The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
IRP Meets RPS
New green mandates force portfolio planners to re-think their models.
from non-renewable sources).
REC markets can take on a variety of structures. Market rules may allow, or prohibit, credits to be purchased separately from the energy provided. Entities may be allocated REC allowances where the base allowance level represents the REC requirements. Any RECs generated above the allowance base level represent selling excess credits into the market, while any RECs below the allowance base level represent purchasing the necessary credits.
Increasingly, resource planners are finding it necessary to include the analysis of various REC scenarios in the IRPs.
The number of RECs a particular supply resource generates varies widely depending on who is regulating the market. In some markets, supply resources have an REC ratio that is defined as the ratio of renewable energy (GWh) to total energy output (GWh). The ratio varies over time and state regulations may phase in allowable credits for some technologies under different regimes and timetables. The input ratio is applied to the energy output in order to compute the annual REC (GWh) for each resource. Other markets have specific calculations for different supply resources (see Figure 2) .
Incorporating RPS into an IRP requires a strong knowledge of the traditional IRP process and how RPS constraints will influence and impact the traditional process. It forces resource planners to consider how to frame and evaluate these new RPS constraints and impacts.
IRP processes and computational models need to be flexible in representing RPS constraints and characteristics for modeling regional systems, states with differing mandates, potential national-level constraints, REC markets, and more. Regional IRP development requires more careful consideration of the “where” question due to more limited siting options for renewable resources, as well as transmission requirements. Finally, including RPS in the IRP process requires that planners evaluate a variety of regulatory uncertainty scenarios using well-defined scenario analysis.