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Greening the Grid

Can markets co-exist with renewable mandates?

Fortnightly Magazine - April 2007

under ISO control after completion. (See, Petition for Declaratory Order, FERC Docket No. EL07-33, filed Jan. 25, 2007.)

Quantifying Benefits

Part and parcel with California’s aggressive renewable portfolio standard comes a typical problem: How does one define the public benefits that come from renewable energy? Also, how do we evaluate the effectiveness of the “Big R” regulatory regimes that prove necessary to carry out such programs, such as the Cal-ISO’s novel plan for financing transmission to facilitate renewables development?

To that end, Ryan Wiser and the Lawrence Berkeley National Laboratory (U.S. Dept. of Energy) recently released a comprehensive study analyzing the methods, findings, and results of 28 distinct cost-benefit studies, all performed since 1998, evaluating state-level or utility-level impacts of state-mandated RPS programs.

While the study focuses on retail rate impacts, it also observes that some of the public benefits of state RPS policies are not well understood. Moreover, the study finds no universally accepted method for analyzing the cost-benefit impacts of state RPS programs. As the study authors explain, benefits could come in many forms, such as employment gain, mitigation of retail electric rates, improvements in fuel diversity, mitigation of wholesale power prices, avoidance of fuel costs, mitigation of fuel prices (such as the natural-gas price) and reductions in carbon dioxide emissions. (See, Cliff Chen, Ryan Wiser, Mark Bolinger, Weighing the Costs and Benefits of State Renewables Portfolio Standards, A Comparative Analysis of State-level Policy Impact Projections, Lawrence Berkeley Lab, DOE, March 2007, available at ems/reports/61580.pdf .)

Interestingly enough, the CEC already has completed its own cost-benefit study of the Cal-ISO’s new plan. In a very preliminary finding, the CEC concludes that Cal-ISO’s grid financing plan should be expected to develop enough renewable energy by 2012 to trim the wholesale ISO power price at peak demand, from $129/MWh to $121/MWh. Also, it would drop the market clearing incremental heat rate at peak demand from 12,914 Btu/kWh, to 12,099 Btu/kWh, assuming a natural gas price of $10/MMBtu. (See, Assessing System Benefits of Renewable Trunkline Transmission Projects, Calif. Energy Commission, December 2006.)

Nevertheless, the comments on the Cal-ISO plan, filed at FERC through mid-March, reveal at least several key problem areas:

• Abandonments and Free Riders. Since the actual renewable project development would lag the grid buildout, perhaps by years, how can the ISO ensure that the renewable gen units will show up as planned? If they don’t, then a subsidized MURT might end up abandoned. The ISO believes it has solved the problem by requiring proof of “adequate commercial interest,” with a minimum 25 to 35 percent capacity subscription requirement (completed interconnection agreements with plant developers), plus another 25 to 30 percent of demonstrable and tangible interest. This looks a bit like the sign-up procedure that would occur with a natural-gas pipeline open season. However, some say a 50-percent firm subscription is needed. Also, once the line is built, there is nothing to prevent a gas turbine or coal-fired plant from interconnecting with the MURT facility as a free rider, since FERC policy guarantees equal access.

• Assured Physical Access. Second,