Renewable Energy Markets and the Clean Power Plan (Part I) Thomas Vitolo, Synapse David Wooley, Keyes, Fox & Wiedman Ed Holt, Ed Holt & Associates

Transcription

1 Renewable Energy Markets and the Clean Power Plan (Part I) Thomas Vitolo, Synapse David Wooley, Keyes, Fox & Wiedman Ed Holt, Ed Holt & Associates

2 The Influence of Clean Power Plan Compliance Pathway Choice on Renewable Energy Construction Renewable Energy Markets 2016 October 17, 2016 Dr. Thomas Synapse Energy Economics Inc. All rights reserved.

3 Synapse Energy Economics Founded in 1996 by CEO Bruce Biewald Leader for public interest and government clients in providing rigorous analysis of the electric power sector Staff of 30 includes experts in energy and environmental economics and environmental compliance Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 3

4 The Clean Power Plan (abridged)

5 Clean Power Plan and Section 111(d) Who? What? When? Where? Why? Applies to existing fossil fuel-fired generators that were in operation or under construction by January 8, 2014 and that meet certain size and production requirements Covered units must reduce emissions of carbon dioxide (CO 2 ) by the amount determined by EPA to reflect the Best System of Emission Reductions (BSER) for the source category Compliance targets must be met on average over an 8-year interim compliance period as well as in the final compliance year: 2030 Applies to units in 47 states and several Tribal lands (Vermont and Washington D.C. have no covered units; Hawaii, Alaska, Puerto Rico, and Guam will be brought into the program when more data is available on the units in those states/territories) To reduce emissions of CO 2 from the electricity sector in order to reduce the contribution to global climate change Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 5

6 Timeline for Compliance First date for compliance pushed back from 2020 to 2022 Two additional years to complete final State Plans States still expected to demonstrate progress during an interim period through 2029 and must meet the final compliance targets by 2030 EPA may extended EPA holding these dates firm Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 6

7 CPP Compliance Options (abridged)

8 Two Forms of Compliance Ratebased Massbased Compliance is determined on a pounds per megawatt hour basis at the unit level or on a state-wide weighted average basis Compliance is determined on a total tons of CO2 emitted basis (EPA has done the translation from rate to mass for each state) Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 8

9 Two Types of Compliance Plan Approaches Emission standards plan Includes source-specific requirements on all units covered by the Clean Power Plan in order to meet the required emissions performance rates or the state-specific rate-based or mass-based goals State measures plan Includes a mixture of measures implemented by the state, such as EERS or RPS programs, that are not included in the federally enforceable components of the plan. Must include a backstop of federally enforceable emission standards on all units covered by the Clean Power Plan in case the state measures fail to achieve the required reductions. Available only to states who choose a mass-based compliance pathway Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 9

10 Model Rules Potential Compliance Pathways Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 10

11 Emission Trading for Compliance Emissions trading is a long-established mechanism for complying with environmental regulations Acid Rain program, Regional Haze, NOx Budget Trading program, CSAPR, CAIR, RGGI in the Northeast, AB 32 in California EPA provides a panoply of tools to facilitate the use of emissions trading programs in the Clean Power Plan Both of EPA s proposed model rules (rate and mass) include emission budget trading programs Trading options limited by compliance pathway Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 11

12 Allowance Trading Emission Rate Credits (ERCs) represent one MWh of zero-emission generation ERCs can be produced by EE, RE, new nuclear, or performance uprates at existing nuclear, hydro, and NGCC power plants ERCs added to denominator of the lbs/mwh calculation Ratebased Massbased States issued allowances which can be auctioned or given away Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 12

13 Who Can Trade with Whom? Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 13

14 CPP Compliance Pathway Implications on RE Construction

15 Wind and Solar Generation (TWh) USA Wind and Solar w/ & w/out CPP AEO 2016 Reference AEO 2016 No CPP Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 15

16 AEO Run Permutations Reference case: CPP mass-based, new source complement, intraregional trading CPP Rate case: intraregional trading CPP Extended case: mass-based, new source complement, interregional trading within interconnect CPP Hybrid case: RGGI (Northeast) & AB32 (CA) mass-based, remaining rate-based with interregional trading Other cases include Allocation to Generators case, Extended case Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 16

17 Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) AEO Charts: USA, NE, Mid-A, SE 1, All but mass based USA Northeast Mass based expanded trading Rate based 150 Southeast Rate based 50 0 Mid- Atlantic Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 17

18 Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) Wind and Solar Generation (TWh) AEO Charts: West, Upper MW, TX, Lower MW West Rate based Rate based Upper Midwest Texas 100 Lower Midwest Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 18

19 What Else Could Change CPP RE Results? Price of natural gas, coal Price of wind, solar Changes to Clean Power Plan Compliance plan permutations of states, especially with respect to rate vs. mass and within an RTO Changes to other environmental policies related to fuel extraction, emissions, carbon trading, renewable portfolio standards, net metering, nuclear subsidies, tax credits, Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 19

20 Let s talk. Dr. Tommy Vitolo tvitolo@synapse-energy.com Synapse Energy Economics Inc. All rights reserved. 20 Tommy Vitolo

21 Related Media Jackson, S., Santen, N., and Biewald, B. Overview of the Final Clean Power Plan. For the National Association of State Utility Consumer Advocates. August 25, Jackson, S. Overview of the Clean Power Plan Clean Power Plan Summit of Southeastern Advocates. September 23, Energy Information Administration. Annual Energy Outlook July M. J. Bradley & Associates. EPA s Clean Power Plan Summary of IPM Modeling Results. March 4, PJM Interconnection. EPA s Final Clean Power Plan Compliance Pathways Economic and Reliability Analysis. September 1, MISO Policy & Economic Studies Department. MISO s Analysis of EPA s Final Clean Power Plan Study Report DRAFT. May / %20PAC%20Item%2002a%20DRAFT%20MISO%20Analysis%20of%20EPA%20Fin al%20clean%20power%20plan%20study%20report.pdf Synapse Energy Economics Inc. All rights reserved. Tommy Vitolo 21

22 Renewable Energy Markets and the Clean Power Plan (Part I) Thomas Vitolo, Synapse David Wooley, Keyes, Fox & Wiedman Ed Holt, Ed Holt & Associates

23 Federal Carbon Pollution Standards & Renewables David Wooley Keyes & Fox LLP Oakland, CA Renewable Energy Markets Conference San Francisco October 17, 2016

24 Clean Air Act Clean Power Plan (CPP) CPP is, potentially, very good for RE It is likely to be up-held in court Likely to be succeeded by stronger standards But, CPP will not automatically help RE Advocacy needed now Engage with states to influence implementation RE companies need to structure operations in order to access CPP compliance market revenue

25 Ways CPP Can Help RE Increased Utility RE Procurement Emission Reduction Credit (ERC) & Allowance awards/trading State Allowance Auction Proceeds Increased wholesale & retail electric prices Helps secure RE policy supports (RPS, NEM) CEIP early action credits for wind and solar

26 We are not there yet Financial benefits, over long term, are potentially large RE investors will not automatically get a financial reward for lowering CO2 emissions Action needed now to secure them Allowance allocation may be the single-most important decision states will make...

27 States Will Make Key Decisions States will design compliance in concert with Air Quality Regulators, Utility Commissions, Utilities And you Poorly designed state plan could: RATE-BASED: Exclude renewables from ERC eligibilit MASS BASED: Limit award of allowances to utility owned RE systems Adversely affect existing voluntary RE markets Deprive Corporate RE buyers of sustainablity claims and green marketing Disqualify behind-the-meter RE from compliance market Compliance plans that rely exclusively on coal-to-gas shift could drop ERC and Allowance values to zero

28 Key Asks Overall Design Preferences for RE Support Mass Based Compliance system Include new natural gas generation under Mass caps Protest state or utility plans that rely primarily on fuel switching Support regional or interstate ERC/allowance trading Explicitly allow behind-the-meter and non-utility RE to participate in compliance market Secure new policy commitments to RE + defend existing (RPS, Net-Metering, State Tax Credits, etc)

29 Rate-based Plans Key Asks Make RE Eligible for ERCs A state may restrict the definition of eligible resource by allowing only some of the technologies identified by EPA to generate ERCs Clear, easy-to-follow, mechanisms to award ERCs ERC Tracking System Mechanisms to qualify of Independent Verifiers Participate in CEIP Early reductions program

30 Key Asks Mass Based Plan Direct allocation to RE (updating output-based allocation), or Set Aside, for non-utility RE, or Auction revenue is devoted substantially to RE Participate in CEIP Early reductions program Include RE measures in the state compliance plan projections

31 What s it Worth? Too Early to Tell Near Term In some states $0/ton/mWh In many states $1-5/ton $.4 to $4/mWh Potentially more in states that restrict interstate trading & have steep emission reduction target Long Term Expect allowances to trade between $5 and $20 a ton ERCs $1 to $15/mWh Potentially higher if CPP is tightened Could occur before 2030 Likely after 2030

32 Principle Advocacy Venues State air quality regulators - Allow utility-scale and behind-the meter RE to count Be a stakeholder early in the decision making Comment on state implementation plans design State utility commissions resource planning Governors offices Engage utilities on compliance planning

33 Ownership Issues Utilities will try to seize the RECs from RE systems Financiers may acquire RECs as part of financing Commercial customers want the RECs: To capture additional economic value To support Corporate Sustainability claims Emerging ERC & Allowance markets will affect this dynamic: Carbon compliance value is potentially large Emission Caps could create, or destroy, PV s carbon compliance and voluntary market value

34 Implementation Steps for RE Companies RE Companies Rate Based Plans Submit Project Eligibility Application for each qualifying project Describe project Project MWh eligible for ERCs over the life of project Evaluation, Measurement and Verification ( EM&V ) plan Establish Clear ownership of ERCs & Allowances Establish an EM&V Plan Register RE projects in ERC/allowance tracking systems Retain Independent verifier Internal staff to record and trade ERCs and allowances Submit periodic M&V Reports to document MWh generated Trading desk

35 Conclusion Renewables can significantly reduce carbon pollution in the electric sector Carbon Pollution Standards could help expand RE if the rules are properly designed to: Allow solar to count toward carbon emission reduction compliance Preserve private property rights to carbon reduction attributes of solar generation Renewable industry must Be heard on the state implementation plans, and Set up internal mechanism to manage ERCs and allowances.

36 Keyes&Fox Distributed Generation Law Interconnection Net Metering Permitting Contracts Transmission Rate Design Utility Regulation Storage & Demand Response Emission & Renewable Energy Credits DAVID WOOLEY th Street Oakland, CA cell

37 Renewable Energy Credit Registries REC Registries exist throughout US Could be used to preserve private property rights & ERC/Allowance value Increase confidence in RE as CO 2 control measure

38 Renewable Energy Markets and the Clean Power Plan (Part I) Thomas Vitolo, Synapse David Wooley, Keyes, Fox & Wiedman Ed Holt, Ed Holt & Associates

39 Renewable Energy Markets San Francisco 17 October 2016 The Clean Power Plan and Voluntary Renewable Energy Claims 28 Headland Road Harpswell, ME Tel

40 Outline Interactions between VRE and the CPP VRE and rate-based plans Buyer s perspective VRE and mass-based plans Buyer s perspective Ed Holt & Associates, Inc.

41 Premise Voluntary Renewable Energy (VRE) buyers want to make a difference Regulatory Additionality Above and Beyond VRE BAU including RPS, CPP BAU VRE Ed Holt & Associates, Inc.

42 Rate-based Plans ERCs Emission Rate Credits (ERCs) represent a zero-emission MWh ERCs used for CPP compliance only REC used for environmental claims But both are issued for the same MWh, so there is a loss of regulatory additionality Ed Holt & Associates, Inc.

43 Not All RE Will Be Issued ERCs Although overlapping, REC and ERCs still separate instruments All generation certificates RECs ERCs: RE, EE, nuclear, EGU efficiency, gas for coal substitution Generators must apply for ERCs Ed Holt & Associates, Inc. RE ERCs from new capacity post-2012

44 What Can a Buyer Do About It? Buy around the ERC eligibility RE that began construction pre-2013* RE generated (no ERCs issued**) Buy from generators that don t apply for ERCs Accompanied by attestation that no ERCs were issued for the energy produced Buy (and retire) ERCs to match renewable energy purchases PPA or virtual PPA could specify the purchase of both RECs and ERCs * May be limited by Green-e vintage eligibility ** Exception for CEIP Ed Holt & Associates, Inc.

45 Mass-based Plans Allowances Number fixed administratively This emissions cap doesn t change no matter how much RE is generated VRE: Automatically displaces emitting generation RE: BAU BUT allows emitting plants to run more because the emissions cap is fixed Buyers have no effect on emissions Loss of regulatory additionality Ed Holt & Associates, Inc.

46 What Can a Buyer Do About It? Advocate for states to set-aside allowances to be retired on behalf of VRE purchases Like California and RGGI Different from direct allocation of allowances to new RE generation Competition for allowances will create resistance Buy equivalent allowances to match renewable energy purchases Effectively lowers the cap by retiring the allowances Ed Holt & Associates, Inc.

47 Thank you! Questions?