up just buying credits from people in other regions. Your rates are going to go out and you're going to have a big wealth transfer. Well, that's clearly not true and, again, EIA analysis, which I think is very, very well done on this particular point. Obviously, biomass generates four times as much electricity as wind does. And, again as Leon pointed out, I hate to be too repetitive, but the Southeast is where a significant bulk of the biomass is. Now, in addition to the offshore wind that the Southern Company is talking about, and we talk about the Southern Company a lot because they're the primary opponents I think, I would say of this particular proposal. They are also doing a substantial amount of work and co-firing biomass in their coal-fired power plants. And that portion of biomass that they would use would get counted under the Udall bill. So, they clearly have enough resources to do it. They would do well. It's really just a matter of will and not wanting to change from the generation mix that they would like. And one other part about the Southeast, I don't know how many people here are from the Southeast, but we talk about, well, you're going to have to import all of these renewable credits of renewable energy that may not be generated in Georgia for instance. But the fact is they already import coal. They import natural gas. They import uranium, obviously for nuclear plants. Most of that stuff's not located in their states anyway, so it's really kind of a false argument to say we're going to be importing renewable energy. We need to have home-grown, in-state resources because they don't really have in-state resources for their electric generation mix currently. The third myth, and this is a little more tricky and complicated, but this has to do with the argument that we already have 23 or 24 states that have done state renewable portfolio standards. So if we have a national RPS that's going to mess around with what the states are doing. We're going to preempt the states. The states make local decisions. We shouldn't be doing that. Well, the fact is that, again, the Udall-Platts bill, H.R. 969, and this is also true of the Bingaman bill, has a specific provision that says that state programs essentially, states are allowed to go further than the federal program. This is not atypical from a lot of environmental statutes which says you have a federal standard. The states can go higher if they want to. But certainly state programs are specifically not preempted in both bills, there's a specific language on that. In addition to that, for the most part, and admittedly each state defines renewables slightly differently, but for the most part you're going to get the bulk of your state renewable energy credits from biomass, geothermal, wind and solar and ocean technology and others as well, which are defined in the federal bill as well, in H.R. 969. So to the extent a utility earns a credit pursuant to a state program, it will also earn a federal credit without having to take any additional action. Again, there are differences and I want to be clear that it's not one for one, that some states define hydro slightly differently, and incremental hydro slightly differently. Some states, like Pennsylvania, do allow a small portion of coal waste to count. And that certainly wouldn't count at the federal level, but for the most part the vast majority especially of the states in the bigger state programs, really are going to be complied with, with renewable energy that's defined in the federal bill. So you're not really talking about any additional burden. The fourth one is slightly a little more complicated and the utilities say, well, wind power only can be generated when the wind's blowing. Solar power, for the most part, can only be generated when the sun is shining. You're still going to have to build all these other power plants to run when the wind isn't blowing and the sun isn't shining. Well, putting aside the fact that biomass and geothermal and some other renewable resources are more baseload, meaning they could run all the time, regardless of whether it's sunny or windy or whatever. This fact is there are going to have to be back-up power plants. There always are, but the benefit really doesn't come from not having to build the extra plants. The benefit comes from those plants aren't running when the wind is blowing, when the sun is shining. And that's the real benefit. You're backing down coal. You're backing down natural gas. You're not using those plants when you have renewable energy available. So, you're actually reducing your costs as opposed to increasing your costs, what the utilities would like you to believe. Clearly, there's an element - you know, one of the benefits of a national RPS is reducing greenhouse gas emissions. And I think Leon mentioned the Wood Mackenzie study calculates that the benefit's going to be about 10 percent reduction in greenhouse gas emissions from the base case. But the problem is that almost every other greenhouse gas proposal, and we're not against them at all, but almost every proposal that's been considered and examined here, whether by EIA or other analytical groups, suggests that those greenhouse gas cap and trade programs are actually going to increase the demand for natural gas. And a lot of companies are going to switch from coal or nuclear to gas, or not nuclear, but coal or oil to gas. And by doing that you're obviously going to increase natural gas, you're going to increase costs. Renewable energy provides the greatest hedge to that. It basically says you have more renewable energy, you back down the demand for gas, you back down the cost for gas, you're actually not going to an increase, a more costly program. In addition to that, as I mentioned earlier, there are other benefits as well to an RPS beyond just climate. And the national security benefit I think is very important. And then finally, I'll be quick on this one, I see some people here from NRECA, and this is an important one because I've been in a lot of offices so far here on the House side where people say, you know, my boss is going to have a hard time supporting this Udall-Platts bill because the co-ops, the rural electric co-ops are telling me this is going to cost them an arm and a leg. They can't afford to do this. We may have to vote against it. And the fact is the Udall-Platts bill exempts, completely exempts all municipal utilities and all rural electric co-ops. And so whenever someone says that to you, please, please, push back. Please remember that the bill specifically exempts all those utilities. And that's really to get at the argument that all utilities are going to have a hard time administering a big program that the investor owned utilities would have an easier time doing. So, anyway with that, I guess we're ready for questions, right?

Carol Werner: Thank you. Thank you very much for walking through a lot of those arguments that come up a lot of time and I think that there has been a lot of misinformation that has been around. And that it's really important to try and understand what really are the facts and to look at everything in a more holistic way. And also, in terms of looking at all of the other attributes, how it's climate, it's economic development, it's energy security, etc.

[End of Audio]

Latest Selected Headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

Latest E&ETV Videos