Solar in State RPS Policies: Recent Developments in New Jersey

Transcription

1 Solar in State RPS Policies: Recent Developments in New Jersey National Conference of State Legislatures Washington, DC October 19, 2007 Kevin Cooney Summit Blue Consulting

2 Overview of Presentation State RPS requirements, solar set-asides and targets Increasing role of REC Markets California Solar Initiative - one approach New Jersey approach to date New Jersey stakeholder-proposed models for marketbased solar development Estimated ratepayer impacts of proposed models New Jersey s transition to an SREC-driven solar market

3 Montana Rhode Island Maine Hawaii Massachusetts State RPS Requirements 60, ,000 40,000 30,000 20,000 10,000 0 California Illinois Minnesota New Jersey Texas Virg inia Washington Oregon Pennsylvania Arizona New York Colorado Maryland Connecticut Wisconsin Nevada District of Columbia New Mexico Delaware Esimated RE GWh required by RPS in peak year

4 States with Solar Requirements / Targets 6,000 5,000 4,000 3,000 2,000 1,000 0 CA NJ+ MD+ PA+ CO NV DE+ DC+ NM Projected GWh Equivalent of Requirement / Target Notes: 1) States shown with a + have an SACP. 2) Arizona also has a 4% DG set-aside

5 U.S. Solar Resource Map

6 Rationale for Solar Set-Asides Solar and other DG relieve congestion on distribution system and can help defer investments in grid upgrades Solar closely matches peak demand for electricity (can help shave peak prices) Downstream solar market creates more jobs than other renewables: more accessible to population centers than wind and biomass Solar is politically popular with the public Note: California s has the largest solar target in the nation, but it s not part of the RPS

7 Reaching Solar Targets Key Objectives: Decrease upfront / levelized cost of solar project Provide revenue certainty (minimize risk premiums) Increase solar REC ( SREC ) value Approaches Solar Alternative Compliance Payments (SACP) and penalty fees (DC, DE, MD, NJ, PA) MD: $450/MWh in 2008, declining NJ & DC: currently $300/MWh (NJ increasing dramatically in 09) PA: 200% of year s average SREC trading value Financial incentives (rebates, $/kwh performance-based incentives, tax credits) Solar multipliers for RPS compliance

8 Increasing Role of REC Markets Regional REC trading systems covering most of US Solar RECs Most states using RECs for RPS compliance Non-solar RECs

9 Regional REC Trading Systems Source: Holt, E., and Wiser, R. (2007) The Treatment of Renewable Energy Certificates, Emissions Allowances, and Green Power Programs in State Renewables Portfolio Standards LBNL

10 California Solar Initiative Overall program target capacity: 3,000 MW by 2017 Total budget: $2.16 billion (combined CPUC and CEC) <100 kw Estimated Performance Based Buydown (rebate based on performance estimate) Starts at $2.50/W, declines with each installed capacity step >100 kw Performance Based Incentive $/kwh incentive paid over 5 years, stays constant for program participants entering under each incentive level step. Starts at $0.35/kWh (commercial) Special set aside for new home construction

11 CSI Status (as of 9/07)

12 CA: Self Generation Incentive Program Solar Installations

13 New Jersey Approach to Date Provide projects with multiple sources of financial support Solar rebates in range of $3.80/W = lower upfront cost SREC revenue stream Functions as a performance-based incentive (PBI), but unlike a tariff, value is uncertain due to high solar RPS demand and market balance, SREC prices typically 70-85% of SACP (~$225-$255/MWh) Excellent net metering (2 MW limit) and interconnection policies

14 New Jersey s Solar Market Transition Favorable project economics led to over-subscription of rebate budget (40 MW queue as of 8/07) State sought more market-based incentive structureseeking to transition to fully SREC-driven market Stakeholder process to evaluate alternative transition models (spring 06 present)

15 Summary of Assessment Criteria Ratepayer Impact Economically efficient (no over- or under-subsidization) Minimize regulatory risk Low program implementation costs Sustained Orderly Development Facilitate rapid growth (to meet RPS targets) Program readily adaptable to changing market conditions Compatible with regional markets Maximize investor confidence Facilitates self-sustaining market Transaction Costs Ensure transparent, auditable process Program design encourages simple efficient project logistics Low administrative burden Support for other policy goals Equity of opportunity to participate (i.e., system size) Ability to encourage development by target Categories Congestion relief

16 Transition Options Assessed Continued Rebates with SREC Model SREC-Only Model Underwriter Model Commodity Market Model Auction Model Full Tariff / 15 Year Tariff Model Hybrid-Tariff Model 16

17 Comparison of Options Sustained Support for Transaction Ratepayer Orderly Other Costs Impact Development Policy Goals Rebate/SREC Medium SREC Only High Underwriter Model 15y Medium Commodity Market Model High Auction Model Low Full / 15 Yr Tariff Model Low Hybrid-Tariff Model Medium OCE Revised Straw Low 17

18 Additional Transition Issues Risk Allocation among market participants Equipment Risk Performance Risk Merchant Risk (Regulatory Risk) Need open, transparent, and liquid market Developers put a premium on uncertain incentives 18

19 Annual Ratepayer Impacts Annual Ratepayer Impacts 10 kw Private $ $ $ $/kwh $ $ $ $ $ Rebate/SREC SREC Only Underwriter Model 15y Commodity Market Model Auction Model 15 Yr Tarif f Model Hybrid-Tarif f Model $ Year 19

20 Ratepayer Impact Estimates of Solar Transition Models Total Ratepayer Impacts Mean Values with Standard Deviation $16,000 $14,000 $12,000 $ (millions) $10,000 $8,000 $6,000 $4,000 $2,000 $0 Rebate/SREC SREC Only Underwriter Model 15y Commodity Market Model Auction Model 15 Yr Tariff Model Hybrid-Tariff Model 10 kw Private >10 kw Private Public

21 OCE Revised Straw Proposal / Board Order Key Features 8-year rolling SACP schedule with levels set using 12% IRR target 15 year qualification life; legacy projects also get15 year QL starting from year of rebate Other: 2-year SREC trading life, community solar program Strengths Improves market transparency and investor confidence in REC revenue stream. Avoids administrative costs and burdens associated with administering incentives directly to projects. Enables market forces to determine REC pricing. Addresses needs of small market players (rebates, community solar initiative) Weaknesses Since REC prices determined by market forces, REC price certainty is limited. On its own, this mechanism may not provide enough investor confidence to stimulate sufficient level of project development. Efficiency concerns: Administratively-set ACP levels may result in over / undersubsidization and inefficient use of ratepayer funds; Does not maximize potential for competitive forces to drive down solar project / REC costs. Does not address upfront project cost barrier most prominent for small projects Increases potential ratepayer impacts in shortfall situation.

22 8-Year Rolling SACP Schedule (proposed) Modeled necessary SREC values based on 12% IRR goal, with 3% annual decline Set SACP $100 higher to cover transaction costs $800 $700 $600 $500 $/MWh $400 $300 $200 $100 $0 SACP Anticipated SREC Values RPS Reporting Year (6/1-5/31)

23 Contact Info Kevin Cooney Summit Blue Consulting