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Reallocating Distribution Upgrade Costs for Farm Digester Projects

Reallocating Distribution Upgrade Costs for Farm Digester Projects . by Ed Cubero , Sam Harms, Sam Shannon University of Wisconsin-Madison. Dairy Industry in Wisconsin. 141,000 jobs $5.2 billion in annual sales $26.5 billion economic impact

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Reallocating Distribution Upgrade Costs for Farm Digester Projects

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  1. Reallocating Distribution Upgrade Costs for Farm Digester Projects by Ed Cubero, Sam Harms, Sam Shannon University of Wisconsin-Madison

  2. Dairy Industry in Wisconsin • 141,000 jobs • $5.2 billion in annual sales • $26.5 billion economic impact • Trend towards larger CAFOs, more concentrated waste streams

  3. Anaerobic Digesters Source: Hallmark Power Ltd.

  4. Digester Potential in Wisconsin • 251 dairy farms in WI are candidates for Anaerobic Digestion (500+ cows) • Currently, 30 on farms (≈10% of potential) • Approx. 44 MW of potential capacity (386k MWh/yr) from manure alone • Co-digestion w/ other wastes would increase

  5. Benefits of Anaerobic Digestion • Environmental • Odor Reduction • Methane Reduction • Pathogen Reduction • BOD Reduction • Economic • Electricity offset / sales • Fiber • Heating • Fertilizer • Jobs • 75-80 Construction • 3 long term

  6. Interconnection • Often requires upgrades to distribution system • wires, substations, protection equipment • State admin. code allows utility to recover these costs from connecting customer • Liability on balance sheet, but no asset • Especially tough for capital-constrained smaller farms

  7. Troubling Trifecta • Low utility buyback rates for dist. generation MISO 30-Day Rolling Average LMP ($/MWh) Source: Federal Energy Regulatory Commission

  8. Troubling Trifecta • High material costs for upgrades Price of Nonferrous Wires and Cables (Index) Source: U.S. Dept. of Labor

  9. Troubling Trifecta • Requirements for expensive equipment • Fiber optic cables • Wis. Admin. Code PSC 119.25(3) “A Category 2, 3, or 4 DG facility shall include…Other equipment, such as other protective devices, supervisory control and alarms, telemetry and associated communications channel, that the public utility determines to be necessary.”

  10. Wisconsin Precedent • WP&L: Shared Savings Program • Low-interest loans for Ag-related businesses • Econ. Development Rates/Real-Time Pricing • WP&L, WEPCO • Recent shifting of rate increases away from large users, towardsother ratepayers

  11. Status Quo • Wis. Admin. Code PSC 119.08(2) “The public utility may recover from the applicant an amount up to the actual cost, for labor and parts, of any distribution system upgrades required.” • All major utilities require customer to pay for upgrades • Must be paid in full prior to (or soon after) startup

  12. Policy Options 1) Utility option 2) Net metering option 3) Transmission utility option 4)Operating lease option

  13. Utility Option • Require utilities to cover costs of distribution upgrades and earn rate of return • Advantages • Spreads the costs across the rate base • Keeps the upgrades off the generator project • Disadvantages • Fairness Issues • Largest impact to ratepayers

  14. Utility Option • Energy charges

  15. Net Metering Option • Change to state net metering rules • If utility does not pay for upgrade, required to offer net metering (up to 1 MW) for ADs • Advantages • More assistance to smaller generators (more capital constrained) • Already being done in NY • Disadvantages • Does not accurately reflect the cost of the upgrades • Upgrades show up as a liability on the generator project

  16. Net Metering Option • Energy charges

  17. Transmission Utility Option • Require local transmission utility to pay for the upgrade • Most likely a one-time invoice from the utility company to ATC • Advantages • Larger rate base • ATC gets a say in the engineering • Michigan pays for 1% of costs • Disadvantages • Requires a statutory change • Requires a decision from FERC allowing these charges on the rate filings

  18. Transmission Utility Option • Capacity charges

  19. Proportional Cost Sharing:Utility v. Transmission Options

  20. Operating Lease Option • Utility recovers the cost of the upgrade via long-term lease to generator • Ratepayers secure lease in case of default • Leases could be combined with other options • Ratepayers cover lease payments for first 5 yrs (25% of total) • Generator covers payments over remaining 15 yrs (75% of total) • Advantages • Generator does not need capital financing for upgrades • Easy to implement; no new legislation required • Minimal impact to ratepayers • Disadvantages • Generator still responsible for the cost of the upgrade

  21. Recommendation • Operating leases • Generator does not need to secure capital financing upfront • Easiest to implement; no new legislation required • Minimal impact to ratepayers

  22. Thank You! Questions?

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