Should Maine Invest in Renewable Energy Incentives?

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Maine House of Representatives Chamber image courtesy of Maine LegislatureMaine has one of the strongest renewable portfolio standards (RPS) in the country, requiring 40 percent of total electric supply to come from renewable energy sources by 2017 (with 10% from new sources). A national study finds that the alternative energy industry will continue to grow in Maine, estimating $1.9 billion in private investment by 2023.

On March 25, 2015, which was also "Clean Energy Day" in the Maine State House, the Environmental and Energy Technology Council (E2Tech) invited government, academic, and business leaders to discuss energy policy issues and potential legislation, including those proposals, programs, and actions that will be critical to Maine’s energy future and investments in natural gas, renewable energy, energy efficiency, and electricity transmission and distribution. Green Energy Maine was there and brings you this report.

Speakers were invited to address a bevy of questions:
What are the economic and energy benefits of renewable incentives and how do we recognize the value of renewable energy programs? Should policymakers strengthen the RPS, weaken it, or carve out support for some generation resources? Should Maine seek to join with other states in a regional RPS? Should ratepayers in Maine pay for solar and wind installations and incentives? If we’re seeking to subsidize natural gas infrastructure to diversify our energy portfolio and reduce costs to ratepayers, why not add wind and solar, too?

Further, what is the role of renewable portfolio standards, integrated resource management with long-term contracts, feed-in tariffs, community pilot projects, and rebates in Maine energy policy? Lastly, how do we address the potential challenges associated with integrating more renewable energy into our power gird?

Maine State Senator Garrett Mason of the Joint Standing Committee on Energy Utilities and Technology photo by Kay MannA WORD FROM THE LEGISLATURE

This forum, held at the Governor Hill Mansion in Augusta and called, "Renewable Energy Incentives: Investment or Entitlement?", opened with statements from two members of the Maine Legislature.

The first speaker was Senator Garrett Mason, who serves on the Joint Standing Committee on Energy, Utilities and Technology.

Mason said that the members of the 127th legislature have done a good job of working together and will continue to do so. One-party rule is not a recipe for success in the long term. Divided control of the legislature means that nothing too extreme can pass. The right answers have to lie in the middle ground.

Mason went on to say that ratepayers cannot subsidize higher rates to ensure corporate profits. Businesses in Maine are really closing doors due to high energy costs. We need to consider legislation that will lead to lower energy costs. We should not fail to take action just because energy prices are low.

Prices can only go so low; that is why we have been investing in the natural gas infrastructure. This will have a tangible impact in the future. Massachusetts is the natural gas spigot of New England and Governor Baker is working with Maine and other northern states to open the pipeline.

 Rep Sara Gideon Assistant Majority Leader of the Maine House of Representatives photo by Kay MannThe second speaker was Rep. Sara Gideon, Assistant Majority Leader of the Maine House of Representatives.

Gideon remarked that she and Sen. Mason are working closely on the broadband bill and enjoy working together.

As a country, she said, the thing that has made us great is our ability to speed around the turns. We need to use this bravado to embrace new energy technologies in order to create innovative jobs for the future.

According to Gideon, we cannot embrace a pipeline that will cost ratepayers up to $75 million for a fuel whose cost and supply cannot really be known into the future. We need to create policies that support all energy sources together, not just one technology over another.

Gideon asked the audience two questions: 1) who has a business that is directly affected by energy policy? (most hands went up) and 2) who thinks we have come close to reaching our potential? (one or two hands were raised).

Maine's environment IS our economy, according to Senator Collins, and Gideon agrees. In the past 100 years, we have seen major climate impacts: a 3-degree temperature increase, and another 3-degree increase predicted in the next 35 years. Climate scientists have written 10,885 peer-reviewed papers on the topic and all but 3 say that human activities have impacts on the climate. There are also economic impacts of climate change. Our core challenge in protecting our natural resources for the future is directly related to our energy policy today.

Gideon added that people from industry, regulators, government and all sectors of business all need to be working together to protect our environment. Not one can afford to have a static or one-dimensional view regarding energy costs. We have yet to define clearly where we are going. She suggested a four-pronged approach to start with:

1. Lower energy costs;
2. Continue to slow and then halt climate change;
3. Harness our native energy sources;
4. Implement policies that will bring us the energy we demand in ways that will not harm the environment. This is a survival goal.

Gideon spoke about "the landscape" of federal energy policy, noting that it has been more harmful than helpful to Maine. We sit in the tailpipe of the carbon-emitting energy plants, reaping more pollution than energy from them. She cited some figures showing where federal subsidies have gone historically, over the first 15 years of investment in various energy sources:
Nuclear     $3.3 billion
Oil and gas     $1.8 billion
Renewables $0.4 billion

Good energy policy can eliminate barriers and should place high priority on:
1) Capturing all cost-effective efficiency that is cheaper than supply;
2) Modernizing the grid to fit increasing power consumption and
3) Developing clean, distributed generation: hydro, solar, and combined heat & power (CHP).

Gideon said that a solar power bill for Maine has not yet been printed. It should include other fuel sources besides solar. The fact that the Regional Greenhouse Gas Initiative (RGGI) has locked in lower greenhouse gas emissions has put Maine into a position of leadership on carbon reduction. If we are talking about carbon reduction we also have to address transportation and building codes.

Energy policy does not have to be a partisan battle. In Arizona, it is 2 Republicans in the State House who have lead the charge. Mainers deserve to have control over the energy they use; this gives us security and predictable costs in the long term.

David Farnsworth Senior Associate from The Regulatory Assistance Project photo by Kay MannSECOND PANEL

Once the legislators departed for the State House, we heard from David Farnsworth, a Senior Associate from The Regulatory Assistance Project.

Farnsworth focused on two general policy areas: the integration of renewable power resources into the existing electric system and tariffs.

TODAY'S REGULATORY CHALLENGES

Public utilities commissioners have the weighty responsibility of keeping the lights on: ensuring power reliability, promoting resource adequacy and lowering rates. Now, they face the additional challenge to deliver power that meets environmental regulations at the lowest costs.

US energy subsidies have historically tipped highly in favor of oils and gas, which receive five times the amount that renewable technologies do. Nevertheless, renewable energy is alive, kicking and snapping at the heels of legacy fuels.

Farnsworth then outlined some important utility system investment needs. First, $1.5-2 trillion will have to be invested in electricity infrastructure, over $19 billion in the natural gas infrastructure and $384 billion in drinking water infrastructure. To maintain status quo, there will be great pressure on rates, on elected officials and on regulators. Renewable energy projects don't fit the mould of the status quo.

Looking into the future, a survey of utility executives showed that they are looking toward 3 emerging technologies: grid-scale renewables, efficiency and storage. Fully 71% of utilities are developing energy efficiency and demand response measures. Where renewables will fit into industry trends remains unclear. One advantage of distributed generation will be a reduction in transmission line loss; 6% loss is common and it can be as high as 20% in some places.

A NATIONAL CLEAN POWER PLAN

Farnsworth mentioned the EPA's Clean Power Plan, which outlines a plan for lowering power plant emissions using a flexible, multi-pronged approach including energy efficiency, renewable and nuclear power generation, among other measures. The plan is due to be approved this summer. The RGGI will inoculate Maine from the requirements of the Clean Power Plan.

Farnsworth suggested the audience read two resources:
1) "Designing Distributed Generation Tariffs Well", a paper and webinar by Carl Linville, John Shenot and Jim Lazar.(Webinar here).
and
2) "Designing Markets to Accommodate Variable Resources: Teaching the Duck to Fly", paper and webinar by Jim Lazar. (Webinar here).

This second paper offers ten strategies to make systems more flexible, so as to meet varying load demands without using battery technology. Some of these strategies include: investment in efficiency that focuses on late afternoon peaks, orienting some solar panels to capture more late afternoon rays, requiring new large air conditioners to include storage capacity, use of solar thermal and managing electric water heating.

Farnsworth left the audience with two principal recommendations: 1) to build a flexible system and 2) to build a tariff system that recognizes the benefits of renewable energy.

Jeffrey Thaler Visiting Professor of Energy Law and Policy at the University of Maine Schools of Law and Economics photo by Kay MannTHE VALUE OF INCENTIVES

The next panelist was Jeffrey Thaler, Visiting Professor of Energy Law & Policy at the University of Maine Schools of Law & Economics. Thaler's approach was to examine what our neighboring states are doing and learn what might work well here.

There are different types of "subsidies" or incentives for renewable energy. The rationales behind the ones that consider net social benefits include the avoidance of hidden costs related to health and environmental damages, enhancement of energy security through long term electricity price stability and fuel mix diversification. In each case we have to ask whether the benefits of subsidies are greater than the costs.

Thaler made the point that any immature industry has relatively high costs in it early stages and so cannot compete against mature industries. Over time and through experience, project costs can be reduced through R&D and learning curve effects.

Thaler showed a graph from a 2011 study by Pfund and Healey DBL Investors, that illustrated the historical annual totals of federal subsidies for different types of energy. Renewables (other than biofuels) received $0.37 billion annually, by comparison to oil & gas, which received $4.86 billion per year.

He also gave some notable statistics on Maine's energy consumption and sources; for example, $7 billion is spent on energy in Maine each year. We consume nearly thrice the number of BTU's that we produce. Much of this comes from fossil fuels still.

Thaler then shared some data gathered by Revision Energy and NRCM, that compared solar energy incentives by state. An analysis of cumulative net cash flow for solar systems shows Maine at the bottom, with an average payback time for investments at 18 years. In Massachusetts it takes 5 years to reap payback.

New Hampshire has more incentives than does Maine; these are tax neutral incentives i.e. they do not affect revenues. Massachusetts, Vermont, Connecticut and Rhode Island all allow towns to give a property tax exemption for renewable energy systems. Vermont's sustainably-priced energy enterprise development (SPEED) is essentially a feed-in tariff, which allow small power producers to sell excess power back onto the grid, shortening payback times. They also have an investment tax credit. Massachusetts has a long menu of renewable energy incentives, as well. Maine is behind the curve and this is why some investment funds are flowing to other states.

The 2014 Batelle Report made to the Maine Technology Institute (MTI) found that despite low or absent incentives, renewable energy is the fastest growing cluster in Maine and one that creates well-paying jobs. The sector has already grown 12% from 2007-2012 and needs incentives to keep growing.

Many available incentive options can be found on the DSIRE website, which compares incentives in all 50 states. The Maine incentives are listed here.

Rachel Bouvier of Bouvier Consulting photo by Kay MannECONOMIC IMPACTS OF THE RPS

The next panelist to speak was Rachel Bouvier of Bouvier Consulting. Bouvier's topic was the economics of Maine' s renewables portfolio standard.

Most US states have either a renewables portfolio standard (RPS) or a renewables portfolio goal (RPG). Maine's RPS has 2 classes of standards.

The Class I Standard is to increase new renewable energy generation capacity by 10% by the end of 2017 through a staged implementation plan that began with one percent new renewable energy capacity in 2008. Class I refers to new renewables that have come on line after September 1, 2005. Older plants may not sell REC's.

The Class II standard says at least 30% of retail electricity sales had to be from certain renewable sources. The types of facilities that are eligible include fuel cells, tidal, solar, wind, geothermal, hydro, biomass or municipal solid waste in conjunction with recycling, up to 100 megawatts (MW) in capacity. Governor LePage wants to get rid of the 100 MW cap.

The market for renewable energy certificates (or REC's) is not the actual exchange of energy, but the exchange of the renewable characteristics of the energy. Rules governing the sale of REC's can vary from state to state. For example, Massachusetts has more stringent rules on biomass than Maine does, so some REC's from Maine-generated biomass power cannot be sold there.

Echoing the question posed by Thaler, "Do the benefits outweigh the costs?", Bouvier listed some benefits of the RPS: homegrown energy, investment in generation infrastructure, revenue for renewable power generators and avoided emissions.

She then listed some of the costs: increased rates, economic ripple effect and deterrence effects (keeping business investments away).

Bouvier cited two studies on the subject of economic impacts of RPS. One was done by the Beacon Hill Institute and Maine Heritage Policy Center in 2012 and the other was done by London Economics, also in 2012. The two reports have very different figures on the effects of RPS on economic and environmental factors. Both say that the RPS will reduce disposable income and jobs (other than construction), to widely different degrees. They used different time frames, which partly explains the huge difference in the findings. The Beacon Hill report is an in-house model and is not used anywhere else.

No matter what, ratepayer costs will have to go up in the short term to support an RPS. The cost of RECs will go down with greater demand, over time. The MPUC reported In 2013 that the cost of compliance with Class I & II RECs was 17 cents per kWh (between 1.2-1.4% of the average rate per kWh). The typical cost is estimated to be about 1.9% of a typical electric bill as the RPS ramps up.

While the ripple effects of higher electricity costs could hurt consumer sales, the multiplier effects of greater investment in renewable power infrastructure may also ripple through the economy.

The deterrence effect of higher electric rates discouraging businesses from moving to Maine is likely overstated. We have lower electric bills here than other states do, despite higher rates, because our heating comes largely from oil rather than from electricity.  

The emissions from conventional power generation have been associated with respiratory, cardio-vascular and other health issues. The health benefits of reducing these emissions alone may justify the costs of using more renewables.

As an added note, Bouvier mentioned that recent data from the Maine PUC shows that the average price of Maine RECs has fallen to approximately $5 per MWh, which makes them the lowest in New England  by far.

Stuart Tuck OBrien of the Maine Public Utilities Commission photo by Kay MannSOLAR VALUATION STUDY

The final speaker on the policy panel was Stuart Tuck O'Brien of the Maine Public Utilities Commission, who talked about the recently released Maine Distributed Solar Valuation Study.

The study was done as a requirement of legislation passed in April 2014. A stakeholders' webinar was held on March 23, 2015 and the report was presented to the legislature on April 1, 2015.

The study only looked at solar on a distributed generation scale, i.e. less than 500 KW. The Maine solar fleet was simulated based upon models from New York, Connecticut and Massachusetts. Shading and snow cover were not considered.

The team studied the costs and benefits of integrating distributed solar power onto the grid. Some of the benefits included market price response, avoided fuel price uncertainty and the avoided cost associated with integrated utilities.  Because Maine has a restructured/deregulated market, it was hard to determine to whom the value of solar integration would accrue over time.

Among the study's findings was that in a high penetration scenario, the peak load shifts to a later time of the day. Monthly peak load reductions were studied, using actual historical data, and found that the highest demands came in the summer months.

The key takeaways of the study were as follows:

Distributed solar has a benefit to the electricity system in Maine, with installed capacity growing. It currently stands at approximately 12 MW or .59%.
Calculations show little variation between integrated and restructured electricity markets; however, attributing the avoided costs is more complex.
The robustness of the New England market allowed a more granular analysis to be done than before. We have markets in place for much of this. However, the electric load carrying capacity (ELCC) market was not equal to the measure ISO currently uses for calculating value in the forward capacity market so it included both market based value and societal value. These are not being properly allocated at this time. The net present value of long term performance of solar systems in CMP territory over a 25 year life is $0.138 per kWh in avoided market costs and $0.199 per kWh in societal benefits.

There is room for improvement in this report, which will be produced annually going forward. The report did not mention avoided distribution benefit because there has not been significant system-wide load growth. The PUC will be issuing an addendum with some clarifications and data comparisons.

QUESTIONS FROM THE AUDIENCE:

Q: While there is a need for political leadership, we also need the advocates for renewable energy to work with utilities to get things done.  Utilities are necessary partners. Is their resistance caused by inertia or the failure to see a workable business model? Can there be a investor owned utility system that can work with distributed generation?
Farnsworth: In New York, utilities are interested in providing both central and distributed services. Utility boardrooms are now beginning to think through this at this time; they are rethinking how they earn money. In the telecommunications sector, big companies were broken into smaller companies; there was attrition, competition, collusion and product migration. Keep an eye on New York, where there is a full-tilt engagement on this issue.
Thaler: We can't leave out business as an important player. There is an economic benefit to pursuing these incentives. Many businesses buy into the superficial argument that energy costs are like the tides. The depth of these reports that are coming out must be counted in to the analysis. This is hard to grasp without spending time on it.

Q: Instead of the "policy buckets" you described, are there any examples of longer term policies?
O'Brien: Look at the regulatory environment and then at ways to reduce the soft costs of implementation: interconnection, land use and other factors.

Speaker presentations may be viewed here.

Image credit: all photos by Kay Mann.

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