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RPS: Should States Get Credit?

The risks in renewable portfolio standards.

Fortnightly Magazine - February 2005
  • wind generator in a "good wind" location needs to move that energy to utilities eager to buy renewable energy, the wind generator often pays more to buy firm transmission (on a per-unit basis) because of the low capacity factor typically found in wind projects. The project may incur multiple transmission charges when delivering to load. These added costs of delivering wind energy are further complicated by pricing formulae that affords no capacity value to the wind generator because the unit is not dispatchable.
  • Pro forma  open access tariffs limit wind generation's ability to compete in electricity markets. Industry norms for calculating transmission losses, scheduling imbalance penalties, and reservation requirements for transmission service conspire against wind projects and limit their competitiveness under traditional grid rules.
  • Will RTOs treat wind energy differently? Organized markets operating under RTOs have the opportunity to create a more hospitable environment for renewable energy-especially wind-by removing some of these impediments to wind development. When combined with the obligations of RPS from the states, we will see some changes in grid rules to accommodate and facilitate wind development and other renewables. RTOs and ISOs can remove pancaked rates, allow scheduling flexibility, and create real-time imbalance markets to realize the desired results. FERC hopes these organized transmission markets optimize the potential for renewable energy's access to transmission capability and facilitate rules and other changes to enable renewables to be in the money.
  • Without an RTO or ISO, state pressure is required. Outside of RTOs and ISOs, renewable projects must find an accommodation with the regional utility players and help them achieve their RPS or other objectives. If the local utility is not interested in the project, getting the cooperation needed to enable it will require substantial pressure from the state regulators. Nonetheless, when the parties are willing to deal, the local utility can offer transmission and other services such as conditional firm, curtailable firm, priority non-firm, and hourly firm to enable wind generators to improve their opportunity for access to the grid. Utilities also can help reduce imbalance penalties and find ways to allow wind resources to contribute to regional reserve requirements and capacity markets ( see Table 2 ).
Table 1 - Renewable Portfolio Standards: Dates and Milestones

RPS, when combined with federal and state tax credits, has created a powerful driver for renewable energy, even in today's overbuilt power generation market. Whether wind generators and other renewable developers can overcome the practical, logistical, and regulatory impediments to getting their projects built and in the money remains a challenge.

Understanding the regulatory rules and expectations in a given utility market is the surest way to a satisfactory outcome.

RPS are all crafted as compromises in their applicable states, so wind developers need to be as skilled as their local utility in understanding and adapting their plans, project characteristics, and business relationships to optimize the chance for success under the RPS and state and federal credit programs.

Endnote:

Table 2 - Renewable Portfolio Standards: Program Details

1. Presentation of Deputy Secretary of Energy, Kyle McSlarrow, at Global Windpower 2004, Chicago, March 24, 2004.

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