clean energy to promote clean air & improve electricity price stability alden hathaway, ert...

CLEAN ENERGY TO PROMOTE CLEAN AIR & IMPROVE ELECTRICITY PRICE

STABILITY

Alden Hathaway, ERT

Debra Jacobson, GWU Law School

April 6, 2006

Overview

• Renewable Energy as a Resource to Improve Electricity Price Stability

• Promoting Renewable Energy & Efficiency with the VA Clean Air Interstate Rule (CAIR)

• SCC Rulemaking on Time-of-Day Metering

Renewable Energy as a Resource to Improve

Electricity Price Stability

RE Electricity Generation in Virginia

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Year

% R

en

ew

ab

le

Renewable Generation in VA by Fuel Type

Source: US EIA

Landfill Gas

Other Biomass

MSW/Biogas

Conventional Hydro

Wood/Wood Waste

Solar

WindGeothermal

Geothermal

Conventional Hydro

Landfill Gas

MSW/Biogas

Other Biomass

Wood/Wood Waste

Solar

Wind

Future RE Potential in VAVirginia Study Identifies Capability to Develop 930

MW of Renewable Energy:

Roughly 300 MW (of Biomass) could be developed in the near term;

Wind development in Virginia is probably limited to 400 MW over the next five to 10 years;

16% and 19% of Virginia’s annual electric demand could be generated by Solar Energy, assuming all available commercial and residential roof space was converted to solar

Source: Study Commissioned by Virginia Commission on Electric Utility Restructuring and presented on Jan. 6, 2006

What is the Value of Fixed Price?

• Hedge against electricity supply price increases

• Key element of portfolio risk management

• Has positive long-term financials (e.g. Net

Present Value)

• Enables multi-year energy budgeting

• Provides Renewable Energy Credits (REC)

Renewable Energy as a Fixed Price Energy Resource

Historical Electric Rate Increases

• 1985 – 2000: Average Electric Costs increased at an

average annual rate of 3.2 %*• 2000 – 2004: Average Electric Costs increased at an

average annual rate of 16.2%*• Projecting Backward to 1986 = 5.96% Increase

per Year!!

* Extrapolated from 2004 Annual Energy Review - EIA

5

5.5

6

6.5

7

7.5

8

1999 2000 2001 2002 2003 2004 2005

Ce

nts

/ k

Wh

Nominal Electricity Prices

Linear (Nominal Electricity Prices)

Historical Energy Statistics

Causes for Electric Rate Increases

• Fuel Cost Increases• Natural Gas Prices Up (Rising Demand/Falling

Supplies)• Coal Prices Rise as Utilities switch back from Nat

Gas

• Oil Prices Rise (World Approaches Hubbert Peak)

Causes for Electric Rate Increases• Fuel Transportation Costs Increase

• Coal Transport by Rail near Capacity• Natural Gas Pipelines Approaching Peak Capacity

Causes for Electric Rate Increases• Air Compliance Costs Increasing

• Sulfur Dioxide Credits (quadruple their price in 2

years)• CAIR driving Nitrogen Oxide Credits to all time high• Mercury?• Particulates?• Carbon Dioxide???

Fixed Price ContractsFixed Price Renewable Energy vs. Annual Electric Rate Increases

$0.050$0.060$0.070$0.080$0.090$0.100$0.110$0.120$0.130$0.140$0.150$0.160$0.170$0.180$0.190

6% PriceIncrease

RenewableEnergy

Crossover Point

Fixed Price PPA ContractsFixed Price Contracts

vs. Annual Electric Rate Increases

$0.050$0.060$0.070$0.080

$0.090$0.100$0.110$0.120$0.130$0.140$0.150

$0.160$0.170$0.180$0.190

6% PriceIncrease

RenewableEnergy

Crossover Point

When the Crossover Point occurs less than half-way into a fixed price renewable contract, there will generally be a net energy cost savings over the contract term.

Fixed Price Renewable vs. Electric Rate Increases

$0.0450

$0.0500

$0.0550

$0.0600

$0.0650

$0.0700

$0.0750

$0.0800

$0.0850

$0.0900

$0.0950

$0.1000

$0.1050

$0.1100

1998 1999 2000 2001 2002 2003 2004 2005 2006

VEPCO

RenewableEnergy

Average USBrown Power


$0.0450$0.0500$0.0550$0.0600$0.0650$0.0700$0.0750$0.0800$0.0850$0.0900$0.0950$0.1000$0.1050$0.1100$0.1150$0.1200$0.1250$0.1300$0.1350$0.1400$0.1450$0.1500

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

VEPCO

RenewableEnergy

Average USBrown Power

Maryland

Delaware

Rate Caps Coming Off in Several States

• Delaware - Conectiv seeking Rate Hike of 59%

• Maryland – Caps coming off July, 2006

Rate Hikes of 40 - 80%

• Virginia - Caps on until 2011, but VEPCO allowed correction for rising fuel costs in 2007

Rate Hike of 20 - 25% in 2007?


$0.0300

$0.0500

$0.0700

$0.0900

$0.1100

$0.1300

$0.1500

$0.1700

$0.1900

$0.2100

$0.2300

$0.2500

$0.2700

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

US AverageIncrease

DelawareBrown

MarylandBrown

VEPCOBrown

RenewableEnergy

Promoting Renewable Energy &

Energy Efficiency with the

VA Clean Air Interstate Rule

Source: VA DEQ

VA Nonattainment Areas

Source: U.S. EPA

EPA Clean Air Interstate Rule

• Regulator – EPA or State:– Sets an emission cap (in tons) for particular pollutant (e.g.,

SO2, NOx) for a specific sector (e.g. electric generation)– Distributes allowances that permit emissions of a specified

amount of a pollutant in a particular year/season

• Fossil Fuel Generators meet requirements by:– Reducing emissions;– Buying or selling allowances.

Emissions Trading Basics

VA Clean Air Interstate Rule (CAIR)

• State can select its own allowance allocation system

• Allocation of allowances in a set-aside to spur energy efficiency and renewable energy (EERE) is necessary for local governments to receive credit in their regional air quality plans for NOx reductions from EERE measures

• Advisory group recommended EERE set-aside

VA CAIR

• VA General Assembly adopted legislation (HB 1055) in March 2006 that provides a new source set-aside to support new EERE projects as well as new fossil fuel projects

• 5% new source set-aside from 2009-2013

• 2% new source set-aside from 2014 forward

Comment Period for VA CAIR

• VA Air Pollution Control Board will release draft VA CAIR for public comment

• Municipal support of EERE set-aside is essential

• Urge refinements in draft rule

SCC Rulemaking On Time-Of-Use Rates and

Smart Metering

Rulemaking Required by Energy Policy Act of 2005

• SCC required to initiate proceeding but does not have to issue final rule

• SCC initiated proceeding on February 6, 2006 (Case PUE-2006-00003)

• Public comments due by May 12, 2006 as to whether SCC should require electric utilities to:

(1) issue time-based rate schedules; and (2) offer time-based metering systems.

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Date

Nom

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$/M

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Weekly Off peak Average

Weekly On-peak Index

Peak Wholesale Prices Occur During the Mid Afternoon Hours

$50 - $60 peak prices vs. $15 average off peak rate adds 3.5 – 4.5 cents per kWH to the cost of electricity

Currently this cost is added to overall consumption cost for all load. Thus, all electric consumers subsidize the peak wholesale price hikes

Which Load is Lower Cost to Serve?

or

Importance of Time-Based Metering

• Crucial is recognizing value of solar technologies in reducing peak loads

• Solar Energy Savings More Attractive with Time of Day Based Rates

Solar PV Energy Dist

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Time of Day (Hour)

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Contact Information

• Alden HathawayDirector of EcoPower ProgramsEnvironmental Resources [email protected] 202-785-8577 x 13

• Debra JacobsonProfessorial Lecturer in Energy LawGWU Law [email protected]

mailto:[email protected]

mailto:[email protected]

clean energy to promote clean air & improve electricity price stability alden hathaway, ert...

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