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The Art of the Plausible

Prospects for clean energy legislation in 2011.

Fortnightly Magazine - April 2011

while President Obama’s proposal for adding 33 percent of new clean energy by 2035 might be accepted, it’s unlikely his metric of “total” clean energy will.

In addition to absolute percentage requirements, ramp rates (how fast the percentages go up) for new clean energy will be a hotly debated issue. Slower initial ramp rates would tend to provide better ratepayer mitigation, while faster initial ramp rates would tend to promote technologies that can be developed quickly, and have little technology risk associated with them— e.g., gas or some renewables. In turn, larger medium-term ramp rates might tend to promote cost-intensive clean energy sources such as nuclear and coal. For context, the Graham CES bill started at 13 percent for the first two years, increased nominally by another 2 percent for the next five years, then jumped an additional 5 percent starting in 2020, and generally increased 5 percent every five years after that.

In addition, banking and borrowing provisions can have an effect on the ultimate generation mix that’s constructed. Banking provisions allow sources to over-comply in certain years and “bank” the extra credits for use in later years. An unrestricted banking mechanism, such as in the Graham bill, would tend to promote lower-cost solutions, but might also generate an early overbuild and banking of credits from well-known clean energy sources such as gas or renewables in order to delay the need to invest in more cost-intensive technologies such as nuclear or CCS. In turn, structured borrowing mechanisms could allow developers to take credit early for long lead-time clean energy technologies, such as nuclear or CCS, or technologies such as smart grids, which might produce greater savings further in the future. Under the Graham legislation, for example, if a company had a project under construction, it could petition to pull forward an amount of credits expected from the facility when it’s complete for current compliance use. Graham’s borrowing mechanism was, however, limited to a three-year window. A longer window might better promote long lead-time technologies such as nuclear or CCS— e.g., a ratable portion of the credits expected from a nuclear power plant to be completed in 10 years may be used for compliance in each of the 10 years prior to completion of the plant.

Qualifying Sources: The primary CES debate will center on what resources qualify for compliance. Under the Lugar bill, qualifying clean energy sources included a broad array of renewable energy and energy efficiency; coal with 80 percent GHG sequestration, storage or reuse; and new nuclear. 11 Clean energy sources under the Graham bill included renewable energy; coal with 65 percent GHG sequestration; biomass; energy efficiency; and new nuclear generation. 12 Both bills tended to allow power generation from methane (coal-seam methane, landfill gas and biogas from such sources as sewage sludge) to qualify. Obama’s proposal would add natural gas to this mix.

In addition to these perhaps-more-traditional clean energy sources, Graham would allow some credit for retirement of coal facilities, while Lugar would allow credit for power plant efficiency improvements. Notably, the Lugar provisions on power