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With the Democratic shift in Congress, there is a belief that the votes are now in place to pass a national renewable portfolio system (RPS). The problem with this theory is that a “pure” (e.g., wind and solar) dominated RPS isn’t opposed on party grounds nearly as much as it is opposed on geographic grounds, since it would immediately create a wealth transfer from Eastern to Western U.S., making such an RPS a political impossibility so long as Senators vote with the economic interests of their constituencies.
To be clear, this is in no way meant to suggest that clean energy is a bad idea, or even that clean energy is economically disadvantageous. Rather, it is simply to recognize that as currently framed, the politics of RPS doesn’t work.
Many in Congress understand this, and have therefore sought to add other clean energy sources — most notably energy efficiency — into the definition of eligible technologies, the better to bring in support from industrially-dominated states that aren’t blessed with large wind and solar resources. The current incarnation of this logic is the Energy Efficiency Resource Standard, or EERS, which would extend the portfolio standard to include efficiency and combined heat and power (CHP) facilities.
The political calculus of the EERS is quite logical. Unfortunately, it is opposed by many in the renewable energy community who have a knee-jerk opposition to anything that reduces the size of the pie available to pure renewables.
As of this writing, the current compromise position worked out between the broad clean energy coalition (renewables, efficiency, etc.) is a structure whereby the EERS is limited to 15-25% of the total RPS eligibility, with a different set of “tags” such that the supply of EERS cannot in any way affect the price for “pure” RPS credits. Structurally, this mirrors the approach taken by Connecticut, Pennsylvania and other states who have also chosen to expand their state RPS beyond the traditional suite of technologies.
In all jurisdictions, the logic for these structures is that efficiency gets to play, but without bringing an excess of supply into clean energy markets that would depress the price of clean energy credits below the level required to bring solar and wind forward. This makes political sense, but is awfully strange from a policy perspective, especially when one realizes that the RPS rules set both supply (via technological eligibility) and demand (via % mandates). A decision to keep the demand fixed but limit the supply is simply a decision to limit the availability of clean energy — and worse, to preferentially exclude the most cost-effective sources.
That ought to argue for a coalition of policy-minded interests to rally around a better approach — most logically led by the efficiency community. Unfortunately, that community has political challenges of their own, since the definition of an eligible energy efficiency resource inevitably creates political tensions of its own. Combined cycle gas turbines, compact fluorescent lightbulbs and cogeneration all have their own constituencies and reasonable claims to being a part of a more efficient future, but have differential benefits and market potentials (and hence competitive impact from an EERS rule.) As these parties have gotten ever more tangled up in the details of EERS structure, they have been ever more unable to rise up and articulate a coherent policy position.
This has put Congress in the difficult position of trying to weigh multiple clean energy proposals from multiple stakeholders, inevitably placing as much or more weight on the political clout of the respective parties than the underlying policy intent. Inevitably, this leads to a patch for a policy problem here, a patch for a political problem there, and pretty soon its patches all the way down. Notwithstanding the consistency of such an approach with broader U.S. energy policy, we ought to demand better.
What is the goal of renewable energy mandates? You’d be hard-pressed to get consistent answers to that question, even from proponents. That should tell us something.
Is their purpose to lower CO2 emissions? To encourage new technology development? To create green jobs? To be sure, all these goals are noble, but they are not universally consistent — and their lack of clarity has been the cause of much of the state-to-state inconsistency in technological eligibility. In some states, natural gas is a renewable fuel, provided it is used to power a fuel cell. In other states, biomass isn’t a renewable fuel if it came off of a construction site. From municipal solid waste to hydro, each jurisdiction has set up a slightly different set of eligibility constraints that have done a thorough job of articulating the paths to a legally-defined renewable future, but almost nothing to clarify the reason why it’s worth going there. Not surprisingly, this has kept many a state legislature active as each session brings forth yet another request to add another path.
But let’s step away from the patches and ask the fundamental question. If we were to throw out all the technological definitions of renewable technology and replace it with a single, clear articulation of the goal, what would that goal be? That is actually fairly simple: to reduce our use of non-renewable resources. Or, more bluntly still, reduce fossil energy use.
So let’s articulate the good policy. Throw out our RPS, throw out our EERS, throw out all our definitions of eligible technologies, and replace them all with a single, clear incentive paid to any power plant that reduces our demand for fossil resources, pro rata with the fossil energy reduction: a Fossil Energy Reduction Standard (FERS).
How would a FERS work? Let’s start with a few key principles:
Too many RPS discussions start from the idea that some clean energy is better than others, and create artificial distinctions in the value that different resources receive. (In a typical formulation, utilities will be required to procure a defined percentage renewable resources, but at least X% must be from “tier 1” resources — typically wind and solar.) The result is to drive markets towards certain technologies independent of the value they create. A FERS would create a single standard for all resources, and set the number of available credits available to any given technology not based on MWh output, but on the amount of fossil energy reduced.
The biggest objection to Principle 1 is that if you let all clean energy sources compete for the same credit, the expensive stuff (read: solar PV) will be priced out of the market. This objection implicitly presumes that the percentage requirement set in the FERS is lower than the available supply of clean energy sources, which in turn suggests that the policy goal wasn’t particularly ambitious. Fix that by being more ambitious, not by constraining the supply of clean energy on the market.
An inevitable objection to this approach is that it will provide benefits to nuclear power or other technologies that are not typically favored by the environmental community. This is a legitimate political problem, even if it is counter to a policy intent that starts from an overarching goal of fossil fuel reduction. However, it is largely ameliorated by making sure that these credits only apply to new generation. Even if someone decided to build a new nuclear plant tomorrow, it would likely be a decade before it was online and eligible for credits — and no volume of clean energy credits will eliminate the siting challenges, economic fight and waste politics of nuclear energy. In other words, rather than presume the impossible (namely, that any significant increase in generation from new nuclear capacity is going to be on line in the foreseeable future), simply limit participation to new resources and leave markets to sort out the remaining capital allocation.
The total FERS credits © available to any generator in a calendar year are equal to the total annual electricity generation (E) multiplied by an adjustment factor (AF):
C = E x AF
The adjustment factor is a proportionality, from 0.0-1.0 that quantifies the fossil energy reduction created by the generator, or:
AF = 1 – FEGr / FEGe, where
FEGr = the fossil-fuel efficiency of the marginal generator on the U.S. grid (more on that later), and; FEGe = the fossil-fuel efficiency of the eligible generator.
Examples: A solar panel consumes zero fossil fuel, and therefore has a fossil efficiency (power out per fossil fuel in) of infinity. The adjustment factor is therefore 1-0, or 1.0, and the solar panel can sell 100 percent of its annual MWh into FERS markets. Now compare this to a 60 percent efficient, fossil-fuel fired combined heat and power plant. We’ll assume for now that the fossil-efficiency of the marginal generator on the U.S. grid is 30 percent. The adjustment factor for this unit is therefore 1-0.3/0.6, so that generator can only sell 50 percent of its annual MWh into FERS markets.
In both cases, eligible credits are solely a function of the fossil energy reduction. The credits sold by the CHP plant are no less pristine than the credits sold by the solar plant—but they do have fewer available to sell, reflecting the fossil fuel they use in their plant. Since the credits are identical, they can both be sold into the same market (per Principle 1). Since they scale with fossil energy reduction, the CHP plant has a continuing incentive to reduce their fossil energy use. How they choose to do that is up to them. Maybe they blend their fuel with a bit of biogas, maybe they increase their efficiency, maybe they tap a local geothermal well to pre-heat their boiler feedwater. But they make that decision based on the most cost-effective way to lower fossil energy, not based on a preference for whatever technologies happened to be defined as eligible.
Calculating the fossil-efficiency of the generator is fairly straightforward:
FEGe = E / (FF-T/FET)
FF is the fossil fuel consumed by the generator. T is the thermal energy recovered by the plant, if it is operating in CHP mode. FET is the efficiency of the fossil-fuel fired thermal generator that would have been used but for the CHP plant.
This leaves one final detail: how to calculate the fossil-fuel efficiency of the marginal generator on the grid? Fortunately, EPA has done the work for us. Their eGrid database* calculates the CO2 emissions from the average U.S. power plant and the “non-baseload” power plant, for the purposes of calculating the CO2 impact of load reduction. As they put it:
By taking these factors and dividing the non-baseload lb/MWh factor by the lbs/MMBtu of the average “basket” of fuel used on the grid (about 133 lbs/MMBtu for the U.S. as a whole), you can readily calculate the implied fuel efficiency of that marginal generator. Depending on what region of the country you’re in, that turns out to be somewhere between 20-35 percent. The important thing is not to overspecify that number here, but simply to recognize that the EPA already tracks all the data necessary to calculate the fossil efficiency of a marginal generator on the grid — which in turn means that it is very straightforward for them to provide this number every year, and provide FERS credits accordingly based on actual fossil fuel displaced.
The astute reader may now be saying, “wait a minute, if we’re just rewarding fossil reduction, isn’t this redundant with CO2 regulation?” There’s a grain of truth to that criticism, but note two things:
A reasonable argument can be made that we would be better off simply doing CO2 right — but so long as CO2 policies are set only based on CO2 penalties, a technology-agnostic FERS provides a perfect balance, rationalizing capital not based on capricious regulatory definitions but on the urgent need to quickly and cheaply reduce our fossil energy dependency.
*http://www.epa.gov/cleanenergy/documents/egridzips/eGRID2007V1_1_year05_GHGOutputRates.pdf
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