www.mc-group.com RENEWABLE PORTFOLIO, GREEN CERTIFICATES AND OTHER POLICIES FOR DEVELOPING COUNTRIES WEBINAR 9 FEBRUARY 2012 Chad Laurent Senior Consultant - MCG's General Counsel Course on Regulation and Sustainable Energy in Developing Countries – Session 5 www.leonardo-energy.org/course-regulation-and-sustainable-energy- developing-countries
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Course on Regulation and Sustainable Energy in Developing Countries - Session 5
This session focuses on Renewable Portfolio System / Quota System and the creation of Green Certificates market. What quota of renewable energy can achieve in a country? How to design tradable green certificates and create a market liquid enough for investors? Are green certificates a viable option for countries with small generation capacity? This session analyses several existing green certificates markets (USA, India,...).
Chad Laurent, Esq. is a Senior Consultant and MCG's General Counsel specializing in renewable energy law and policy, sustainable business strategies, and renewable energy project development. He currently manages MCG's work with the U.S. Dept. of Energy providing technical assistance and training for the SunShot Solar Outreach Partnership where he presents at national conferences on the topic of creating solar energy opportunities within local communities. Mr. Laurent has provided legal analysis of Indonesia's Geothermal feed-in tariff policy, contributed to the drafting of a renewable energy law drafter's guide for the United Nations Environment Programme, and to a study on the legal ability of U.S. states to set feed-in tariff rates for the National Renewable Energy Laboratory. In addition, Mr. Laurent has consulted to the World Bank, DB Climate Change Advisors, the Mass. Dept. of Energy Resources, and the SEMI PV Group among other clients. Prior to attending law school, he was the Manager of Renewable Energy Programs for the Massachusetts Energy Consumers' Alliance. While in law school, Chad worked in the Massachusetts Executive Office of Energy and Environmental Affairs and interned in the Massachusetts Attorney General's Office in the Energy and Telecommunications Division. Chad's professional experience also includes work with the Environmental Defense Fund and the Rocky Mountain Institute. He holds a Juris Doctor (J.D.) from Suffolk University Law School where he was a Rappaport Honors Fellow in Law and Public Policy, and a Bachelors of Science (B.S.) from the University of Michigan in Environmental Policy & Behavior and Natural Resource Ecology & Management. He is admitted to the Massachusetts Bar.
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RENEWABLE PORTFOLIO, GREEN CERTIFICATES ANDOTHER POLICIES FOR DEVELOPING COUNTRIES
WEBINAR 9 FEBRUARY 2012
Chad LaurentSenior Consultant - MCG's General Counsel
Course on Regulation and Sustainable Energy in Developing Countries –Session 5
• A Renewable Portfolio Standard (RPS) or Renewable Energy
Standard (RES) or Quota System requires a percent of energy
sales (MWh) or installed capacity (MW) to come from
renewable resources.– There is often a target (e.g. 20% renewables by 2020)
– There frequently is an incremental percentage increase over time.
– Usual the utility or load serving entity is required to meet the RPS and comply with the percentage requirements.
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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WHAT IS A RPS?
• Publicly owned utilities can be exempted from the RPS, or
given more lenient requirements
• Various customer rate-class exemptions have also been
offered (low-income ratepayers or commercial ratepayers).
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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WHAT IS A REC?
• Renewable energy certificates or credits (RECs, tradable RECs, TRECs, etc.)
are often the mechanism used to quantify and verify RPS compliance.
• Utilities may comply either by owning generation or purchasing RECs from
independent power producers.
– Some RPS policies create a separate agency which serves as the purchaser of all RECs (e.g. New York State, Illinois, USA)
• An alternative compliance payment (ACP) is often set to account for
shortfalls or to act as a penalty payment.
Sources: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010; B. Grace, Sustainable Energy Advantage 2011.
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WHAT IS A REC?
• A REC is a tradable certificate, typically in electronic form
• Represents 1MWh of generation from a specific plant
• Carries type, location, timing, and emissions data
• Can represent environmental “attributes”
• RECs may be “bundled” with electricity or “unbundled”
• REC can represent the “gap”
REC
Renewable Electricity
Commodity Electricity
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WHY RECS?
• Relatively simple, less costly
verification
• Low potential for fraud or double
counting
• Relatively low transaction costs of
trading RECs
• Potential price visibility• Buyers can procure just as many RECs
as they need• Settlement over time rather than at
the time the electricity is produced• Can avoid transmission constraint
issues
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REC MARKETS AND PRICES
• REC prices can vary widely.• Prices in Massachusetts between $15/MWh for Class I and $525/MWhfor SRECs.
Compliance market (primary tier) REC prices, January 2008 to December 2011Sources: Spectron Group (2012).
• Resource eligibility (“traditional renewbles,” solar hot water, fuel cells)
• Treatment of existing plants (“new” renewables only or separate REC classes for existing generator that would have otherwise qualified)
• Tiers and bands (for “new” vs “old” plants, or for “cleaner” vs. “dirtier” renewables)
• Methods to enforce
• Cost caps
• Contracting requirements
• Role of Government funding mechanisms
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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WIDE VARIABILITY IN DESIGN
• Start and end dates
• Application of standards (requirements for run-of-river hydro or
sustainable biomass)
• Enforcement/penalties (just the ACP or actual fines)
• Flexibility mechanisms (purchasing future RECs or applying RECs across
generation years)
• Renewable energy credit (REC) trading mechanism (in-state only vs. out-
of-state and tracking systems)
• Voluntary Market
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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POTENTIAL DESIGN ISSUES
• Too Narrow Applicability
– If applied un-equally to suppliers will limit the impact of the RPS, Poorly
• Balanced Supply-Demand Condition
– Enough time to comply and build generation
– If too low then no certainty for project development
• Insufficient Duration and Stability of Targets
– Standards must be durable and stable
– Energy projects need long-term contracts in order to be financed
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
• Lack of Contracting Standards and Cost Recovery Mechanisms– Consider long-term contract standards for utilities
• Imputed debt obligations
• Undue Design Complexity– Complex policies that require considerable and detailed regulatory
oversight may be unwieldy
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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EFFECTIVE DESIGN CRITERIA
• Strong political support and regulatory commitment (longevity)
• Clear and renewable energy eligibility rules
• Predictable long-term targets (certainty)
• Standards that are achievable given permitting challenges (transparency)
• Credible and automatic enforcement – penalties should exceed cost of compliance (transparency)
• REC purchase requirements tied to a credit-worthy entity and allow long-term contracts (certainty)
Sources: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010, MCG Research, DBCCA
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BEST PRACTICES/RECOMMENDATIONS
• Diverse Electricity and REC Market – sufficiently liquid REC market – large number of market actors exist
• Stable and Long term target– 10 years ahead (preferably 15 or more years), – long-term REC contracting options
• Reasonable targets– targets must be set taking into account current and future supply-demand
conditions– Reasonable cost considerations
• Differentiated technology support – Tiers or different REC prices for more expensive technologies
Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.
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BEST PRACTICES/RECOMMENDATIONS
• Utility is the compliance entity – electricity suppliers/utilities, (administrative cost implications).
• Flexibility – banking and borrowing of RECs
– recommended to limit borrowing to three months and banking to a maximum of 25% of the obligation.
• Penalty revenues – Revenues used for further research and development or additional
subsidies for the least competitive renewable technologies or energy efficiency
Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.
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BEST PRACTICES/RECOMMENDATIONS
• Harmonization – eligibility for the obligation system be in
line with the EU Renewables Directive.
• Government commitment – Strong and long-term political commitment
• clearly defined monitoring and verification rules
• adequate enforcement rules in case of non-compliance
Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.
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IMPLICATIONS FOR DEVELOPING COUNTRIES
Source: MCG research; REN21 (2011)
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DEVELOPING COUNTRY TARGETS
• There are many developing countries with renewable energy
targets.
• Few if any with Renewable Energy Certificate markets
• Few if any cross-border trading or regional targets
• REC concept started in and is tailored to deregulated
electricity markets
Source: MCG research
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IMPLICATIONS FOR SMALL MARKETS
• Not unlike US States
• Original 1996 model of the RPS no longer used in the US.
• Most RPS and quota markets moving towards different or
supplemental policies.– Feed-in Tariffs
– Auctions
– Technology specific targets
• Few global examples of cross-border trading– New England (US) and Quebec Canada
Source: MCG research
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US EXPERIENCE
• 29 States and Washington DC and Puerto Rico have an
RPS requirement.
• 8 States have non-binding renewable energy goals.
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RPS Policies
Renewable portfolio standard
Renewable portfolio goal
www.dsireusa.org / January 2012
Solar water heating eligible *† Extra credit for solar or customer-sited renewables
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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RPS Policies w ith Solar/ DG Provisions
Renewable portfolio standard with solar / distributed generation (DG) provision
Renewable portfolio goal with solar / DG provision
www.dsireusa.org / January 2012
Solar water heating counts toward solar / DG provision
WA: double credit for DG
NV: 1.5% solar x 2025;2.4 - 2.45 multiplier for PV
UT: 2.4 multiplierfor solar-electric
AZ: 4.5% DG x 2025
NM: 4% solar-electric x 2020 0.6% DG x 2020
TX: double credit for non-wind(non-wind goal: 500 MW)
CO: 3.0% DG x 20201.5% customer-sited x 2020
MO: 0.3% solar-electric x 2021
MI: triple credit for solar-electric
OH: 0.5% solar-electric x 2025
NC: 0.2% solarx 2018 MD: 2% solar x 2022
DC: 2.5% solar x 2023
NY: 0.4092% customer-sited x 2015
DE: 3.5% PV x 2026;triple credit for PV
NH: 0.3% solar-electric x 2014
NJ: 5,316 GWh solar-electric x 2026
PA: 0.5% PV x 2021
MA: 400 MW PV x 2020OR: 20 MW solar PV x 2020;
double credit for PV
IL: 1.5% PV x 20250.25% DG by 2025 WV: various
multipliers
16 states + DC have an RPS with solar/DG
provisions
DC
†
†
Delaware allows certain fuel cell systems to qualify for the PV carve-out
• Expanded use of resource-specific set-asides, especially for
solar
• Expanded applicability of RPS policies to publicly owned
utilities
• Some leniency given to publicly owned utilities in meeting RPS
targets and obligations
Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010
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INDIA
• 15% by 2020
• RECs, Feed-in tariffs, grants,
• Authorizes tradable RECs, not technology specific
• RECs designed to encourage renewable development in areas with higher
potential without limiting development to the purchase obligation in
those regions.
• Generator can choose to either receive a preferential tariff rate, or use the
RECs where the commodity energy is purchased at the weighted average
power purchase cost of the distribution utility.
Sources: Renewable Energy Certificate Registry of India, REN21, Indian Power Sector
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SOME OTHER EXAMPLES?
• China– 15% by 2020, 17% Wind by 2050
– No tradable RECs
– Feed-in tariffs, grants, loan guarantees
• UK– RPS with tradable RECs implemented in 2002
– Yearly changes and a feed-in tariff was adopted on top of RECs for small generation