Renewable Energy:Renewable Energy:

A Co-op Point of View

Renewable Energy Resources Committee of the American Bar Association Section of Environment, Energy, and Resources

July 20, 2005

Jay MorrisonNational Rural Electric Cooperative Association

(703) 907-5825jay.morrison@nreca.coop

Who Are The Co-ops?Who Are The Co-ops?

• 930 Consumer-owned, Consumer-governed utilities

• Not-for-profit

• Over 37 million consumers in 47 states– 12% of the population, 75% of nation’s area

• 2.3 million miles of line or close to half of nation’s total distribution

• Average of 61 employees and 10,600 consumers v. 1,957 employees and 375,000 consumers for IOUs

• Seven customers per line-mile v. 35 for IOUs

Cooperative Service Cooperative Service TerritoriesTerritories

NRECA’s 2005 Resolution NRECA’s 2005 Resolution Supporting Renewable EnergySupporting Renewable Energy

• “NRECA supports power developed from renewable resources that naturally replenish, utilize residual materials, or recycle waste . . . The use of these resources can be beneficial to our environment and assist rural economies throughout much of the U.S.”

Co-ops Are Encouraged To:Co-ops Are Encouraged To:

• “support the responsible development and use of cost effective renewable resources” on their own systems and through the political process

• “develop appropriate policies on consumer-owned generation, including renewable energy” such as DG interconnection contracts, procedures, and rates

• “develop outreach programs to educate state policymakers, local communities and members about renewable energy”

Cooperatives Support Large & Small Cooperatives Support Large & Small Renewable ResourcesRenewable Resources

• The Cooperative Research Network, in cooperation with U.S. DOE, has spent over $1.6 million in renewable energy RD&D

• CRN, in cooperation with U.S. DOE, has spent over $ 6.5 million in other DG RD&D

• NRECA has partnered with DOE and USDA to promote alternative energy resources.

• NRECA belongs to UWIG, SEPA, USFCC, PLMA, ACORE, and other organizations that promote alternative energy resources

More Support for Alternative More Support for Alternative Energy ResourcesEnergy Resources

• Nearly 300 cooperatives offer consumers a green product.

• Cooperatives supply power from hydro resources, wind, manure digestion, landfill gas, co-fired biomass, distributed generation, and other alternative resources.

• Some cooperatives are strongly supporting ethanol development

Co-op Green PowerCo-op Green Power

Source: Power On-Line Survey 2003, NREL and CRNNRECA: Strategic Analysis, August 2004

There are nearly 300 rural electric systems that offer Green Power

Renewable Generation policies must be consistent with cooperatives’ goal to provide all consumers with reliable, affordable, electric service

The Key for CooperativesThe Key for Cooperatives

That requires due diligence:That requires due diligence:

• By co-ops

• By consumers

• By state and federal legislators and regulators

What Does That Mean?What Does That Mean?• Be realistic about the value of renewable

energy• Be realistic about the costs of renewable

energy• Target support for renewable energy in a way

that:– Is consistent with continued safe, reliable, and

affordable electric service to all consumers– Focuses support on the responsible development

of the most cost-effective resources– Ensures that those who benefit pay the costs

Be Realistic About the Value of Be Realistic About the Value of Renewable EnergyRenewable Energy

Capacity and EnergyCapacity and EnergyCapacity• How much capacity does

the generation provide?

• How much capacity does the generation provide during peak period?

• Is the capacity needed?

• Is the capacity cost competitive?

Energy• Is the energy

needed?

• Is the energy cost competitive?

• Can the energy be delivered to interested customers?

Utility System BenefitsUtility System BenefitsSystem Benefits are very situation specific and can depend on whether the generation:

– Can substitute for a line extension– Is located in an area with expanding demand and inadequate

grid facilities– Is dispatchable and dispatch is coordinated with the local utility– Is maintained in coordination with the local utility– Is reliable– Etc.

Other BenefitsOther Benefits

• Who benefits from the environmental, economic, and other social values of renewable energy?– Local ratepayers– State taxpayers– Nation as a whole?

Be Realistic About the Cost of Be Realistic About the Cost of Renewable GenerationRenewable Generation

Wind EconomicsWind Economics——Not including state or federal incentivesNot including state or federal incentives

• Note, total national grid connected small wind is only 15 MW.

  Small Wind (~5-15 kW)

Large Wind(~1.3 MW)

Combined Cycle Gas Turbine

Installed cost ($/kW)

$2,500-$3,000 $900-$1,000 $400-$800

Electricity Cost ($/kWh)

Up to 15¢ 5.5¢ 4¢-6¢

Other Costs

• Cost of generation is NOT equal to the fully installed cost of a generator + fuel

• Cost of generation also includes all of the other reasonable and appropriate costs of producing energy and delivering it to consumers

• The last cost added to the ledger is not the one at fault for making an investment uneconomic

Safety & ReliabilitySafety & Reliability

• Unit must disconnect when system faults

• Unit must not unduly impact voltage, frequency, harmonics, short circuit capacity, etc.

• Local flexibility is critical to preserve safety and reliability

System UpgradesSystem Upgrades• Distribution systems are not

designed for dispersed generation

• Few rural transmission systems have the capacity for large new generators

• Cost, if any, will depend on size of unit, stiffness of system, amount of generation, etc.

• Consumers should not bear the cost of upgrades unless they benefit from the generation

or

Stand-by ServiceStand-by Service

It costs money to have power available when consumers’ generation goes down, the wind doesn’t blow or the sun doesn’t shine

Properly Target Support for Properly Target Support for Renewable EnergyRenewable Energy

Policies can be designed that benefit the environment, consumers, and rural communities.

But, done wrong, policies can raise power costs and undermine service for rural communities.

Avoid MandatesAvoid Mandates• Renewable Portfolio Standards, Net Metering

requirements and other mandates are poorly targeted.

• Mandates ignore important local differences, can raise energy costs to consumers, and can impose undue burdens on rural consumers.

Avoid Policies That Impose Avoid Policies That Impose Reliability RisksReliability Risks

• Legal presumptions about engineering issues, i.e., all “small” generators can be interconnected reliably anywhere on any system

• Adoption of national engineering standards as applicable everywhere without exception

• Permitting renewable resources to avoid meeting reliability standards or testing requirements, or shifting the burden to utilities to demonstrate “need” for standards applied to all other resources

Beware of hidden subsidiesBeware of hidden subsidies

• Permitting renewable resources to shift interconnection costs, study costs, standby charges, insurance costs, etc. onto other consumers

• Over-compensating renewable resources for energy, capacity, or system benefits

SubsidiesSubsidiesIf the government chooses to subsidize renewable energy:

– Subsidies should be tightly matched to the benefit to be achieved.– The costs should be spread broadly to all in the state/nation, not

just to other ratepayers:• Production incentives for renewable generationProduction incentives for renewable generation• Tax credits for renewable generation equally available to all

sectors (personal, corporate, sales, capital gains taxes all work)

• Grants or low interest loans for renewable generation investments

• Support for businesses developing or manufacturing renewable generation

• Support for RD&D and education– Or, let interested consumers pay a premium for green power.

Other ApproachesOther Approaches• Lower transaction costs

– Support RD&D on generation, interconnection, communication and control techniques and technologies

– Support IEEE’s further efforts to develop 1547 and the Application Guide

– Support balanced and accurate education of consumers and utilities

– Facilitate voluntary green tag trading

• Help consumers and developers find federal and state dollars for renewable energy

ConclusionConclusion• Alternative energy resources CAN be good for rural

communities and consumers

• Focus FIRST on reliable, affordable, electric service for all consumers

• Do your due diligence, recognizing ALL of the reasonable costs of alternative energy resources

• Support for alternative energy resources should be broad-based, not imposed only on local consumers

• Focus on research, GOOD education, & broad-based economic support