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THE RENEWABLES PORTFOLIO STANDARD

The "renewables portfolio standard" proposed by the American Wind Energy Association (AWEA) would integrate renewables into the market place -- unlike Britain's Non Fossil Fuel Obligation (NFFO) which has created a sub market operating on the margins. "Mainstreaming renewables" is the current catch phrase applied to the standard, which would require every power supplier at the retail level to purchase a percentage of its energy requirements from renewable resources.

The application of the standard to retail level suppliers is an important distinction. These suppliers are identified as utilities, independent power producers, and power brokers -- entities which open the window for direct access by residential and other customers. Power plants selling at the wholesale level would not have to comply with the standard. In their case, responsibility for buying renewable power would fall to the local distribution company (LDC) that supplies power at the retail level.

xThe exact percentage of each supplier's energy requirement to be met with renewables would be based on a state's goals for resource diversity and economic and environmental protection. In California AWEA has proposed initially maintaining the current levels of non hydro renewables -- 12% of the state's capacity, ramping up to 13.5% by 2002. Meeting this target would bring 440 MW of renewable capacity on line over the next six years.

Within the standard all the renewables compete. The most cost effective -- most likely wind -- would be developed first. However, there is an option for founding an independent institute to continue R&D funding of energy efficiency and renewable technologies, paid for by a separate charge on customers' bills. AWEA consultant Nancy Rader estimates that above market costs of more expensive renewables would amount to $5-10 million annually.

Individual requirements on power suppliers to purchase renewable capacity would be tradable, like the air emission trades allowed under the US Clean Air Act. One seller of electricity could meet its standard requirement by financing a wind farm elsewhere if a better wind resource there lowered the overall cost of complying with the mandate. Failing that, it could buy surplus renewables credits from a competitor which had more than met its obligation under the standard by investing in, or building, a large wind farm.

The best thing about AWEA's renewables standard is that government involvement would be kept to a minimum, says Rader. If the standard had applied to local distribution companies -- as in the case of the UK's NFFO and the scheme put forward in the US by Independent Energy Producers (IEP) -- bureaucratic management would be unavoidable. Neither would it be possible to avoid a levy on customers' bills to pay for the premium payments for renewables. With AWEA's approach there would be no such separate charge that could become a subsidy target for opponents to hit. The subsidies for renewables would be blended into the overall price of electricity.

AWEA's suggested market structure, however, still retains the keen competitive element of NFFO. Firms like power brokers would find creative ways to reduce the cost of renewables. Some might decide to aggregate requirements and develop one huge wind farm to meet their individual percentages. Others might shop across the country, looking for those with excess renewable credits.

Government involvement would be limited to ensuring the power industry fulfilled its obligations under the standard and to facilitating trade in renewable energy.

Under the standard, power suppliers would be allowed to meet demand from consumers keen to buy renewable energy, even if this demand was over and above the percentage requirement. The standard could also be implemented under the current system of vertically-integrated utilities.

From AWEA's standpoint, this last point is important since utilities are resisting any obligation to buy clean power that could place them at even the slightest economic disadvantage in short term power markets. If strong policies are put in place today, all power suppliers -- including utilities -- will understand that investments in renewables such as wind power will become the responsibility of each and every seller.

In short, though purchase of renewables under the standard may impose some additional costs to suppliers, an explicit subsidy for renewable resources becomes a thing of the past. Rader confirms that the overall cost of the AWEA scheme, as estimated by IEP, could be $60-90 million a year. But she says this would decline rapidly as the marketplace discovered the cheapest way to meet the renewables mandates.

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