Advanced Renewable Tariffs

Thomas Vlcek – Royal Roads University MBA

Power Procurement in British Columbia

This presentation will cover:

• BC’s Electricity Deficit• Mechanisms of support for renewable electricity• Quota versus Feed-in models• BC tender results• Feed in tariff results

BC’s Electricity Supply Outlook

Source: BC Hydro, “2006 Integrated Electricity Plan,” (Vancouver: BC Hydro, 2006), p.3.

A Looming Power Crunch

Demand for electricity in BC is beginning to outstrip heritage supply

• BC Hydro a net importer since 2001

• Projected shortfall of nearly 20,000 GWh by 2025.

Year GW/h Imported2001 1,7002002 5,2002003 1,7002004 5,1002005 7,400

Source: BC Hydro 2006 IEP.

Imports by Resource Type

Source: BC Hydro Company Web site, accessed February 2006.

BC Energy Plans

2002 Plan’s four main objectives:1. Continued low electricity rates2. Secure and reliable supply3. Private sector investment, jobs4. Environmentally responsible development.

2007 Energy Plan– Self-sufficiency by 2016– Zero net GHG emissions from new electricity

generation

Mechanisms for Supporting Renewables

1.Quota obligation/Tender:

Quantity fixed, market determines price

2.Feed-in Laws:

Fixed Price, market determines quantity

Price Quantity

Feed-in Law Law Market

Quota/Tender Market Law

Tender Process in BC

BC Hydro has issued Calls for Power since the late 1980’s:– 2001-02 Green Call– 2002 Customer-based Generation Call– 2002-03 Green Call– Vancouver Island Call for Tender (VICFT)– 2006 Open Call for Power

CFP Project Status

Result Sum of Capacity (MW) Completion %Overdue 436.02 45.58%Withdrawn 313.6 32.78%Complete 200.1 20.92%Unknown 6.9 0.72%Grand Total 956.62 100.00%

Results of BC Hydro CFP Between 2001 and 2006

CFP Resource Mix

Type Project Count Sum of Capacity (MW) % of Total CapacityHydro 59 1,455.0 64.29%Wind 4 383.7 16.95%Coal/Biomass 2 240.0 10.60%Biomass 2 110.0 4.86%Biomass/other 1 50.0 2.21%Waste Heat 2 11.8 0.52%Landfill Gas 2 6.9 0.30%Solid Waste 1 6.0 0.27%Grand Total 73 2,263.4 100.00%

Share of BC Hydro EPA’s by Resource Since 2001/02

Issues with the Tender Process in BC

Reasons for Attrition:• Licensing and regulation, cost• Financial hurdles, pursuit of lowest price• Transmission expense/economies of scale• Delivery shortfalls/liquidated damages

Other issues:• Exclusion of smaller, community developers• Lack of technological/resource diversity

So What are Advanced Renewable Tariffs?

Basics:

• Fixed minimum price paid to suppliers of renewable electricity

• Long term contracts lasting 20 years• Guaranteed non-discriminatory access to

electricity grid• Cost of tariff borne by all consumers based on

level of use

Dissemination of Alternatives

Obligation or Quota Model– Employed in 38 countries worldwide– Renewable Obligation – RO (UK)– Renewable Portfolio Standard – RPS (USA)– Mandatory Renewable Energy Target (Australia)

Feed in Tariffs– Employed in 41 countries worldwide (2006)– Western/Eastern Europe, Asia– Introduced in Ontario in 2006 (SOC)

Renewable Tariff Design

Key components:

• Simple and transparent• Simplified Interconnection• Prices sufficient to drive development• Contract lengths sufficient for profitability• Prices differentiated by technology• Prices differentiated by resource• Limit on project size but no program cap.

Level of Feed in Tariffs

2005 (Cent/kWh) Degression* (%/a)

Hydropower 6.65-9.67 0

Biomass (<20MW) 8.27-17.33 1.5

Geothermal energy (<20MW) 7.16-15.00 1.0

Wind energy (onshore) 5.39-8.53 2.0

Wind energy (offshore) 6.19-9.10 2.0

Solar energy 43.42-59.53 5.0

ARTs in Europe 2005

Europe has more than 50% of the world’s wind capacity

World Wind Capacity 2005 (MW)

Germany - Feed Law32%

India - Quota3%

Rest of World27%

Denmark - Feed Law

5%

US - Quota16%

Spain - Feed Law17%

Wind Energy in Germany

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5,000

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15,000

20,000

25,000

30,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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h/a

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10,000

12,000

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[MW

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Electricity generation Capacity

ARTs in Europe 2005

World PV Capacity 2005 (MW)

Rest of World21% Germany -

Feed Law44%

Japan22%

US - Quota13%

Germany has developed nearly 40% of world PV capacity

Solar PV in Germany

0

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100

150

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

[GW

h/a

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[MW

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Capacity Electricity generation

Benefits of ARTs

• Pay only for generation• Increased program flexibility

• Lessens Pressure to Get Prices Right the First Time• Reduced development risk

• Contract equals collateral

• Distributed generation

• Tiered tariffs distribute development, add security

• Reduced pressure on best sites

• Profitability Still Higher at Windy Sites

• Reduced NIMBYism

• By Enabling Greater Participation

• By Reducing Concentrations

Standard Offer Contracts in Ontario

Ontario adopted SOC for projects <10MW in 2006

Anticipated benefits:– Improved efficiency through reduced line losses– Improved reliability and stability of the electricity

system– Increased rural investment– Creation of skilled jobs– Cleaner air– Greater public acceptance of renewable energy

Standard Offer Prices

Technology and Criteria YearsYield

kWh/M2/yr

Specific Price $CAD/kWh

Wind

High Wind (<1,100kWh/m2/yr) 6-20 1,100 $0.069

Medium Wind (<900kWh/m2/yr) 6-20 900 $0.090

Base Wind (<650kWh/m2/yr) 6-20 650 $0.133All 1-5 $0.133Solar PhotovoltaicsCommercial Loans 1-20 $0.830Soft Loans 1-20 $0.670Small Hydro 1-20 $0.133Biomass 1-20 $0.133Source: OSEA

Cost of ARTs in BCBritish Columbia Premium Cost for Wind Generation with Advanced Renewable Tariffs

Assumptions:Tariff Price ($CAD/kWh) $0.133 Reference Price ($CAD/kWh) $0.088 Premium Cost ($CAD/kWh) $0.045 Total BC Consumption (TWh/year) 60Capacity Factor 30%

New Cumulative Premium Premium Cost/Capacity Capacity Generation Penetration Cost Total Consumption

Year MW MW TWh % $ $/kWh2010 250 250 0.7 1% 30,000,000 $0.00050 2011 300 550 1.4 2% 65,000,000 $0.00108 2012 400 950 2.5 4% 112,000,000 $0.00187 2013 450 1400 3.7 6% 166,000,000 $0.00277 2014 500 1900 5.0 8% 225,000,000 $0.00375 2015 600 2500 6.6 11% 296,000,000 $0.00493

894,000,000

Summary: ARTs premium will cost British Columbia ratepayers ~0.49 ¢/kWh in 2015.This works out to about $49 for a typical household consuming 10,000 kWh annually.

*Adapted from work done by Paul Gipe for OSEA.

Conclusion

• Tender model has not delivered in BC

• ARTs are the best mechanism for delivering large amounts of RE, – Quick, affordable and distributed

• BC Hydro/Utilities Commission need to explore alternatives to CFP.

Questions?

Thank-you for your time…