US Virgin Island Energy Workshop

1. US Virgin Island Energy Workshop Policies to Promote Renewable Energy & Energy Efficiency Sarah Busche & Eric Lantz February 16, 2010 FEBRUARY 16 – 18, 2010  GOLDEN, COLORADO

2. Outline • Introduction • Policy to facilitate a clean energy transition • NREL’s policy analysis capabilities • Renewable Energy Policy • Policies & best practices • Persistent policy problems • Emerging policy approaches • Energy Efficiency Policy • Common policy best practices • Decoupling overview • Other Policy Related Considerations • Transportation policy considerations • Carbon & REC Markets • Q & A

3. INTRODUCTION

4. Policy: A Mechanism For Facilitating A Clean Energy Future • Building a foundation for the transition to clean energy • Drive technological advancements & technology adoption • Mandate action • Incentivize decision making to align with USVI goals • Aid in financing • Attracting green industries, green jobs • Process for determining appropriate policies • Identify clean energy goals • Identify barriers to achieving those goals • Identify which can be addressed through policy initiatives • Analyze the costs and benefits of various policy options • Implement appropriate policies

5. NREL’s Policy Support Capabilities • Identify best practices & policy design considerations • Market & barrier analysis • Track state and local policy activity – innovative policies • Policy analysis, such as potential impacts on • Ratepayers • Utilities • State/Territory • Energy reduction/RE generation • Environment • Jobs & economic development

6. Renewable Energy Policy

7. Renewable Portfolio Standards Design Basics • Requirementof LSE to provide a specific percentage of their electricity from qualified renewable energy resources • Usually includes penalties for non-compliance • Often met through the development of a REC market • May include a resource specific set-aside, a Tiered REC system, or REC multiplier for preferred technology/resources

8. Renewable Portfolio Standards (RPS) • DesignVariables • Target, Timeframe, Exemptions • Technology eligibility • Treatment of out of state/territory generators • Compliance Filing & Enforcement • Bundled or unbundled RECs • Compliance flexibility/waivers • Compliance cost recovery • Contracting requirements (gov’t procurement, long-term contracts, credit protection) • Role of state funding

9. Renewable Portfolio Studies • Impacts • 60% of non-hydro RE deployment since 1998 (94% Wind) • Solar/technology set asides increase diversity but create challenges • Compliance in 2007 was estimated at 91% • Challenges • Funding authorizations • Transmission • Siting constraints • contract failures • incentives /market uncertainty • Costs (and integration costs) • Managing compliance • Conclusions • Policy design details matter • RPS do not operate in isolation

10. Net-metering & Interconnection Critical to maximize the value of customer sited generation • Common Limitations • Eligibility only for specific customer classes • Size restrictions • Discriminatory fees or disproportionate standby charges • Excessive redundancy • Excessive application review • Supplemental insurance • Lack of promotion • Best Practices • Customer ownership of RECs • Leverage vetted industry standards • Use straightforward and transparent policies • Standardize approvals • Provide a clear path to dispute resolution

11. Rebates Status and Impacts • More than 38 states (as well as the USVI) • Market impact and success is mixed • New Jersey: 62 MW of solar PV in 8 years • New Jersey: One biomass power installation per year

12. Rebates • Design Considerations • Potential for explosive growth • Rebates become very expensive when successful. • Scale rebates down at specific installation targets • Address non-cost related barriers • Target technologies with foreseeable cost reductions at scale • Design rebate amounts for specific market conditions • Provide consistent funding • Reevaluate and adjust as needed • Fund more than just freeriders

13. Public Financing Programs Status and Impacts • More than 125 financing programs • Public financing may offer: • long-term loans • fixed rate loans • relatively low transaction costs • increased leniency • Loan programs serve a relatively narrow function • Not associated with large RE capacity installations • But, fundamental to widespread deployment

14. Public & Utility Financing Programs • Design Considerations • Standardized eligibility criteria can streamline processing requirements • Providing services that identify and quantify the value of specific improvements can eliminate consumer education barriers • Increased loan security provides the best lending rates and terms • Technology specific terms allow loans to be structured so that a given improvement can pay for itself • High volume allows for increased dispersion of fixed overhead costs • Leveraging private sector specialization (underwriting and/or energy audits) can reduce government burden • Provisions for rapid scaling support broad-based growth

15. Persistent Problems & New Approaches Challenges • Scale • Cost • Implementation • Transmission • ResourceDiversity • Emerging Approaches • SREC markets and SREC financing • Property Accessed Clean Energy Financing • European style FIT

16. New Jersey’s Solar REC Market & PSE&G SREC Financing • After exhausting rebate funds the state has transitioned to an SREC market to meet its RPS obligations • SRECs must be acquired by utilities from solar electric power generation. • Because SRECs are market based, prices vary in accord with supply • PSE&G now finances solar systems and allows customers to service their loan with SRECs. • Customers lock in a 10 year SREC floor price • Customers are credited additional amounts when SREC prices exceed the floor price • PSE&G retains first priority rights to purchase SRECs for 10 years

17. Property Accessed Clean Energy (PACE) Financing Local government finances clean energy investments and relies on the tax capacity of the property to secure the loan. • Government issues bonds • Property owners opt-in • A special tax lien is placed on the property • Repayment occurs via property tax payments • General approach: • Is used widely for local infrastructure projects • Offers more secure loans • Allows for the transfer of the loan to a new property owner

18. Potential Drawbacks to PACE programs Enthusiasm for PACE style programs abounds, 18 states have passed legislation authorizing these programs, 14 more are actively pursuing legislation but: • Mortgage lenders are uncomfortable as the secondary lien holder • Will transfers of the special lien actually occur? • PV may not meet the “savings to investment principle.” • Implications for a city or state’s credit rating? • It is not clear that PACE offers significant advantages over alternative financing innovations (i.e., solar lease or third party PPA)

19. Feed-in Tariffs (FIT) European style FITs are also beginning to emerge in the U.S. • FIT provides a guaranteed production payment to RE power producers • Fixedprice payments or Fixedpremium payments • FIT policies are: • differentiated by technology • include a purchase and interconnection guarantee • designed to ensure moderate profitability for RE generation and provide investor certainty • compatible with RPS • Challenges include • Capital investment • Setting and adjusting the payment level as markets evolve • Payment price differentiation • Cost • Modern FIT are not to be confused with PURPA

20. Energy Efficiency Policy The First Renewable

21. Lead By Example (LBE) • Other LBE Opportunities • Government procurement strategies • Green affordable housing • LEED Requirements for new buildings • Improving EE in public buildings • Demonstrate cost effectiveness & feasibility • Set a goal for energy reduction based on BAU scenario • Track energy use, evaluate & report • Guide available at: http://www.epa.gov/cleanenergy/documents/epa_lbe.pdf

22. Energy Efficiency Portfolio Standards • Mandates energy providers to meet a portion of their energy demand through energy efficiency • Designed to facilitate investment in untapped technically and economically viable EE • Short term and long term goals, usually defined in terms of a percentage of total sales • Market based trading system • Leading states are achieving 0.75-1.25% savings annually • Experiencing reductions in energy use, demand and strain on the grid • Ratepayers benefit from • Reduced electricity bills • Reduced need to fund capacity additions

23. Public Benefit Fund (PBF) • Developed to finance EE programs • Funds raised through surcharge on ratepayers’ electric/gas bill • Consistent funding mechanism • Develop measurable targets • Usually administered by the utility or a third-party • Top two important factors related to a successful PBF • Amount of funding • Strong legislative mandate for EE savings Source: Kushler et al 2009

24. Thinking Outside of the Box • Residential Energy Conservation Ordinances (RECO) • Addressing efficiency of the existing building stock • Audit at point-of-sale/lease • Ceiling for required EE improvements • Stakeholder support – realtors are key! • Non-Financial Incentives • Density bonus • Special zoning • Expedited permitting

25. Innovative Policies – Hawaiian example • Solar Hot Water Heating • All new single-family homes required to have SWH • 40% residential energy demand in HI • 25% of single-family homes • Net Zero Energy Ready requirements • Residential new construction • Future target date – a line in the sand • Mandates efficiency improvements • Readies the house for RE • PV Ready Requirements • Structurally capable of supporting PV • Design elements & minimal equipment installation

26. Decoupling Overview • Traditional regulatory mechanisms incentivize increased sales for utilities – “throughput incentive” • Throughput incentive is considered the biggest barrier to utility investment in energy efficiency • Decoupling breaks this incentive by “delinking” a utility’s revenues from the amount of energy it sells • Types of decoupling: • Full • Partial • Limited

27. Decoupling Basics • The Utility recovers the amount of revenue determined to be fair and reasonable by regulators & Customers pay a fair amount for services rendered (electricity, distribution, etc) • Automatic/semi-automatic price adjustments • Does not alter the traditional rate case process – can reduce the frequency of rate cases • Reduces the financial risk for the utility • Does not decouple a customer’s bill from their consumption • 23 States have implemented some type of a decoupling policy, 6 states considering it

28. Other Policy Related Considerations

29. Transportation • Vehicle fleet transition • Electric vehicles • Hybrids • Flex fueled • Financial incentives • Vehicle purchase • Charging infrastructure • Financial disincentives • Government fleets/rental fleets/etc

30. Carbon and REC Markets • Fundamentals: • Carbon markets are specific to GHG emissions • RECs are defined by legislation or certification • Compliance Markets -- $5/MWh to $55/MWh • Voluntary Markets -- $1/MWh to $10/MWh • Opportunities in Carbon:* • Voluntary Markets - $705 million market, $7.34/ton CO2e • EU ETS - $95 billion --- limited to Kyoto signatories • Kyoto CDM - $22 billion --- limited to developing nations • RGGI - $254 million --- small potential in offset market • WCI - Not yet active --- role of offsets TBD • Others - Various initiatives are underway; concrete opportunities have not yet been identified • * Subject to change with new policy

31. Much more information on-line… Net Metering: http://www.nrel.gov/docs/fy10osti/46670.pdf Decoupling Brief: http://www.nrel.gov/docs/fy10osti/46606.pdf RE Rebates: http://www.nrel.gov/docs/fy09osti/45039.pdf FITs in the US: http://www.nrel.gov/docs/fy09osti/45551.pdf State Level FITs: http://www.nrel.gov/docs/fy10osti/47408.pdf RPS: http://www.nrel.gov/docs/fy08osti/43512.pdf US REC & Voluntary carbon markets http://www.nrel.gov/docs/fy09osti/46581.pdf http://ecosystemmarketplace.com/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf http://assets.panda.org/downloads/vcm_report_final.pdf Emerging carbon markets: http://www.nrel.gov/docs/fy07osti/41076.pdf

32. Thanks! QUESTIONS? Sarah Busche Energy Analyst, NREL Sarah.Busche@nrel.gov Eric Lantz Energy Analyst, NREL Eric.Lantz@nrel.gov