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September 29, 2008
Environmental Defense Fund (EDF) filed comments with the Florida Public Service Commission on August 26, 2008 arguing that its proposed rules unduly restrict the state's options for developing renewable energy.
Like the Florida Solar Coalition and the Florida Solar Energy Alliance, EDF argued that the proposed rules governing the state's Renewable Portfolio Standard are il-advised.
EDF said it "is concerned that the Draft Rule's wholesale reliance on a REC program without analyzing the unprecedented successes of a procurement model established first in Germany, but now successfully implemented in over 45 countries around the world, puts Florida at a disadvantage. This model, called a Renewable Energy Payment (REP) or Feed-In Policy, is also being considered by multiple states here in the United States as both a separate energy policy and as a mechanism to implement a strong RPS. Failure to examine this alternative to the REC program outlined in the Draft Rule would be a missed opportunity to discover a policy that results in tremendous job creation, economic development and more renewable energy per dollar invested. Evidence is mounting that a REP policy far outweighs other procurement models for the large-scale adoption of renewable energy technologies."
For more on the filing, see EDF PSC Comments 08-26-08.
Florida Solar Coalition Calls for Feed-in Tariffs Over RECs at PSC
September 29, 2008
In comments filed September 5, 2008 with the Florida Public Service Commission, the Florida Solar Coalition called for a system of Renewable Energy Payments (feed-in tariffs) instead of Renewable Energy Credits. The Florida Solar Coalition is comprised Florida Solar Energy Industries Association (FlaSEIA), the Vote Solar Initiative and The Solar Alliance.
The filing in the Florida PSC's hearing on proposed rules governing the state's Renewable Portfolio Standard noted that in the "FSC's opinion, the use of RECs is not the best or the most cost-effective means of developing the solar energy market in Florida. A renewable energy payment program which establishes a fixed $/kWh payment pursuant to a long-term contract available to residential and commercial customers and renewable developers is preferred. Further, performance-based incentives coupled with net metering for photovoltaic systems allows customers to finance their systems by locking in their energy rates and giving much needed assistance with the capital cost of solar renewable systems. Both of these incentive programs provide benefits directly to the electric end-user and, because they are programmatically simpler, are less expensive to establish and administer than a REC market."
The comments marked a departure for solar advocacy groups because previously Vote Solar and the Solar Alliance had supported REC trading markets over the more direct approach of feed-in tariffs. Florida has become a battleground between supporters of renewable energy derivatives and proponents of renewable energy payments.
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Florida Alliance for Renewable Energy Launches
September 29, 2008
Renewable energy advocates supporting the development of Renewable Energy Payments (feed-in tariffs) for Florida have launched the Florida Alliance for Renewable Energy, dubbed FARE.
Suggesting that fee-in tariffs are the "easiest energy choice Floridians can make," FARE says that it's supporters are concerned individuals, businesses, elected officials and organizations who recognize the opportunities that Renewable Energy Payments will bring to the state of Florida.
FARE's first action was the FARE Filing August 2008 with Florida's Public Service Commission
FARE Files Florida PSC Comments Calling for Feed-in Tariffs
August 29, 2008
Tradable credits are the renewable equivalent of the Alaskan bridge to nowhere says filing.
The Florida Alliance for Renewable Energy (FARE) filed comments with the Public Service Commission (PSC) on August 26, 2008 suggesting that the state move towards a system of feed-in tariffs rather than going down its present path.
The Alliance is a coalition of leading Florida solar companies and the Alliance for Renewable Energy, a group formed to promote Renewable Energy Payments (feed-in tariffs) in North America.
FARE's filing was in response to a PSC docket on the state's proposed Renewable Portfolio Standard (RPS) using a system of Renewable Energy Credits (RECs) as the development mechanism. While many RPS policies do not use tradable credits as the sole implementing mechanism, some do.
Prepared by Florida investment banker John Burges, the filing argued that the proposed REC program "will benefit a few large companies at the expense of many small and mid-sized" firms and do little to advance the Governor's renewable economic and industrial development objectives. Burges contrasted the success of Germany's feed-in tariffs in creating 250,000 jobs with the PSC's timid proposal.
The filing goes on to suggest that a REC trading system will not achieve the goals set out by the Governor nor will it allow equitable opportunity to all in developing the state's renewable resources. RECs are also a poor value to ratepayers in comparison to Renewable Energy Payments, Burges argued in the filing, citing several independent studies that reached that conclusion.
The proposed RECs trading market, "as currently drafted in the PSC rule are a more expensive policy and [will be] less successful in generating investments in renewables--they are the renewable equivalent of the Alaskan bridge to nowhere."
Internationally, feed-in tariffs have become the mechanism of choice for increasing the uptake of solar, wind, biomass and other forms of renewable energy, FARE said.
The Alliance urged the PSC to replace the proposed credit trading system with a system of feed-in tariffs. It argued that the RECs trading system does not work well for renewables such as solar and biomass, that predominate in Florida.
The draft PSC rule has taken heavy criticism from other groups. Leading newspapers and NGO’s have been especially critical of the draft PSC rule. The St Petersburg Times said the “Public Service Commission's targets for renewable energy [are] far below [Governor] Crist's” while the Miami Herald stated that the “Public Service Commission is recommending an extremely slow buildup in the use of renewable energy.”
“The (PSC) targets aren't ambitious enough to drive any kind of investment in renewable energy technology in Florida," said George Cavros of the Southern Alliance for Clean Energy in a letter to the Miami Herald. The targets were "the weakest in the nation. Dead last," he added. "Governor Crist would be 94 before his proposed 20 percent target is realized."
"We were just flabbergasted by the one percent cost cap," said Sean Stafford, who represents Florida Crystals, the sugar producer that operates the state's largest renewable energy plant, in reference to another clause that would cap all renewable costs at one percent of utility revenues.
Environmental Defense Fund was also highly critical. Gerald Karnas, EDF's Florida Director, has called for the introduction of feed-in tariffs as the best way to achieve the Governor’s renewable objectives.
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The planet is in Peril, we try to do our bit, please
checkout our website www.solarbotanic.com and tell us what you think
We should improve add or change
Alex
Thinking Green
as far again as the other people telling you to shorten your links i think i've spoke back out against them telling them "hey" I do read this stuff.i guess people don't like to be as informed as they should be when they come to the pickins plan site all i think they come here for is an instant satisfaction kick with out trying to expand on a broader scale.this is also one thing ive said is screw government and put the power back in the hands of the people and do this on "anyone's"local level.im sure there are a lot of people out there who want to save the planet but in actuality don't have a clue.i don't know if you live in south Florida but all we have here is gulf power and it would be nice to have several companies to choose from for electrical needs and to see who offered a lower rate.I personally am disabled but I'm in the process of changing out my light bulbs with the florescent ones to try to lower my bill. i think really what it comes down to in terms of the renewable energy source is that everyone wants to sell back the the grid and if that is the only purpose people are going solar then i think they are defeating the purpose entirely, wouldn't self sufficiency from out side power be enough for most people ? to power their battery powered car from say a hybrid house that has solar and wind?in a lot of terms its easy to see why other countries hate us because its become the American way to want more or get something back instead of being happy with what one has.if i could afford to have my home done in solar and also have a wind turbine to supply my energy needs then i could save the money spent on that one bill a month and buy a new battery car. see it works its way out from there.i think that if everyone thinks they are going to sell back to the grid then i think they are going to be in for a major disappointment because they should be happy that they are getting their power for free in the first place and then just take a look at their savings to buy what they normally wouldn't have been able to afford before with that bill they used to have. if they would look at it as a way to strengthen the economy instead of wanting to sell back to the grid then it would be worth it in the long run.i dont think incentives would work because government needs to focus any tax monies twards re investing in america and take the burdens off of the people instead of making us pay through the nose with a bunch of bad decisions. you take care and look forward to your next post.eddie rabon
IN RE: Establishment of Rule on Renewable DOCKET NO. 080503-EI
Portfolio Standard. Filed: August 20, 2008
_____________________________________/
COMMENTS OF THE FLORIDA ALLIANCE FOR RENEWABLE ENERGY
The Florida Alliance For Renewable Energy (FARE) files its comments on the Commission’s proposed Rules 25-17.400, 25-17.410, and 25-17.420 and states as follows:
On July 13, 2007, Governor Crist signed a suite of executive orders to reduce Florida’s greenhouse gas emissions, increase energy efficiency, and remove market barriers for renewable energy technologies such as solar and wind energy. Since the executive orders were signed, Florida has stepped onto the world stage as a major marketplace for advanced energy technologies. It is not at clear that the PSC ruling fulfills the objectives laid out by the Governor.
Summary
We are confident that the PSC and their staff are well informed on the issues of renewable energy policies including the problems associated with RECs versus the benefits of other policies such as Feed-In Tariffs (known as Renewable Energy Payments or “REPs”). Consequently, we are deeply concerned about the direction Florida will be heading with regard to the future of the renewable energy industry in Florida, as set out in this draft ruling.
We do not believe that the RECs policies will achieve the renewable objectives set out by the Governor, nor do we believe that the RECs are a fair and equitable policy allowing equal opportunity to develop renewable resources; nor are the best value for ratepayers – in fact study after study have shown that RECs are the most expensive policy option for ratepayers. They contrast especially poorly when compared side by side with REPs.
The real concern for the long term growth of the renewable energy industry in Florida is that the REC program will benefit a few large out of state companies at the expense of many small and mid-sized companies already operating in Florida, their future growth, and their employees. RECs are complex, opaque, administratively burdensome and unpredictable. Few organisations have the capability to fully assess the risks associated with RECs.
We believe that under a REC policy, market concentration and an oligopoly of REC providers will develop from out of state companies with experience of both lobbying for and drafting RECs policies in other states and then operating under the mechanisms that have been implemented. Indigenous Florida renewable companies do not have this learning curve advantage and will be disadvantaged accordingly.
We do not believe that Florida legislators or ratepayers want a renewable program like RECs that actually discriminate against existing Florida renewable companies.
Internationally, utility Feed-In Payments (known as REPs in the US) have become the incentive of choice for increasing the uptake of solar and other renewable energy technologies, being implemented in over 45 countries around the world. This proven policy option is gaining ground because it takes the state's fiscal role off the table. Indeed, many of the recent calls to Solar Energy Industry Associations like FlaSEIA and Mid-SEIA, for REP policies, have come from businesses concerned about REC dependent markets.
A REP — which most people know as the mechanism that started Germany's solar boom — offers anyone with a solar system (or any renewable energy system) a fixed payment for the electricity generated by that system. The incentive is designed to provide the system owner a “reasonable rate of return.” Instead of relying on the state, utility companies provide the incentives by charging all ratepayers the extra cost borne by purchasing renewable energy. REPs provide long-term stability, which in turn reduces capital costs and allows for a much more diverse group of companies and individuals to invest in renewable. REPs are a simple, stable, inclusive approach to developing renewables in Florida that does not pick technology winners.
We urge the PSC to revise its ruling and replace the RECs policy with a renewable energy payment program.
Concerns with Draft Ruling and RECs
The House Energy Bill required the PSC to investigate the best polices for the deployment of renewable energy, taking into account: analysis of the technical and economic viability, fuel diversity, investment in Florida, lessening the states 98% dependency on imported fossil fuels.
While the PSC in this ruling has clearly looked at and considered RECs, it does not appear that any analysis or study has been done on other policies that allow utilities to “procure” renewable energy as was instructed by both legislatures. Other policies, such as REPs or production based incentives have been proven to achieve much more significant investment, and with it jobs, than REC policies. Furthermore all of the most widely published studies from the European Union to Nicholas Stern [UK Economist] to Summit Blue’s analysis in New Jersey have all concluded that RECs are a high cost option for deploying renewables.
It would appear remiss of the PSC to enter into draft rules without having considered these policies in detail.
Has the PSC undertaken a review of policies outside the US which account for the majority of the worlds renewables. The US now has only 8% of the world’s solar capacity – whereas Germany has over 50%. Germany installed 1100MW of solar capacity in 2007 versus 20MW in New Jersey (a comparable REC market).
Did the PSC undertake a direct study of the Germany REP policies that are now in place in 45 countries and most recently were introduced in Switzerland after a 2 year review that included analysis of mandated quota REC systems?
Were field trips undertaken by the PSC and staff to Germany and other REP countries to review first hand the success of these REP policies and contrast them with the failure of REC policies in states that have implemented them already?
RECs are poor value for ratepayers and restrict renewable deployment
There appears to be recognition amongst many European countries with short-term tradable REC markets that REPs may be a more efficient way to achieve rapid deployment of renewables as cost effectively as possible. In the Stern Review on the Economics of Climate Change, Sir Nicholas Stern noted that both standard offer contract pricing and renewable portfolio standards have proved effective at spurring renewable development “but existing experience favors price-based support mechanisms. Comparisons between deployment support through tradable quotas and feed-in tariff price support suggest that feed-in mechanisms achieve larger deployment at lower costs”. A paper entitled Feed-In Systems in Germany, Spain and Slovenia: A Comparison stated that “Feed-in tariffs have been successful in triggering a considerable increase of [renewable energy] technologies in almost all the countries in which they have been introduced and where their effectiveness was not significantly hampered by major barriers (administrative barriers, grid access, etc.).”
The analysis by Summit Blue Consulting for the New Jersey Board of Public Utilities on how to most cost-effectively transition the New Jersey solar market from rebates to market-based incentives showed that the feed in tariff policy (15-year full tariff) would be more cost-effective for ratepayers than renewable energy credits (SREC only). The SREC policy cost 57% more than the feed in tariff 15 year contract. The SREC was the most expensive policy mechanism out of 7 policies that were reviewed, and therefore the least value for money for ratepayers.
Exhibit x. Ratepayer Impacts ($ millions)
from Different Renewable Energy Policies in New Jersey
Any banker can explain why that is, in one word - “risk”. RECs are more risky than long term fixed price contracts. The PSC ruling appears to ignore the concept of risk capital. RECs with fluctuating prices, no certainty about contracts or grid access will be priced accordingly. Equity costs in the renewable energy power sector currently run at from 8 -15% versus half this cost for debt financing. Creating a policy instrument that encourages significant leverage is therefore a key litmus test for two reasons:
Cost of capital is much lower
Availability of equity is more constrained than debt
RECs fail this litmus test: as they typically result in less than 30% debt financing, versus 80-90% on REP renewable programs in Europe, and consequently more equity per MWs of renewable capacity means less renewable projects
Why is the PSC embarking on a policy mechanism that many independent consultants have concluded is the “least” ratepayer friendly policy.
RECs are a poor return on jobs compared to REPs
First Solar, one of the leading solar manufacturers in the world recently announced a major new manufacturing plant in Germany – why; because Germany has a robust domestic solar market driven by REPs. The poor experience of REC markets has not resulting in a single new manufacturing plant being built in those states.
The REC programs in place in the US have largely failed to stimulate the renewable jobs that legislatures and voters want. RECs encourage utility scale projects like the FPL announced projects in Florida. Utility scale projects generate many less jobs per MWs of capacity than smaller scale commercial or residential projects do; they also can be built by sub contractors resulting in no permanent jobs in Florida.
Several countries have seen a remarkable job return on their renewable policy programs. Direct jobs result from the use of local skilled workers in the development, manufacture, construction, installation and operation and maintenance of renewable generation. Manufacturing centers for solar thermal and solar PV components should be established in-state, as Germany has done, to maximize this benefit. Much of the financing can be done locally as well, stimulating jobs in banking. As of 2007, Germany has created 250,000 direct jobs across the whole renewable energy sector as a result of its significant growth of renewables. To date, Germany has employed nearly 50,000 in the solar industry alone.
These jobs were created by a feed in tariff or REP program NOT RECs.
RECs discriminate against distributed generation and Resource Diversity
RECs fail to take into account the benefits of distributed generation – delivery of renewable power at the point of consumption. The program design typically does not differentiate between different scales of projects – there is a one size fits all REC price – this clearly ignores the societal benefits and cost savings from distributed generation.
RECs with long-term contracts could reduce investment risk for developers and promote more renewables than RECs which rely solely on short-term markets. However, RECs still discourage smaller developers with greater transaction costs (such as legal costs) relative to larger developers , newer technologies relative to more mature technologies, and applications and locations which cost more to develop relative to applications and locations which cost less to develop.
RECs and Power Purchase Agreements
The ruling appears to focus solely on centralized generation by requiring PPAs. However, since most counterparties are reluctant to enter into a PPA unless the project size is 10MW or greater, PPAs will just put more barriers in the way of renewable energy.
Conversely, REPs appear to be more successful in allowing entry by smaller developers because they address both distributed and centralized generation and the tariffs obviate the need to negotiate power purchase contracts with a utility. REPs allow a wide range of resource sizes, applications and locations to develop simultaneously – which helps to explain the development rates that have been observed in Germany.
A key element to this is prioritizing renewable access to the transmission grid ahead of other non-renewable projects; transmission access should be monitored by the PSC and a mandate should require access to be provided within 60 days for projects below a maximum threshold (typically 20-50MW).
RECS – Poor Track Record especially for Solar
Let’s take the example of New Jersey and Maryland where REC programs have been operating.
New Jersey once had a vital and growing solar industry, developing thousands of new high paying jobs. Maryland in 2007 followed suite by passing legislation intended to create a market for both small and large solar companies. Under each of these states’ newly adopted REC-based incentive programs, these small to mid-sized companies quickly learned that REC policies are incapable of delivering adequate financial incentives for their client base.
RECs are seen by some larger companies as a low cost, market based policy that allow for broad based participation. However, there is evidence to show that REC based policies can be the most expensive incentive mechanism, requiring significantly more involvement and administration from the state. Additionally, the floating market mechanism feature of the REC is extremely volatile requiring that companies have large financial resources to navigate and master the complex nature of the commodity to truly benefit from this type of policy.
As Ted Middleton, President of a mid-sized, Maryland based solar company explained, “The ratepayer base thus foots the highest bill possible to fund ‘Big-Box’ style installations, and the little guys (farms, auto dealers) get a much lower cash benefit relative to each REC produced because they have little market leverage with remaining REC purchasers.” “The small systems just got completely left off the table,” says Middleton. “The state just said, '[The REC program is] too difficult, too risky for us to do, so we're not going to touch them.'”
“In New Jersey there's a lot of concern that the residential sector, while it may not be completely shut out, is in big trouble,” says Lyle Rawlings, secretary of the Mid-Atlantic Solar Energy Industries Association. “We need to do better at creating a system where small businesses and small projects can play the game. That's not the case right now.”
The current draft of the RPS with RECs appears primarily designed for only one or two large companies, in the same way that in Maryland one solar company was able to corner the market in solar RECs and contracted with a leading utility to supply it with 60% of the market. Pete DeNapoli of SolarWorld, a leading solar manufacturer says “Sure, the state of Florida will meet the RPS goals, but the bottom line is that the Governor’s goal of creating a vibrant renewable energy industry with thousands of new, high paying jobs will not be realized,” Pete adds. “With Feed-In Payment incentives, you get it all.”
FARE Preferred Policy – Renewable Energy Procurement through Renewable Energy Payments (“REPs)
As stated previously, we believe legislators intended the PSC to review policies that allow procurement of renewable power by utilities from 3rd party producers. It would appear remiss of the PSC to enter into draft rules without having considered these policies in detail.
Had the PSC undertaken a comprehensive review of policies outside the US which account for the majority of the worlds renewables, they would have seen that there is one clear policy winner.
The US now has only 8% of the world’s solar capacity – whereas Germany has over 50% - it also has ~ 20GW of wind capacity and one of the largest biomass industries. These all developed under a REP mechanism.
REP Policy
For the purposes of this filing, we define REPs as a set of renewable technology-specific fixed payments that electricity companies make to renewable energy generators based on renewable energy generation costs and a reasonable profit. Some countries, such as Spain and Slovenia, offer renewable energy generators an alternate calculation for their fixed payments – a premium on top of the spot market price for electricity. However, we do not view this as approach as best practice because it could 1) enable windfall profits due to the break of the link between payments and real generation costs and 2) increase investor risk due to the volatility in the price of electricity.
REP contract pricing is implemented through a charge added by the utility to consumers’ electric bills in proportion to their consumption. REPs provides set prices for renewable resources and leaves it to markets to provide the appropriate quantity of resources at those prices. Payments are guaranteed over a long time period (i.e., 20 years) to provide price certainty and market stability and thus reduce the initial investment risk for renewable energy developers. Best practice standard offer contract pricing policy designs have payment levels that are specific to the resource type and with further price differentiation by size and other important criteria (such as for stand alone vs. building integrated applications for solar PV). These payments generally accompany policies which require utilities to prioritize interconnection of renewable generation and procure a certain amount of renewable energy as part of their total resource portfolio.
The structure that Germany implemented is frequently referred to as a best practice and is being leveraged by other European countries such as Italy for solar PV as well as states that have recently proposed REPs such as Switzerland, France, Spain, India, California, Wisconsin and Ontario.
1.To summarize, Germany’s best practice design provides payments that:
• Prioritize grid access to renewable producers within 60 days
• adequately reflect generation costs and profit;
• are guaranteed for a long period of time (i.e., 10 or more years);
• are sustained over time once the generator is approved for admission into the program;
• decline each year for new generators that are being admitted into the program (this is referred to as tariff degression);
• differ by renewable resource (often depending on the stage of development that the technology is in); and
• are differentiated within each renewable resource to achieve specific goals (such as promotion of smaller installations, or building-integrated solar PV).
As of early 2007, approximately 70% of the countries in the European Union had some form of standard offer contract pricing. In comparison, approximately 20% had adopted renewable portfolio standards with RECs. Italy is the only European country to have both RECs and standard offer contract pricing.
However, Germany’s success with REPs has garnered recent interest by US states and European countries that have previously adopted RECs (such as the UK) as well as states and countries who have adopted neither to date. US states have acknowledged serious downsides associated with renewable portfolio standards implemented through RECs. New Jersey was one of the first states to note challenges associated with the development of renewable energy under renewable portfolio standards, such as the persistence of investment risk and price volatility. , Also, without specific set-asides for more expensive technologies, development has not occurred at a rapid rate.
Exhibit 1. Overview of Policies
to Promote Renewable Energy Development
Policy Name Definition Pros Cons Current Applications
Renewable Portfolio Standards (RPS) A policy to require utilities in the state to procure a certain amount or percentage of their load via renewable resources and to allow market mechanisms to determine prices. A best practice RPS should incorporate fixed long term contracts via RFPs and should have multiple markets for different resources especially for PV and clean distributed generation.. Provides certainty with regard to quantity Pricing can vary from year to year or from project to project to a large extent AZ, CA, CO, CT, DC, DE, HI, IA, IL, MA, MD, ME, MN, MO, MT, NC, ND, NH, NJ, NM, NV, NY, OH, OR, PA, RI, SD, TX, UT, VA, VT, WA, WI, Belgium , Italy, Poland, Romania, Sweden, United Kingdom
REPs (known in Europe as Feed-In Tariffs) A set of fixed, long-term incentive payments made to renewable energy generators Provides certainty with regard to pricing Quantity depends largely on adequate pricing In Place: CA, NJ, WA, Ontario, Austria, Bulgaria, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxembourg, Netherlands, Portugal, Slovenia, Slovakia, Spain, Switzerland
Proposed: IL, MI, MN, RI
A Comparison of Strengths and Weaknesses of Renewable Energy Payments and RECs
The exhibit below summarizes the strengths and weaknesses of REPs and RECs. The discussion of advantages and disadvantages is organized into following key characteristics: resource development and cost.
Exhibit 2. The Strengths and Weaknesses of REPs
and RECs with Regard to Resource Development
Characteristics REPS RECs
Provides Investment Certainty/
Price Certainty (also known as static efficiency) The price is certain with REPS. Pricing is clearly defined for the current year, as well as for future years. Less price certainty than with REPS. The purchase price of RECs change annually according to the level of the annual goals, as well as the definition of eligible resources and the availability of eligible resources.
Provides Supply Certainty Less supply certainty than with an RPS. There are no firm goals for supply. Also, there are no entities held responsible for not developing enough renewable resources, and no monetary penalty for under-achievement relative to development expectations. The only way to achieve greater supply is to modify the price. The supply is specified with an RPS, but compliance needs to be enforced in order for supply to be certain. Penalties for non-compliance help to ensure that the goal is met if the level of penalties is high. Additionally, supply goals can be set by resource to ensure a certain amount of development for a particular resource and/or type of resource (i.e., solar PV, distributed generation).
Allows for Resource Diversity Technology
Allows for faster development of resources that are not least cost due to differentiation of payment levels by resource.
RPSs without resource-specific goals tend to encourage the least cost technologies and maximize the development of these technologies.
Size
Allows for development of smaller-sized resources by differentiating the payment level for these resources. This levels the playing field for smaller resources with greater transaction costs.
Most RPSs do not have goals that are broken out by resource size. As a result, higher transaction costs for smaller resources make it easier for larger sized resources to offer lower pricing.
Application
Allows for development of different applications by differentiating the payment level for these applications. This encourages a greater variety of applications and the development of each application can be tailored based on policy goals.
Most RPSs do not have goals that are broken out by application (i.e., stand alone vs. building-integrated solar). As a result, the least cost application of the resource will be the one that is most commonly developed, despite the fact that other applications may be desired.
Location
Likely to drive more local development than an RPS. As REPS is likely to apply to states rather than regions, the majority of the benefits of renewable development remain in-state.
Likely to drive more out-of-state or regional development than REPS. Out-of-state and/or regional trading is often an integral component of an RPS. However, a state can design its RPS to promote in-state resources, thereby stimulating the local economy.
The Relationship between Project Financing, Profitability and Achievement of Development Goals
Renewable investment requires management of risk and uncertainty with regard to bank financing as well as project profitability. A paper entitled “Prices Versus Quantities: Choosing Policies for Promoting the Development of Renewable Energy” by Phillippe Menanteau provides the following more detailed explanation of the motivation developers need in order to participate in renewable energy markets projects:
“On the supply side, a supplier wishing to enter the market must be able to anticipate future prices and make his project ‘bankable’ in order to secure a loan to enable him to invest in new production capacity…. Project developers see [fixed prices] as ensuring a safe investment with better predictability and a stable incentives framework, as well as by the lower transaction costs for each project”.
The higher development levels that have been observed with REPs are likely due to the reduced risk and uncertainty relative to other policy options.
As discussed above, power and/or RECs associated with renewable energy projects under renewable portfolio standards in deregulated states have been sold though short-term contracts (especially in the Northeast). The use of short-term contracts is a significant barrier for new renewable projects with high capital costs. Renewable portfolio standards could require the use of long-term contracts just as practiced in the regulated states and some deregulated states. This would reduce uncertainty about profitability which would lead to reduced project financing costs. However, the bi-lateral, long-term contract pricing under renewable portfolio standards would likely remain private. REPs that determine and publicly provide the current as well as future payment levels for different renewable projects provide clearer, more stable signals to project developers. Profits are known upfront with REPs. Ensuring a reasonable level of profit can drive manufacturer efficiency and innovation because funds can consistently be made available for further research and development.
The Impact of the Use of Out-of-State Resources
A renewable portfolio standard is better equipped to meet some of the state’s renewable energy development goals using out-of-state renewable energy resources. The main reason for developing and/or purchasing power from out-of state resources is that they can be more cost-effective than in-state resources. Conversely, in states where in-state resources are more costly than out-of-state resources, REPs are more effective at promoting development of these in-state resources. Given the fact that Florida has in-state resources that may cost more to develop than resources in other states, careful consideration needs to be given to the use of out-of-state resources as this may compromise the state’s ability to meet goals related to jobs and stimulation of local manufacturing.
Exhibit x. The Strengths and Weaknesses of Standard Offer Contract Pricing
and Renewable Portfolio Standards with Regard to Cost
Characteristics REPS RPS
Administrative
Costs It is overall less time consuming to implement than an RPS, as setting the prices in the first year and any degression over time are the main components that need to be established. Pricing differentiation beyond resource, resource size, and resource application is less time consuming. Generally more time consuming to implement than REPS, as the following needs to be established; quotas, geographic eligibility, REC trading rules, methods and verification, alternative compliance payments and procedures. As a result, there are administrative limits to the number of development goals (i.e., markets) that can be established and maintained.
Investment Costs Lower than RPS since banks can lower the interest rate for loans due to greater price certainty. Higher than REPS due to lesser price certainty.
Bill Impact Certainty Less certainty around ratepayers' electric bill impacts than with an RPS. This is due to the fact that the proportion of development via each resource is unknown. However, REPS tends to ensure more homogenous costs over time and avoids sudden price spikes. Greater certainty of ratepayers' electric bill impacts as compared to REPS. An RPS has a set development goals for each resource. However, this is only true if the price of these resources do not change greatly from year to year.
Short-Term Cost Minimization Geographic Participation/Eligibility
Since REPS applies to in-state resources only, the cost of the resource is directly tied to in-state development costs. When in-state resources are limited and/or costly, the overall cost impacts could be high.
Costs could be lower as compared to REPS in the short-term as many RPS policies grant eligibility to out-of-state resources that are lower cost than in-state resources. Trading with other states or regions enables the use of lower cost renewable resources to meet requirements.
Overpayment Minimization
Due to the high level of price differentiation and degression that can be implemented, REPSs may be better than RPSs at preventing overpayment to solar applications with lower costs than others.
As it is more time consuming to implement different goals for different types of solar applications, for example, less expensive solar applications could realize windfall profits under an RPS.
Fosters Innovation to Minimize Long-Term Costs Costs could be lower as compared to an RPS in the longer-term. Since REPS is sometimes set up to decrease the prices received by new installations each year, manufacturers have the incentive to reduce costs quickly. Costs could be higher as compared to REPS in the longer-term. While there will be competition between developers for business, there is little incentive for manufacturers to bring down the cost of new technology quickly.
Competition and Costs over the Life of the Policy
A renewable portfolio standard “encourages competition among renewable developers to meet the targets in a least-cost fashion”. However, due to the lack of a firm payment structure that provides insight into future payments, there is less of a longer-term price signal to developers. In years where there is lower supply of renewable resources paired with high demand and prices remain high, there is less motivation for developers to consult with manufacturers about bringing the costs of these resources down. Several studies comparing the potential costs of renewable portfolio standards to standard offer contract pricing have suggest that renewable portfolio standards provide greater opportunity for collusion amongst larger players who want to the keep the prices of renewable resources high. , This is not a concern with standard offer contract pricing because payments are determined by the PSC.
With REPs, developers know their payments in the first year. They also have a general idea of what their payments will be 3-5 years out. REPs sends a clear, predictable, long-term price signal, and a degression structure motivates developers and subsequently manufacturers to reduce costs because they know that the payments will be lower in future years than what they are in the first year. , Also, clear signals can enable manufacturers to better allocate funding to research and development in order to lower capital costs. In other words, competition amongst manufacturers to quickly bring down the cost of their products may be more desirable than competition amongst developers. Since REPs are better positioned to provide price signals that will reach manufacturers, REPs will result in lower costs over the life of the policy compared to RECs.