A Comparison of Feed-in Laws, RPS, & Tendering Policies
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Transcript of A Comparison of Feed-in Laws, RPS, & Tendering Policies
A Comparison of Feed-in Laws, RPS, & Tendering Policies
Jan Hamrin, PhDPresident
Center for Resource Solutions
Bangkok, Thailand
August 28, 2006
www.resource-solutions.org
Outline of Presentation
•Key RE Policy Types:• Feed-in Tariff • Renewable Portfolio Standard (RPS)•Tendering Approach
•Comparison of Results•Criteria for Decision Makers•Conclusions
Key National Renewable Energy Policies
Feed-in Laws
Government Mandated Price• Utility must take power from eligible facilities• Focused on new and emerging technologies• Four methods of setting price
– Estimated long term cost plus reasonable profit – Wholesale avoided cost of power (Calif. 1980s)– Wholesale avoided cost of power + incentive (China)– Percent of retail electricity rate (Europe)
Feed-in Law Success Factors
• Long-term Contracts – 15-20 years
• Guaranteed buyer under standard contract
• Tariff that gives reasonable rate of return
• Flexibility to capture cost efficiencies
Renewable Portfolio Standards (RPS)
• Quantity-based Government Mandate
• Focused on Emerging and New RE Technologies
• Requirement on Wholesale or Retail Market Participants (Utility or Grid Company)
RPS Success Factors
• Policy design is critical to success!
• Energy/Output-based target levels– Target increasing over time– Only new and emerging RE are eligible
• Strong & Effective Enforcement
• Creation of Certificate Trading Platform based on compliance tracking
Tendering Policies
• Government sponsored competitive bidding process for RE
• Lowest priced projects awarded contracts– Contract guarantees to take all power generated at
specified price over fixed time period
• Govt. pays incremental cost of RE• Usually combined with other policies, e.g.
Public Benefit Funds (NFFO - UK) or Resource Concessions (Wind - China)
• Long term standard contract reduces risk for investors
• Contracts/Tenders awarded must be large enough to achieve economies of scale
• Contracts/Tenders should be awarded every year to create stability
• Appropriate Penalties for Not Meeting Milestones
• Need stable source of funding
Tendering Success Factors
Criteria for Comparison of Policies
Primary Criteria
• Quantity of RE for Specified Time
• Causes both Cost & Price Reductions
• Results in Resource Diversity
• Sustainability of Market for RE
Primary Criteria (cont.)
• Local Industry Development
• Certainty for Investors
• Simplicity of Implementation
Comparisons
Quantity of RE Development
• Feed-in Laws: Can produce large amounts of RE in short time period
• RPS: If strongly enforced can meet realistic RE targets
• Tendering: Related only to quantity of RE established by process
Cost & Price Reductions
• RPS and Tendering: Best at reducing both cost & price using competitive bidding– Need long term PPAs– Enforcement/penalties critical esp. for RPS– Must have competition- multiple bidders– Volume- large projects, many projects
• Tendering : Good at reducing cost. Need to also have a mechanism to reduce price over time
Resource Diversity
• Feed-in Laws: Excellent at bringing in wide diversity of technologies
• RPS & Tendering: Favors least-cost technologies – Diversity possible with separate technology targets or
tenders– Administratively complex– Adds costs
Sustainability of Market
• Feed-in Laws & RPS: Have been the most technically & economically sustainable in intl. experience
• Tendering : Tied to resource planning process – sustainable if planning supported, stable source of funding
• Political sustainability needs to be considered (Feed-in more vulnerable)
Local Industry Development
• Feed-in Laws: Excellent for creating local manufacturing and infrastructure
• RPS & Tendering: Favors least cost technologies and established industry player– Needs companion policies
Certainty for Investors
• All 3 policies can be designed to reduce investor risk
• Feed-in Laws: Price guarantee & PPA give great certainty to investors
• Tendering: Can provide certainty if well designed– Somewhat more risk than Feed-in Law
• RPS: Lack of price certainty difficult for investors – PPA recommended to reduce investor risk
Simplicity
• Feed-in Laws: Most simple design, administration, enforcement, contractual
• Tendering: More complex than Feed-in laws, simpler than RPS
• RPS: More complex to design & administer & complex for generators
Conclusions
Conclusions
• Feed-in Law:– Simplest to administer & enforce– Greatest resource diversity– Greatest local industry development– May be more expensive in short-run
• Can be mitigated by adjusting price over time
– Works best in regulated markets
Conclusions (cont.)• RPS:
– Good cost & price minimization if accompanied by long term PPA & well-designed
– Good resource development, use certificates for development in less-populated regions
– More compatible with reformed electricity markets
– May take longer to build local industry & meet resource targets
– More complex to administer
Conclusions (cont.)
• Tendering:– Best at price minimization if industry established– Can be combined with RPS, Resource Concessions
and Public Benefit Funds– Will not build a market by itself- need companion
policies– Can discourage local industry formation if not
carefully used– Can be politically challenging to find stable source
of funding
Conclusions (cont.)
• Each of 3 policies have pros and cons• Different policies are better matched to different
goals– Important to articulate & prioritize goals
• No perfect policy – Benefit from integrated policy framework may change over time
• Timing important relevant to infrastructure development
• Ability to enforce mandates critical• Policy design is critical to success!
Contact information
Dr. Jan Hamrin, President
Center for Resource Solutions
San Francisco, CA
415/561-2100
Email: [email protected]
www.resource-solutions.org
Extra Slides
U.S. Renewable Portfolio StandardsNevada: 20% by 2015, solar 5% of annual
Hawaii: 20% by 2020
Texas: 5,880 MW (~4.2%) by 2015
California: 20% by 2010
Colorado: 10% by 2015
New Mexico: 10% by 2011
Arizona: 1.1% by 2007, 60% solar
Iowa: 2% by 1999
Minnesota: 19% by 2015*Wisconsin:2.2% by 2011
New York:24% by 2013
Maine: 30%by 2000
MA: 4%by 2009
CT: 10% by 2010
RI: 16%by 2019
Pennsylvania:8% by 2020
NJ: 6.5% by 2008
Maryland:7.5% by 2019
22 States + D.C.
*Includes requirements adopted in 1994 and 2003 for one utility, Xcel Energy.
**No specific enforcement measures, but utility regulatory intent and authority appears sufficient.
Washington D.C:11% by 2022
Montana:15% by 2015
DE: 10% by 2019
Illinois: 8%by 2013**
Idaho
25% by 2025
RE Certificates as a ToolUses of RECs:• Substantiating
compliance with mandatory programs
• Supply for utility green pricing programs
• Choice for customers with no green power options
• Meeting emissions reduction goals
• Greening of events
• RECs were first sold commercially in the US in 2000
• They are also used in Europe, Australia & Japan
• Commercially: RECs are universally used– >7.5 Million MWh RECs
contracted in 2004• Retail REC sales: >120
% increase each year for last three years
RECs a Renewable Energy Tool
Production of Renewable Energy
Environmental & Other Benefits(from displacement)
Commodity Electricity
•Certificates represent the contractual right to claim the environmental and other attributes associated with electricity generated from a renewable energy facility
•May be traded independently of energy markets
Benefits of RECs
• Facilitates renewable energy markets• Breaks down geographic boundaries• Creates fluidity in markets• Can be used as a financing
mechanism for new renewable energy facilities
• Could be used for solar aggregation• Monetizes the value of attributes
REC Tracking
• Each unit of generation is assigned a unique ID that includes its attributes:
• Date generated• Facility location• Date facility went online• Type of renewable• Emissions profile• Eligibility for programs such as RPS, Green-e
• In the US electronic systems track each unit from “birth” to retirement
PROPERTY RIGHTS TO RECs
• Standard Practice– Certificates are issued to the generator and
are transferred through contract
– Once a claim is made, the certificate is considered ‘used’ and is retired
RECs & Carbon Credits
• RECs are measurable and verifiable
• They can be translated into pounds of GHG avoided using approved international methodologies
• When a REC is converted to a carbon offset, the REC is retired