A Comparison of Feed-in Laws, RPS, & Tendering Policies

1. A Comparison of Feed-in Laws, RPS, & Tendering Policies Jan Hamrin, PhD President Center for Resource Solutions Bangkok, Thailand August 28, 2006 www.resource-solutions.org

2. Outline of Presentation • Key RE Policy Types: • Feed-in Tariff • Renewable Portfolio Standard (RPS) • Tendering Approach • Comparison of • Results • Criteria for Decision • Makers • Conclusions

3. Key National Renewable Energy Policies

4. Feed-in Laws Government Mandated Price • Utility must take power from eligible facilities • Focused on new and emerging technologies • Four methods of setting price • Estimated long term cost plus reasonable profit • Wholesale avoided cost of power (Calif. 1980s) • Wholesale avoided cost of power + incentive (China) • Percent of retail electricity rate (Europe)

5. Feed-in Law Success Factors • Long-termContracts – 15-20 years • Guaranteed buyer under standard contract • Tariff that gives reasonable rate of return • Flexibility to capture cost efficiencies

6. Renewable Portfolio Standards (RPS) • Quantity-based Government Mandate • Focused on Emerging and New RE Technologies • Requirement on Wholesale or Retail Market Participants (Utility or Grid Company)

7. RPS Success Factors • Policy design is critical to success! • Energy/Output-based target levels • Target increasing over time • Only new and emerging RE are eligible • Strong & Effective Enforcement • Creation of Certificate Trading Platformbased on compliance tracking

8. Tendering Policies • Government sponsored competitive bidding process for RE • Lowest priced projects awarded contracts • Contract guarantees to take all power generated at specified price over fixed time period • Govt. pays incrementalcost of RE • Usually combined with other policies, e.g. Public Benefit Funds (NFFO - UK) or Resource Concessions (Wind - China)

9. Tendering Success Factors • Long term standard contract reduces risk for investors • Contracts/Tenders awarded must be large enough to achieve economies of scale • Contracts/Tenders should be awarded every year to create stability • Appropriate Penaltiesfor Not Meeting Milestones • Need stablesource of funding

10. Criteria for Comparison of Policies

11. Quantity of RE for Specified Time Causes both Cost & Price Reductions Results in Resource Diversity Sustainability of Market for RE Primary Criteria

12. Primary Criteria (cont.) • Local Industry Development • Certaintyfor Investors • Simplicityof Implementation

13. Comparisons

14. Quantity of RE Development • Feed-in Laws: Can produce large amounts of RE in short time period • RPS:If strongly enforced can meet realisticRE targets • Tendering: Related only to quantity of RE established by process

15. Cost & Price Reductions • RPS and Tendering: Best at reducing both cost & price using competitive bidding • Need long term PPAs • Enforcement/penalties critical esp. for RPS • Must have competition- multiple bidders • Volume- large projects, many projects • Tendering :Good at reducing cost. Need to also have a mechanism to reduce price over time

16. Resource Diversity • Feed-in Laws:Excellent at bringing in wide diversity of technologies • RPS & Tendering:Favors least-cost technologies • Diversity possible with separate technology targets or tenders • Administratively complex • Adds costs

17. Sustainability of Market • Feed-in Laws & RPS: Have been the most technically & economically sustainable in intl. experience • Tendering :Tied to resource planning process – sustainable if planning supported, stable source of funding • Political sustainability needs to be considered (Feed-in more vulnerable)

18. Local Industry Development • Feed-in Laws: Excellent for creating local manufacturing and infrastructure • RPS & Tendering: Favors least cost technologies and established industry player • Needs companion policies

19. Certainty for Investors • All 3 policies can be designed to reduce investor risk • Feed-in Laws: Price guarantee & PPA give great certainty to investors • Tendering: Can provide certainty if well designed • Somewhat more risk than Feed-in Law • RPS:Lack of price certainty difficult for investors • PPA recommended to reduce investor risk

20. Simplicity • Feed-in Laws: Most simple design, administration, enforcement, contractual • Tendering: More complex than Feed-in laws, simpler than RPS • RPS: More complex to design & administer & complex for generators

21. Conclusions

22. Conclusions • Feed-in Law: • Simplestto administer & enforce • Greatest resource diversity • Greatest local industry development • May be more expensive in short-run • Can be mitigated by adjusting price over time • Works best in regulated markets

23. RPS: Good cost & price minimization if accompanied by long term PPA & well-designed Good resource development, use certificates for development in less-populated regions More compatible with reformedelectricity markets May take longerto build local industry & meet resource targets More complex to administer Conclusions (cont.)

24. Conclusions (cont.) • Tendering: • Best at price minimization if industry established • Can be combinedwith RPS, Resource Concessions and Public Benefit Funds • Will not build a market by itself- need companion policies • Can discourage local industry formation if not carefully used • Can be politically challenging to find stable source of funding

25. Conclusions (cont.) • Eachof 3 policies have pros and cons • Different policies are better matched to different goals • Important to articulate & prioritize goals • No perfect policy – Benefit from integrated policy framework may change over time • Timing important relevant to infrastructure development • Ability to enforcemandates critical • Policy designis critical to success!

26. Contact information Dr. Jan Hamrin, President Center for Resource Solutions San Francisco, CA 415/561-2100 Email: jhamrin@resource-solutions.org www.resource-solutions.org

27. Extra Slides

28. U.S. Renewable Portfolio Standards Nevada: 20% by 2015, solar 5% of annual New York: 24% by 2013 Minnesota: 19% by 2015* Maine: 30% by 2000 Wisconsin: 2.2% by 2011 Iowa: 2% by 1999 Illinois: 8% by 2013** • 22 States + D.C. Montana: 15% by 2015 MA: 4% by 2009 Idaho 25% by 2025 RI: 16% by 2019 CT: 10% by 2010 NJ: 6.5% by 2008 DE: 10% by 2019 Maryland: 7.5% by 2019 California: 20% by 2010 Washington D.C: 11% by 2022 Pennsylvania: 8% by 2020 Arizona: 1.1% by 2007, 60% solar New Mexico: 10% by 2011 Texas: 5,880 MW (~4.2%) by 2015 Colorado: 10% by 2015 Hawaii: 20% by 2020 *Includes requirements adopted in 1994 and 2003 for one utility, Xcel Energy. **No specific enforcement measures, but utility regulatory intent and authority appears sufficient.

29. Uses of RECs: Substantiating compliance with mandatory programs Supply for utility green pricing programs Choice for customers with no green power options Meeting emissions reduction goals Greening of events RECs were first sold commercially in the US in 2000 They are also used in Europe, Australia & Japan Commercially: RECs are universally used >7.5 Million MWh RECs contracted in 2004 Retail REC sales: >120 % increase each year for last three years RE Certificates as a Tool

30. RECs a Renewable Energy Tool Environmental & Other Benefits (from displacement) Production of Renewable Energy Commodity Electricity • Certificates represent the contractual right to claim the environmental and other attributes associated with electricity generated from a renewable energy facility • May be traded independently of energy markets

31. Benefits of RECs • Facilitates renewable energy markets • Breaks down geographic boundaries • Creates fluidity in markets • Can be used as a financing mechanism for new renewable energy facilities • Could be used for solar aggregation • Monetizesthe value of attributes

32. REC Tracking • Each unit of generation is assigned a unique ID that includes its attributes: • Date generated • Facility location • Date facility went online • Type of renewable • Emissions profile • Eligibility for programs such as RPS, Green-e • In the US electronic systems track each unit from “birth” to retirement

33. PROPERTY RIGHTS TO RECs • Standard Practice • Certificates are issued to the generator and are transferred through contract • Once a claim is made, the certificate is considered ‘used’ and is retired

34. RECs & Carbon Credits • RECs are measurable and verifiable • They can be translated into pounds of GHG avoided using approved international methodologies • When a REC is converted to a carbon offset, the REC is retired