Monday, May 04, 2009

Setting Green Power Goals

Much of the attention on the pending climate legislation in Congress has focused on its inclusion of the latest effort to establish a national cap and trading system for greenhouse gas emissions. However, a quick review of the table of contents of the Waxman-Markey Bill reveals a host of other energy provisions, beginning with "Title I, Subtitle A, Renewable Electricity Standard", which would set aggressive goals for the rapid deployment of renewable power throughout the country by 2025. Although this builds on the numerous state-level Renewable Portfolio Standards already in place, it would supersede their inconsistent targets and definitions. After comparing the bill's numerical targets, which would kick in as soon as 2012, to the current level of generation from its included renewable sources, I can only wonder whether the bill's authors actually expect the US electricity sector to attain these goals, or regard the RES as yet another source of future government revenue, when suppliers that fall short pay the penalties the legislation would impose.

The key language in the entire section delineating the national RES is found in the definitions of what constitutes a "Renewable Resource": wind, solar, geothermal, biomass power, landfill methane, marine & hydrokinetic energy, and "qualified hydropower." The latter limits the contribution from our largest current renewable electricity source to "electricity solely from increased efficiency achieved, or additions of capacity made, on or after January 1, 2001..." The US now has 77,885 MW of hydropower capacity, about 1% less than in 2001. Last year these dams generated 250 million MW-hours of electricity, 6.1% of 2008 total US generation. That large baseline quantity would be excluded from the RES, which would only count new hydropower capacity. The latest tally by the DOE indicates that between now and 2012, when Waxman-Markey would require 6% of the nation's power to come from renewable sources, only another 236 MW of hydropower is expected to come into service. They might as well not have counted it at all.

It's also worth noting that, appropriately enough, the bill counts actual annual generation, not capacity in place. That works very much against energy sources with low capacity factors--those that generate power much less than 24/7. That notably includes the fastest-growing renewable sources, wind and solar power. Last year, the average US wind turbine produced only about 28% of its rated output, based on actual generation and the simple average of reported year-end 2007 and 2008 wind capacity figures. And the theoretical maximum for solar is even lower, at around 23% even in a sunny locale such as Southern California. That means you need lots of wind and solar capacity to produce the same amount of power as from coal-fired power plants, which generated at an average of 73% of rated capacity last year.

Without counting existing hydropower, it is difficult to see how the country will achieve the 2012 RES goal, let alone the much loftier "25 by 25" target. The total contribution of wind, solar, geothermal, biomass power and landfill methane last year was 124 million MWh, or 3% of net generation. Reaching 6% by 2012 would require a sustained average annual growth rate of 19% per year. The 8.5% goal for 2014 would extend that requirement for another 2 years. Yet in the last four years, encompassing a period of remarkable growth from wind and solar power, the broader category of renewable electricity defined by Waxman-Markey grew by 8.1%. In effect, year after year we would have to beat last year's stellar growth rate of 17.5%--reflecting the high fossil-energy prices and credit bubble of the previous several years--and get further help from energy efficiency and conservation, which could help to shrink the denominator of this fraction. The most recent data-point we have is the first-quarter performance of the wind sector, which added 2,836 MW of new capacity. On an annualized, capacity-factor-adjusted basis, that would increase total renewable power output by about 22% this year. It remains to be seen whether the tax credit and grant provisions of the stimulus bill will be sufficient to sustain such high rates, without the infusions of "tax equity" from investment banks and other financial institutions that helped fund the projects now coming online. Nor do we know whether these growth rates could be sustained, once the transmission bottlenecks inherent in the current electric grid structure--which cannot change materially within the next six years, despite all the recent hype about a "smart grid"--begin to bite.

What happens if the electric power industry falls short of these ambitious goals? Referring again to the discussion draft of the Waxman-Markey Bill, we see, "A retail electric supplier may satisfy the requirements of paragraph (1) (as modified, where applicable, under paragraph (3)) in whole or in part by submitting in lieu of each Federal renewable electricity credit that would otherwise be due, a payment equal to the lesser of—‘‘(A) 200 percent of the average market value of a Federal renewable electricity credit for the previous compliance year, as determined by the Secretary; or ‘‘(B) $50, adjusted on January 1 of each year following calendar year 2009 based on the Gross Domestic Product Implicit Price Deflator." That $50 per MWh equates to 5 cents per kWh, or roughly half of the prevailing average retail price of electricity last year.

The House Energy and Commerce Committee has been holding hearings on this bill for the last several weeks, and the final bill reported to the House could look quite different, though many of its critics seem much more interested in the initial allocation of tradeable credits under its greenhouse gas provisions than in the RES. If passed by the House, the bill is likely to alter again once the Senate has its turn. I hope both bodies will take a serious look at its definitions of renewable resources and the timing of initial targets that depend mainly on our ability to continue expanding wind power at high growth rates and integrating its non-dispatchable, intermittent contribution into an existing power distribution network that will become increasingly strained, until its own expansion and updating really get under way. Missing these targets wouldn't only impede our environmental progress; it would result in a hefty new tax on electric power, over and above the effective tax from the likely cap & trade system.

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