MAINE PUBLIC UTILITIES COMMISSION

 

 

REPORT and RECOMMENDATIONS on the PROMOTION of

RENEWABLE RESOURCES

 

 

 

 

 

 

 

 

 

 

Presented to the

Utilities and Energy Committee

December 31, 2003

TABLE OF CONTENTS

 

EXECUTIVE SUMMARY ........................................................................................................... 5

 

I.      INTRODUCTION ............................................................................................................... 12

 

II.    OVERVIEW ......................................................................................................................... 14

 

       A.     Promotion of Resources Prior to Electric Restructuring .............................. 14

 

       B.     Promotion of Resources Under the Restructuring Act ................................. 14

 

               1.     Current Portfolio Requirement ..................................................................... 15

 

               2.     Voluntary Research and Development Fund ........................................... 16

 

       C.     Policy Goals and Considerations ....................................................................... 17

 

               1.     Policy Goals and Objectives ......................................................................... 17

 

               2.     Implementation Considerations.................................................................... 19

 

III.    RESOURCE SUPPORT MECHANISMS...................................................................... 21

 

        A.     Renewable Portfolio Standard ............................................................................ 21

 

        B.     System Benefit Charge.......................................................................................... 23

 

        C.     Standard Offer Supply........................................................................................... 25

 

        D.     Net Billing.................................................................................................................. 26

 

        E.     Small Generator Aggregation............................................................................... 28

 

        F.     Customer Rebates................................................................................................... 29

 

        G.     Green Product Demand......................................................................................... 30

 

IV.    FUELS AND TECHNOLOGIES..................................................................................... 31

 

        A.     Biomass..................................................................................................................... 32

 

        B.     Municipal Solid Waste............................................................................................ 36

 

        C.     Efficient Cogeneration........................................................................................... 38

 

        D.     Grid-Scale Hydroelectric (above 5 MW) ............................................................ 40

 

        E.     Small-scale  Hydroelectric (below 5MW) .......................................................... 43

 

        F.     Grid-Scale Wind........................................................................................................ 45

 

        G.     On-Site Wind............................................................................................................. 46

 

        H.     Grid-Scale Solar....................................................................................................... 49

 

        I.       On-site Solar............................................................................................................. 49

 

        J.      Peat............................................................................................................................. 51

 

        K.     Landfill Methane Gas.............................................................................................. 52

 

        L.     Geothermal................................................................................................................ 53

 

        M.     Tidal or Wave............................................................................................................ 54

 

        N.     Fuel Cells................................................................................................................... 55

 

V.     OTHER STATE MECHANISMS..................................................................................... 57

 

        A.     Massachusetts......................................................................................................... 57

 

                1.     Massachusetts RPS........................................................................................ 57

 

                2.     Massachusetts SBC........................................................................................ 58

 

        B.     Connecticut.............................................................................................................. 59

 

                1.     Connecticut RPS.............................................................................................. 59

 

                2.     Connecticut SBC............................................................................................. 60

 

VI.     RECOMMENDATIONS................................................................................................... 61

 

        A.     Maine’s Current Portfolio Requirement............................................................. 61

 

        B.     Policy Goals and Objectives ................................................................................ 61

 

        C.     Resource Support Mechanisms.......................................................................... 62

 

                1.     Grid-Scale Resources..................................................................................... 62

 

                2.     On-Site Applications........................................................................................ 72

 

                3.     Emerging Technologies................................................................................. 76

 

        D.     Legislation ................................................................................................................ 76

 

 

 

Table of Appendices

 

Entities that Provided Comments and Input to Report ................................................... A

 

Maine Generating Facilities .................................................................................................... B

 

Resources Serving Maine’s Customers in 2002 ............................................................... C

 

Economic Impact of Some Eligible Resources ................................................................. D

 

States with Resource Portfolio Standards ......................................................................... E

 

Constitutional Issues Associated with In-State Location Requirements ................... F

 

System Benefit Charge-Funding for Renewables in Other States .............................. G

 

Other State’s Net Billing Terms ............................................................................................. H

 

Rebates and Tax Incentives in Other States ........................................................................ I

 

Government Purchases of Renewable Generation in Other States ............................. J

 

Draft Legislation ........................................................................................................................ K

 

 

 

 

 

 

 

 

 

       

 

 

EXECUTIVE SUMMARY

 

I.          BACKGROUND

 

            During its 2003 session, the Legislature enacted Resolve, Relating to Renewable Resources.[1]  This Resolve directs the Public Utilities Commission (“Commission”) to examine mechanisms to ensure an adequate and reliable supply of electricity for the State and to promote the State’s use of renewable and indigenous resources.  In particular, the Resolve asks the Commission to examine mechanisms that would provide adequate support for biomass generation, hydroelectric facilities with a capacity less than 30 megawatts or less, and fuel cell generation.  The Commission was directed to include an analysis, including cost impacts, of the most effective forms of the following mechanisms:

 

• Renewable Portfolio Requirement;
• System Benefit Charge; and
• Use of purchases from Maine’s renewable generators

     to supply standard offer service.

 

Additionally, the Resolve directs the Commission to examine mechanisms used in other states and their adaptability for use in Maine, to consult with entities with expertise or substantial interest in the promotion of renewable resources, and to present any consensus positions or alternatives if consensus cannot be reached.  The Resolve requires that the Commission submit its report and recommendations to the Joint Standing Committee on Utilities and Energy by December 31, 2003.

 

The report describes current legislative requirements for Maine’s RPS and summarizes the resources currently used to provide electricity to Maine’s customers.  

 

            The report presents the policy objectives that may be obtained through use of a resource support mechanisms:  environmental benefit, resource diversity, resource security, system reliability, reliability of supply, and economic development.  The Commission urges the Legislature to establish the policy objectives in order to guide the choice of what, if any, resource support mechanism should be adopted.

 

II.         CONSENSUS

 

The Commission hosted numerous meetings to gather information and recommendations, released a draft report, sought written comment from interested entities, held a meeting to further discuss the matters raised in its draft report, and assessed the possibility of achieving consensus on appropriate resource support mechanisms.  The Commission has concluded that, due to differing interests, the variety of options, and the complexity of the issues, no broad based consensus could be reached.  Accordingly, this report presents several alternative mechanisms that could satisfy a range of legislative policy goals and objectives.

 

III.        RESOURCE SUPPORT MECHANISMS

 

The report reviews the attributes of a variety of resource support mechanisms, including the three mechanisms specified in the Resolve.  The mechanisms explored in the report are:

 

Renewable Portfolio Standard (RPS):  The report discusses the relationship of an RPS to the competitive market, the effect of market power, the difficulty of ensuring a pre-determined cost, ways to cap cost exposure, the ability to ensure specified quantities of each resource, flexibility, effectiveness with respect to grid-scale and on‑site facilities, difficulty of limiting to in-state resources, and administration.

 

System Benefit Charge (SBC):   The report discusses the ability to ensure a pre-determined cost, the difficulty of ensuring pre-determined quantities of each resource, flexibility, means of determining funds distribution, effectiveness with respect to grid-scale and on-site facilities, ability to limit to in-state resources, contribution differences among customer groups, and administration.

 

Standard Offer Supply:  The report describes three methods by which standard offer purchases can be used as a resource support mechanism and  their effect on standard offer prices, fairness, market impact, and administration.

 

Net Billing:  The report discusses net billing and methods to expand the scope of net billing.

 

Small Generator Aggregation:  The report discusses the difficulties faced by very small generators in reaching the market and describes ways of removing these difficulties.

 

Customer Rebates:  The report describes buydown and tax credit rebate mechanisms used in some states to support targeted resources.

 

 Green Product Demand:  The report discusses credits for green product purchases and a “green standard offer.” 

 

IV.       FUELS AND TECHNOLOGIES

 

            The report describes the barriers, effective support mechanisms, potential goals, current in-state capacity, and potential support cost for the following fuels:  biomass, municipal solid waste, efficient cogeneration, grid-scale hydroelectric, small-scale hydroelectric, grid-scale wind, on-site wind, grid-scale solar, on-site solar, peat, landfill gas, geothermal, tidal, and fuel cells.  A table at the beginning of section IV summarizes the issues associated with each fuel.

V.        OTHER STATE MECHANISMS

 

            The report describes resource support mechanisms used in other states.  It focuses on Massachusetts and Connecticut because they are New England states with comprehensive renewable programs that include both an RPS and an SBC.  A variety of appendices summarize support mechanisms used in other states.

 

VI.       RECOMMENDATIONS

 

            The Commission emphasizes that this report makes no recommendations as to fundamental public policies regarding the promotion or subsidization of particular categories of generation resources.  The Commission believes that the decision to direct the State’s resources to achieve any particular policy objective (e.g., a cleaner environment or a greater degree of energy self-sufficiency) is an essentially legislative, as opposed to Commission, function.  Thus, this report focuses on how each of several possible policy objectives could be achieved, but does not offer advice on assessments concerning whether any of those objectives should take precedence over any other demands on Maine citizens’ resources.

 

o       Maine’s Current Portfolio Requirement  The Commission recommends that the Legislature repeal Maine’s portfolio requirement in its current form.

 

o       Policy Goals and Objectives  The Commission recommends that the Legislature assess and establish electric generating resource policy goals and objectives and determine whether resource support mechanisms should be established, the generating resources that should be promoted to serve public policy goals, and the amount of public funding that should be devoted to support generating resources.

 

o       Resource Support Mechanisms  The Commission recommends either an RPS or an SBC if the Legislature decides to adopt a mechanism funded by electricity consumers to support grid-scale facilities.  The Commission recommends against the use of purchases to supply standard offer service as a mechanism to support generating resources.

 

o       Recommendations for Grid-Scale Resources

 

Renewable Portfolio Standard

 

Cost capping mechanism:  The Commission recommends that an RPS be adopted only if it includes an alternative compliance mechanism as a cap on consumer cost exposure.

 

Regional deliverability:  The Commission recommends that electricity used to satisfy a Maine RPS be delivered to the New England or Maritimes control areas.

 

Credit trading:  The Commission recommends that a Maine RPS allow for renewable credit trading if a reliable system is in existence.

 

Exclusion of certain resources:  The Commission recommends that cogeneration, hydroelectric facilities above 5 MW, and facilities with qualifying facility contracts be excluded from any newly designed RPS because public assistance is not necessary to support their development and operation.

 

Resource tiers:  The Commission recommends that resource tiers be included in an RPS if the policy goals include promotion of particular categories of resources.

 

Biomass:  The Commission recommends that a separate biomass tier be included in an RPS if the Legislature determines that electricity consumer funded support should be directed to Maine’s biomass industry.  A reasonable portfolio percentage for this purpose would be 10% with an alternative compliance mechanism set at  $0.015 per kWh.[2]  The mechanism should be reviewed after two years to determine whether it is satisfying its public policy goals at an acceptable cost to consumers.

 

Municipal Solid Waste (MSW):  The Commission recommends that municipal solid waste facilities be included in the biomass tier if the Legislature determines that electricity consumer funded support should be directed to these facilities. 

 

Other Resources:  The Commission recommends that an “other renewables” tier be adopted if the Legislature determines that electricity consumer funded support should be provided to developing resources and smaller hydroelectric facilities.  The tier would include wind, solar, tidal, wave, geothermal, small hydroelectric, landfill gas, and fuel cells.  A reasonable portfolio percentage for this purpose would start at 2.0% in 2005 and grow at a half percent a year until it reaches 4.0% in 2009 with an alternative compliance mechanism set at $0.025 per kWh.[3]

 

System Benefit Charge

 

Resource categories:  The Commission recommends that a separate biomass category be included as part of an SBC if the Legislature determines that electricity ratepayer funded support should be directed to Maine’s biomass industry. The Commission recommends that municipal solid waste facilities be included in the biomass category if the Legislature determines that electricity ratepayer funded support should be directed to these facilities.  The Commission recommends that an “other renewables” category be included as part of an SBC if the Legislature determines that electricity ratepayer funded support should be directed to developing resources and small hydroelectric facilities.  The category would include wind, solar, tidal, wave, geothermal, small hydroelectric, landfill gas, and fuel cells.

 

Maine facilities:  The Commission recommends that the distribution of funds collected through an SBC be restricted to electric generating facilities located within Maine.

 

Funding levels:

 

Biomass, MSW, Other Resources:  The Commission recommends as a reasonable SBC surcharge for the biomass (and MSW) category  $0.001 (1.0 mill) per kWh on all kilowatt-hour sales in the State to produce an annual funding level in the range of $11 million and for the “other renewables” category  $0.0007 (0.7 mills) per kWh on all kilowatt-hour sales in the State to produce an annual funding level in the range of $7.5 million if the Legislature determines that electricity ratepayer funding should be directed at these categories of resources.

 

Distribution of funds:

 

Biomass, MSW: The Commission recommends that funds to facilities in the biomass category (as well as MSW if included in the category) be distributed based on a pre-established amount per kilowatt-hour that varies with actual market prices as determined through periodic Commission proceedings if the legislative goal is to spread available assistance among facilities.

 

Other Resources:  The Commission recommends that funds to facilities in the “other resources” category be distributed on the basis of competitive bids in which the lower bids are funded up to the total funding amount if the legislative goal is to maximize energy from the qualifying resources.

 

Standard Offer Supply

 

Fairness:  The Commission recommends that the Legislature not adopt any resource support mechanism that uses only standard offer load to support renewable resources as it would be unfair to standard offer customers and other mechanisms exist to more fairly apportion the burden among Maine’s electricity consumers.

 

Preferred Design:  In the event that the Legislature decides to use standard offer load as a resource support mechanism, the Commission recommends that an RPS applicable only to standard offer providers be adopted and that cost exposure be capped through an alternative compliance mechanism.

 

Green Product Demand

 

Green standard offer:  The Commission recommends that a green standard offer not be adopted at this time. 

 

Green retail credits: The Commission recommends that the entity administering an SBC be authorized to adopt a program in which customers that buy a green product are exempted from the SBC up to a specified cap.

 

o       Recommendations for On-Site Applications

 

            The Commission recommends against the expansion of net billing as a means to provide public support for on-site renewable resources.

 

The Commission recommends the adoption of a small generator aggregation mechanism to provide wholesale market access to small generators.

 

            The Commission recommends that a Clean Energy Fund program including customer rebates, grants and other initiatives, be established if the Legislature decides that certain on-site applications should be supported through a surcharge on utility rates.  

 

                        Net Billing

 

                        Arbitrary Subsidy:  The Commission recommends against the expansion of net billing at this time either through an increase to the net billing kW limit or an expansion of the applicable load because net billing represents an arbitrarily determined subsidy and other mechanisms exist that do not involve subsidies or that can better target subsidies.  The Commission recommends that the expansion of net billing be reconsidered if other support mechanisms are shown to be ineffective.

 

Net billing expansion:  If the Legislature determines that net billing should be expanded to support specified on-site resources, the Commission recommends that the kW limit be increased to 1 MW, that applicable load for net billing not be expanded by removing the proximity requirement or by allowing the load of associates to be netted against generation, and that a cap on net billing generation of 0.5% of each utility’s peak load be instituted.

 

                        Small Generator Aggregation

 

The Commission recommends that a mechanism be adopted that requires standard offer providers in the ISO-NE portions of Maine to purchase the output of generators with a capacity of 5 MW or less at applicable clearing prices with utilities administering the process through settlement procedures.

                       

                        Customer Rebates and Other Initiatives

 

The Commission recommends that a Clean Energy Fund be established if the Legislature determines that small (1 MW or less) on-site applications of photovoltaics, wind power and fuel cells should be promoted through public assistance. The fund would initially be funded by a 0.1 mills per kWh surcharge on T&D rates to produce an annual funding level of  $1.1 million, and would be administered as part of the Commission’s energy efficiency program. The funding level would be reviewed after two years.

 

o       Recommendations for Emerging Technologies

 

Clean Energy Fund:  The Commission recommends that the funding for renewable resource research and development occur through mandatory surcharges on utility rates and administered as part of a Clean Energy Fund if the Legislature determines that public assistance should be directed to emerging renewable technologies.

 

VII.      DRAFT LEGISLATION

 

Draft legislation to implement the Commission’s recommendations as discussed in this section is contained in Appendix K to this report. 

 

I.          INTRODUCTION

 

            During its 2003 session, the Legislature enacted Resolve, Relating to Renewable Resources.[4]  This Resolve directs the Public Utilities Commission (“Commission”) to examine mechanisms to ensure an adequate and reliable supply of electricity for the State and to promote the State’s use of renewable and indigenous resources.  In particular, the Resolve asks the Commission to examine mechanisms that would provide adequate support for biomass generation, hydroelectric facilities with a capacity less than 30 megawatts or less, and fuel cell generation.  The Commission was directed to include an analysis, including cost impacts, of the most effective forms of the following mechanisms:

 

• Renewable Portfolio Requirement;
• System Benefit Charge; and
• Use of purchases from Maine’s renewable generators

     to supply standard offer service.

 

Additionally, the Resolve directs the Commission to examine mechanisms used in other states and their adaptability for use in Maine, to consult with entities with expertise or substantial interest in the promotion of renewable resources, and to present any consensus positions or alternatives if consensus cannot be reached.  The Resolve requires that the Commission submit its report and recommendations to the Joint Standing Committee on Utilities and Energy by December 31, 2003.

 

To provide the Legislature with the information and background necessary to fully examine its policies on electric generation resources, this report will discuss a number of resource support mechanisms in addition to the three mechanisms noted above.  The report will address mechanisms and considerations related to both larger-scale generation facilities and small on-site units.  Many of the issues associated with distributed generation (DG) that have been raised before the Legislature in recent years will be discussed in this report. 

 

As part of its efforts to gather background information for this report and to solicit the views of interested persons, the Commission participated in numerous meetings and discussions with entities having expertise or interest in issues regarding the promotion of renewable and indigenous power,[5] and conducted research on mechanisms employed in other states to support or promote renewable power.  The Commission released a draft report and sought written comment from all interested entities. The Commission subsequently hosted a meeting to further discuss the matters raised in its draft report and to assess the possibility of achieving consensus on appropriate resource support mechanisms for use in Maine.  Due to differing interests, a variety of options, and the complexity of the issues, the Commission’s discussions and meetings revealed that no broad based consensus could be reached for inclusion in this report.  Accordingly, this report presents several alternative mechanisms that could satisfy legislative policy goals and objectives.

 

This report is structured as follows:

 

·        Section II – Overview: Discussion of past and current mechanisms used in Maine to promote renewable and indigenous resources, the impact of those mechanisms, and the various policies and goals that should be considered in adopting resource promotion legislation.

 

·        Section III – Resource Support Mechanisms: General review of the attributes of a variety of mechanisms that can be used to support and promote renewable and indigenous resources, including the three mechanisms specified in the Resolve.

 

·        Section IV - Fuels and Technologies: Discussion of individual renewable and indigenous fuels and technologies, current barriers to their development and use, and appropriate mechanisms to support the fuel or technology.

 

·        Section V – Other State Mechanisms: Description of mechanisms used to support renewable resources in other states.

 

·        Section VI – Recommendations: Discussion of viable approaches to the promotion of renewable and indigenous resources given legislatively specified policies and goals.

 

II.                  OVERVIEW

 

A.       Promotion of Resources Prior to Electric Restructuring

 

                        Prior to the restructuring of Maine’s electric industry,[6] the State, through its Public Utilities Commission, had substantial control and influence over the resources used to supply electricity to Maine’s public.  This occurred through the Commission’s oversight of vertically integrated electric utilities that had the obligation to provide electricity through a least cost mix of generating (as well as demand-side) resources.

 

                        Beginning in the early 1980s, the Commission’s oversight of utility resource acquisition was guided by several legislative directives that promoted resource diversity and the development of renewable and indigenous generating resources.[7]  By the time the industry was restructured, these policies resulted in an overall resource mix serving Maine’s public that consisted of almost 50% renewable power. [8]

 

                        This result, however, has come at a substantial cost.  Due to mis‑estimates of the future cost of electricity generation, policies to promote the development of renewable resources (as well as cogeneration) have contributed to high electricity rates in this State and have resulted in substantial ongoing “stranded costs.”  These stranded costs currently account for approximately 30% of transmission and distribution utility rates and will continue in rates for years to come.

 

B.       Promotion of Resources under the Restructuring Act

 

                        The State’s ability to impact the mix of generating resources through the oversight of utility planning and acquisition came to an end with the implementation of the Restructuring Act.  By opening the provision of generation supply to competition and requiring the State’s utilities to exit the generation business, the Restructuring Act rendered the traditional mechanisms to influence the State’s generation mix inapplicable. 

 

                        Recognizing this result, the Legislature included a generation resource policy statement and two implementing provisions in the Restructuring Act.  The Legislature stated its policy as follows:

 

                                    In order to ensure an adequate and reliable

                                    supply of electricity for Maine’s residents and

                                    to encourage the use of renewable, efficient

                                    and indigenous resources, it is the policy of this

                                    State to encourage the generation of electricity

                                    from renewable and efficient sources and to

                                    diversify electricity production on which the

                                    residents of this State rely….[9] 

 

The Act’s primary implementing provision is the eligible resource portfolio requirement.[10]   The other provision is a renewable resource research and development fund supported by voluntary ratepayer contributions.[11] 

                       

            1.         Current Portfolio Requirement

 

                                    The current portfolio requirement mandates that each competitive electricity supplier meet at least 30% of its retail load in Maine from “eligible resources.”  Eligible resources are defined in statute and consist of resources typically considered

renewable, as well as “efficient” cogeneration resources that may be fueled by fossil fuels.  An eligible resource is not required to be located in the State, but its energy must be delivered to the New England grid and designated as serving load in Maine.

 

The portfolio requirement has ensured that at least 30% of Maine’s electric load has come from some combination of the resources designated in the

Restructuring Act.  The following graph displays the resource mix used to serve Maine’s retail load during 2002.[12]

                       

                                   

The experience to date, however, reveals that the current portfolio requirement is not satisfying the policy of promoting the generation of electricity from renewable and efficient resources that would not otherwise occur.  The primary reason is that the “supply” represented by the list of eligible resources is significantly greater than the “demand” created by the 30% requirement, and retail suppliers are able to satisfy the portfolio requirement through facilities that can supply power at or near the prevailing market price.  The consequence is that Maine’s current portfolio requirement produces no (or very little) financial premium over market for eligible facilities.

 

                                    Because the current portfolio requirement has no significant impact on prices paid to generators, it appears to have little impact on Maine’s retail rates.  The requirement does, however, cause an administrative burden to retail suppliers and may represent a barrier for other suppliers to enter Maine’s retail market.  

 

                        2.         Voluntary Research and Development Fund

 

                                    As required by the Restructuring Act, a program is in place whereby Maine’s electricity consumers can make voluntary contributions through their electric bills to fund renewable resource research and development (R&D) and demonstration community projects using renewable energy technologies.  The Act specifies that funds for renewable resource R&D be distributed to the University of Maine System, the Maine Maritime Academy or the Maine Technical College System, and that funds for demonstration community projects using renewable energy technologies be distributed to Maine-based nonprofit organizations.  The State Planning Office (SPO) has the statutory responsibility to administer the program.

 

                                    To date, ratepayers throughout the State have contributed in excess of $100,000 to the R&D fund.  The SPO has contracted with the Maine Technology Institute (MTI) for the distribution of the funds to take advantage of MTI’s existing grant process infrastructure and to leverage additional funds that may be available to grantees.  MTI has recently awarded funds for a demonstration project intended to accelerate deployment of renewable energy systems using hydrogen generators, storage, and fuel cells.

 

            C.        Policy Goals and Considerations

 

                        1.         Policy Goals and Objectives

 

                                    Mechanisms used to promote particular electric generation resources or technologies involve, for the most part, public support through what are essentially ratepayer or taxpayer subsidies.  Most resource support mechanisms involve increasing electricity prices to the general public to provide financial benefits to private entities whose activities are deemed to serve the public good.  Accordingly, legislative policy goals and objectives need to be considered and established when determining whether to adopt mechanisms to support certain categories of generating resources.  In addition, the Legislature should consider the means by which policy goals and objectives can be accomplished at the lowest cost to Maine’s consumers.  The following are potential policy goals and objectives that the Legislature may wish to consider:

 

·        Environmental Benefit:  Renewable resources are generally considered less environmentally harmful relative to fossil fuel resources.  In particular, electricity generation in the United States is considered one of the largest contributor to global climate change and generation using renewable resources is viewed by some as critical in meeting energy needs without exacerbating the climate change problem[13].  However, most renewable resources do have some environmental impacts and, in some cases, those impacts can be greater than for other forms of generation.[14]  There is currently an active debate concerning the relative environmental benefit and harm of various categories of resources.  

 

·        Resource Diversity:  Renewable resources can provide greater diversity in the region’s energy mix.  This tends to reduce over-reliance on dominant fuel sources (natural gas and oil) and may help to stabilize electricity prices to some degree in that the costs of renewable resources generally do not vary with oil and gas prices.  However, the addition of renewable resources to the regional mix is unlikely to affect the cost of electricity unless it changes the system’s marginal units.  It is the cost of the marginal units[15] that determines clearing prices and these prices are the primary determinant of the market cost of electricity.  Based on the current mix of resources in the region, it is unlikely that even an increase of several hundred megawatts of renewable resources would alter the marginal units or have a significant impact on market prices.  Thus, the addition of renewable generation is not likely to moderate the impact on ratepayers of increases in fossil fuel costs, at least for the foreseeable future.

  

·        Resource Security:  Renewable resources reduce reliance on foreign sources of fuels and are less vulnerable to international crises and terrorism.

 

·        System Reliability:  Renewable resources tend to be smaller units that are distributed geographically throughout the system.  As such, they can provide enhanced voltage support, reduced line losses, and aid the process of restarting the system after major disruptions.  In the past, some renewable facilities were specifically located at weak points in the grid to increase system reliability.  However, if located in parts of the system that were not designed for electricity transmission (as opposed to distribution), or if the grid must be upgraded to adjust harmonics, voltage fluctuations, or reactive power to maintain power quality in the vicinity, new generating facilities can increase system costs.  Moreover, the intermittent nature of some renewable sources reduces their system reliability benefit.

 

·        Reliability of Supply:  The development of additional renewable resources in the State would contribute to a reliable supply of electricity.  However, Maine currently has a substantial over supply of generation sources and a high percentage of renewable resources relative to the national average.

 

·        Economic Development:  Maine historically has had a relatively large number of renewable resource facilities spread throughout the State.  These resources have had an economic development impact in their communities through the creation of jobs and an enhanced tax base.[16]  Additionally, some of these facilities have provided a societal benefit by providing a means for the disposal of wood and municipal solid waste.  However, the promotion of facilities in Maine that would not otherwise run or be constructed could have a negative impact on other facilities in the State that might, as a result, be forced to operate in fewer hours or to close down.  Additionally, higher electricity costs that result from the promotion of renewable resources have an overall negative impact on the State’s economy, and the benefit in terms of jobs and local taxes should be viewed in light of the amount of subsidy necessary to maintain the operation of existing facilities.

 

                        2.         Implementation Considerations 

 

                                    In addition to overall policy goals, there are a variety of considerations that should be evaluated in determining which resources or technologies receive support through public subsidies and the mechanisms for providing that support.  The following are the primary considerations:

 

·         Cost:  Resource support mechanisms, as mentioned above, are essentially public subsidies and, as such, the potential cost of support mechanisms should be carefully examined.[17]  Thus, the Legislature should consider the cost to accomplish its policy goals, as well as the impact of increased electricity costs on Maine’s public.  The Legislature should also consider whether the subsidy is likely to be a temporary mechanism to aid in the development of a resource or permanent in that the resource is likely to always need financial assistance.

 

·        Commercial Viability:  The primary purpose of the resource support mechanisms that are the subject of this report should be to provide assistance to resources or technologies that are not commercially viable or that will not operate without such assistance.  A resource or technology that can cover its costs through the market price of electricity or that will operate for other reasons in the absence of public assistance does not require a resource support mechanism to promote its continued operation.

 

·        Ratepayer Payback:  Providing ratepayer support for renewable generators raises the question of whether there should be a mechanism for ratepayers to share the benefits should those generators not only become commercially viable but very profitable.  This could occur if there were substantial and sustained increases in fossil fuel prices.  As discussed above, the market price of electricity is primarily determined by the cost of the marginal units in the region.  As such, a sustained increase in the cost of fossil fuel would result in increased revenue (and perhaps significant profits) for renewable generators (rather than renewable generation moderating the impact of fossil fuel increases on ratepayers).  Because renewable generators would have received support from ratepayers during lower fossil fuel cost periods, there is a policy question of whether some of the benefits that renewable generators receive during periods of higher fossil fuel cost should flow back to ratepayers.  The argument for sharing benefits becomes stronger to the extent support for renewable generation is premised on the notion that resource diversity will provide insurance against high fossil fuel prices.[18]

 

·        Prior Contracts:  Generating facilities that have pre-existing qualifying facility contracts with utilities will continue to operate throughout the remainder of the contract term regardless of the price they receive.  Consequently, assistance through a resource support mechanism is not necessary to ensure their continued operation.

 

·        Existing/New Resources:  Resource support mechanisms can be used to maintain existing facilities within the State or to stimulate the development of new facilities.

 

·         Established/Emerging Technologies:  Resource support mechanisms can be used to assist established technologies that are not yet commercially viable or to promote the development of emerging technologies through research and development with the eventual goal that the technologies will become commercially viable. 

 

III.        RESOURCE SUPPORT MECHANISMS

 

            Funding through taxes or utility rates:  There are a variety of mechanisms that can be used to support generation resources and technologies.  As mentioned above, such mechanisms can be funded through taxes or electricity prices.[19]  The Commission’s general position, as stated to the Legislature on previous occasions, is that the promotion of basic public policies such as environmental improvement or economic development should be funded through general tax revenues rather than electricity rates.  The Commission recognizes, however, that electricity rates are a common funding mechanism for the support of renewable resources and technologies and are often considered a second best alternative to the use of tax funds.  This report focuses on electric consumer funding mechanisms because the Commission’s expertise lies in the regulation of utility rates and in the development of a competitive retail market for electricity.

 

            This section of the report reviews a variety of resource support mechanisms and their respective attributes.  In considering the mechanisms that might be appropriate to serve legislatively established policy goals, it is useful to distinguish among the following categories of resources and technologies:

                       

·        Grid-Scale:  Facilities that are designed primarily to provide power to the electric grid for sale through the wholesale market or to unaffiliated retail customers.

 

·        On-Site:  Facilities that are designed to provide electricity for on-site use.

 

·        Emerging Technologies:  Technologies that are in the development stage and are relatively far from economic applications.

 

As discussed below, appropriate mechanisms to support particular resources or technologies will depend on the categories to which they belong.

 

            A.        Renewable Portfolio Standard

 

                        A renewable portfolio standard (RPS)[20] is a commonly used mechanism to promote the use of renewable resources.  The mechanism works by requiring retail electricity suppliers to meet a specified percentage of their load within a state through designated categories of resources.  An RPS can be an effective resource support mechanism if designed properly to accomplish legislative policy goals.  By mandating that a specified percentage of a state’s resource mix comes from resources that are presumably above market cost, the mechanism results in an increase in the retail cost of electricity supply for consumers.[21]

 

                        The following are the primary attributes of an RPS:

 

·        Market mechanism: An RPS uses the competitive electricity market to accomplish legislative goals (i.e. specified percentages of designated categories of resources in a state’s energy mix) in a manner that tends to minimize costs to electricity consumers.  The mechanism is intended to cause generators to compete to provide designated resources at the lowest cost.  Lower cost facilities would receive the benefits of the RPS, while higher cost facilities may receive no benefit.

 

·        Market power:  The cost of an RPS can be inflated by the exercise of market power if ownership or control over facilities within a designated category is concentrated.  This would limit effective competition within the category, potentially resulting in prices rising above costs.  The possibility of market power would make it extremely difficult to effectively design an RPS to support all of the existing capacity within a particular resource (e.g., all of Maine’s existing biomass capacity).  If an RPS percentage is chosen so that all facilities within a specified category must operate, there would be little or no competitive price discipline as the RPS mechanism contemplates in that all facility owners would know that their output must be purchased.[22]

 

·        Cost unknown:  The cost to electricity consumers of an RPS cannot be known with any certainty in advance.  A reasonable estimate of the cost might be obtainable after the fact; this would have a greater likelihood if the NE-GIS[23] produces a transparent market for eligible Maine certificates.

 

·        Cost can be capped:  The cost exposure for electricity consumers can be capped by including an alternative compliance mechanism.  Such a mechanism would provide competitive suppliers with the option of paying a pre-specified amount per megawatt-hour into a fund in lieu of complying with the RPS.  The fund would then be used to support the same policy goals as the RPS.  Consumer cost exposure would be effectively capped at the alternative compliance amount. 

 

·        Ensures specified quantities:  An RPS, by its design, will ensure that a legislatively specified amount of designated categories of resources will be included in a state’s energy mix.[24]

 

·        Flexibility:  An RPS can be structured to promote several categories of resources through the use of “tiers.”  For example, given policy goals of maintaining at least a portion of existing biomass capacity and encouraging new wind facilities, an RPS can be structured with two tiers—one requiring that x% of load be met with existing biomass and another requiring that y% of load be met with wind power.

 

·        Grid-scale facilities:  An RPS is effective primarily in supporting grid-scale facilities.  The mechanism is not as effective in supporting resources, such as photovoltaic and wind installations, that are designed to meet a customer’s on-site needs.

·        Maine facilities:  Any attempt to limit RPS eligibility to facilities located in Maine or to establish reciprocity requirements would raise serious constitutional questions, because the Commerce Clause of the U.S. Constitution generally prohibits states from enacting laws that discriminate against interstate commerce or amount to economic protectionism.[25]  In addition, use of funds from an RPS alternative compliance mechanism to support only in-state facilities would raise similar constitutional issues. 

 

·        Administration:  An RPS requires relatively little public effort to administer.  The Commission could continue to administer a State portfolio requirement without additional resources.  However, if a capping mechanism is included, it is possible (depending on market conditions) that a significant number of suppliers may opt for the alternative of paying into a fund.  If this turns out to be the case, there may be a substantial administrative burden related to distributing funds consistent with legislative policies that would require additional resources for whatever entity is responsible for that task.

 

            B.        System Benefit Charge

 

                        A system benefit charge (SBC) is also a commonly used mechanism to support renewable resources.  The mechanism is a surcharge on the bills of transmission and distribution (T&D) utility customers.  The funds collected are then distributed to support generation resources according to previously established criteria.[26]   An SBC can be an effective mechanism to support designated categories of resources to accomplish legislative policy goals.  By its nature, an SBC is a surcharge that results in a direct increase in T&D utility rates for electricity consumers.[27]

 

                        The following are the primary attributes of an SBC:

 

·        Cost known:  The surcharge is established in advance.  Accordingly, the cost to ratepayers is known with certainty.

 

·        Quantities unknown:  The amount of renewable generation that will result from the mechanism cannot be known in advance, but can be known after the fact.

 

·        Flexibility:  An SBC can be structured to accomplish a variety of policy goals.  For example, a policy goal of promoting two categories of resources can be accomplished by segregating the funds with specified amounts dedicated to each category.  The mechanism can also be designed to maximize the amount of energy generated from a particular category (e.g. through a bidding process) or to provide support more broadly throughout the category (e.g. specifying an amount per kilowatt-hour that all generators in the category receive).

 

·        Fund distribution:  Under an SBC, it can be difficult to determine the correct amount of funding that individual generators should receive.  The correct amount of funding depends on individual generator costs and on prevailing market prices.  If the funding amount is too high, the generator would receive more public assistance than necessary.  If the funding amount is too low, the assistance will not result in the commercial viability of the resource as intended.  A bidding process for limited funding would help address proper fund distribution.

 

·        Facilities/technologies:  An SBC can be effective in supporting grid-scale facilities, on-site applications, and emerging technologies.

 

·        Maine facilities:  An SBC can be designed so that only Maine facilities benefit through the receipt of funds.[28]

 

·        Consumer contribution:  Because an SBC is a surcharge on tariff T&D rates, customers that are on discounted rates or special rate contracts would not contribute to the State’s resource promotion policies to the same extent as customers who take service under tariff rates.  In contrast, the cost of an RPS flows through to consumers’ competitive supply prices and will thus tend to be paid by all electricity consumers.

 

·        Administration:  An SBC requires significant resources to administer.  An SBC involves the distribution of funds to entities according to specified legislative policies and specific administrative rules.  The required resources would depend on the size of the fund.  The Commission could administer an SBC fund as it does the energy efficiency program, but this would likely require significant additional resources (including additional personnel). 

 

            C.        Standard Offer Supply

 

                        The Resolve asks the Commission to examine the use of purchases from Maine’s renewable generators to serve portions of the standard offer load as a potential support mechanism.  There are three basic methods by which purchases to supply standard offer can be used as a resource support mechanism:

 

• Portion of standard offer bid: Standard offer bidding would occur basically as it has over the last several years, except that a certain portion of standard offer load would be bid out separately.  Only designated categories of facilities could supply this segregated portion of the standard offer load.  The precise size of the segregated load would depend on the legislative policy goals.  For example, if the goal were to maintain the operation of all the existing biomass facilities in the State, the segregated portion would equal the combined capacity of the biomass facilities.

 

• Wholesale contracts: The State or T&D utilities would enter into wholesale power contracts to buy the output of resources in designated categories and that output would be used to serve standard offer load.  The remainder of the standard offer load not covered by the purchases would be served through the ordinary Commission bid process.  The State or utility purchase of the output from the designated categories of resources would occur through a bid process to minimize cost.  The contracts can have varying terms.

 

• RPS applicable only to standard offer: A portfolio requirement would be adopted that would apply only to standard offer suppliers.  Competitive (non‑standard offer) suppliers would not have requirements applicable to their resource portfolios.  A standard offer portfolio requirement would be designed to support resource categories designated by the Legislature in much the same way as a generally applicable RPS.  

 

                        All of these methods are feasible and could be designed to effectively support renewable resources.  However, it is possible that the standard offer may terminate in the future if efficient competitive retail markets develop in all sectors.  If this occurs, standard offer could no longer be a vehicle to support renewable resources.

 

Use of the standard offer as a resource support mechanism is essentially a variation of an RPS and thus shares its basic features (discussed above).  In addition, use of the standard offer has the following attributes: 

 

·        Standard Offer Prices:  The mechanism would raise the prices of standard offer service in that it is presumed that the cost of resources in the designated categories would be above market cost.

 

·        Fairness:  Only standard offer customers (who tend to be residential and small business customers) would pay the cost of the State policy of supporting renewable generation.  Customers that take service from competitive suppliers (who tend to be larger businesses and industrial customers) would not contribute to the cost of the policy.  Such a situation raises questions of fairness.

 

·        Market impact:  The mechanism would artificially raise standard offer prices and tend to increase migration into the retail competitive market (assuming the existence of retail suppliers in the applicable sector).  If such migration occurs, there will be increasingly less support for the designated renewable resources as electricity consumers leave the standard offer.

 

·        Administration:  The first two methods would likely require some additional resources for the Commission to administer.  

 

            D.        Net Billing

 

                        Net billing is a commonly used metering and billing practice applicable to consumers that use renewable generation to serve their own electricity needs.  As such, it is only applicable to on-site generation applications (rather than grid-scale facilities). 

 

                        Under a net billing arrangement, a customer’s generation over a month is netted against the customer’s usage.  The customer is billed each month only for the difference between usage and generation.  If generation exceeds usage, the customer receives a credit that can be used to offset future usage.  In effect, a net billing customer is compensated for its excess generation at the retail price of electricity, which includes delivery.  Because the retail price of electricity is substantially greater than the value of generation supply, net billing represents a subsidy in the form of lost T&D revenues.  Thus, the benefit to net billing customers is funded by T&D utilities and their ratepayers.

 

                        Net billing is available in 38 states and has been available in Maine (through Commission rule) since the mid-1980s.  The purpose of net billing has been to promote the use of small renewable resources for an individual customer’s own use.  In Maine, the generation resource must be 100 kW or less and in the proximity of the load to qualify for net billing.[29]  Currently there are approximately 65 net billing customers in Maine.[30]  The majority are solar installations of 4 kW or less; there are also wind generators that are typically 10 kW facilities and hydroelectric facilities between 10 kW and 100 kW.  The current cost of net billing to T&D utilities and their ratepayers is relatively modest, estimated at less than $50,000 per year.[31]

 

                        Net billing is an extremely advantageous program for customers that have renewable generation under the 100 kW breakpoint and enough load to make the net billing offset worthwhile.  It is also relatively easy to administer through Commission oversight of T&D utilities and the standard offer, and does not represent a substantial burden for T&D utilities.

 

                        During the past legislative sessions, the issue of expanding the net billing program has been raised.  There are two basic means to expand the program:

 

1)     Increase the net billing limit to (for example) 1 MW; and

 

2)     Expand the load that can be offset by eliminating

the proximity requirement and including loads of affiliates or    associates.           

 

The expansion of the net billing program would increase the cost to utilities and ratepayers.  If it were assumed that an additional 10 customers with generating facilities that averaged 500 kW began to net bill, the cost in additional lost revenues to T&D utilities would likely be no more than $600,000 per year.  However, the number of additional net billing customers over time cannot be known.  To address concerns over this uncertainty, the cost of expanding net billing can be effectively capped by limiting the number of customers or the total customer load that can have net billing arrangements.[32]

 

            E.        Small Generator Aggregation

 

                        Small generators, by virtue of their size, confront unique difficulties in accessing the competitive wholesale market.  These difficulties are faced by both renewable and non-renewable generators that are in the 5 MW or less range.[33]  The difficulties arise because electricity marketers are generally unwilling to purchase the output from small generators due to the significant administrative costs associated with contracting with a number of small facilities that provide little volume.  Additionally, the cost for small generators to sell directly into the ISO-NE market is economically prohibitive.

 

                        Several years ago, there appeared to be some marketers willing to contract with small renewable generators and some possibility that a viable market for small renewable generation would be sustained.  Currently, however, there appears to be little, if any, sustainable market for small generators.

 

                        There are several mechanisms that could provide reasonable market access to small generators.  The mechanisms could be made applicable only to small renewable generation or to any other designated category of distributed generation.  These mechanisms are designed only to allow generators to receive market prices for their output.  As such, they would have only a minimal (if any) ratepayer subsidy (unlike the other mechanisms discussed in this section of the report).

 

                        Several alternative mechanisms to address this matter have been discussed before the Legislature.  The alternatives are:

 

·        Require T&D utilities to purchase the output of small generators, sell the output to the ISO-NE spot market, and reimburse the generator at the clearing price the utility receives for the output;[34]  

 

·        Require standard offer providers to purchase the output of small            generators;

 

·        Seek a third party (presumably an existing marketer) or create an entity to perform aggregation purchase and sale services for small generators; or

 

·        Require the Commission to conduct a bid process to sell the                 small generator output to an open market competitor.     

 

                        As a result of recent ISO-NE rule changes implementing standard market design, T&D utilities are no longer in the position to aggregate small generators and re-sell their output.[35]  However, a workable means exists whereby the standard offer provider would be required to purchase the output of small generators at the applicable clearing prices using utility administered settlement processes.  The standard offer provider would be financially neutral to the transaction and would have little or no administrative burden.  The utilities would have a relatively small additional administrative burden. 

 

                        Use of the standard offer load in this manner is a viable aggregation method to ensure a market for small generation in the ISO-NE area.  Due to differing market rules (primarily the lack of a spot market), it is unclear at this point whether a similar mechanism could work in the northern Maine market.  The potential for success with the other alternatives listed above is much more in question.  The burden of administering individual contracts for small volumes of generation would make it unlikely that a market participant would offer to provide aggregation services.  The Commission or some other entity could bid out the output of small generators.  However, this would create new administrative costs, and the intermittent nature of the output and relatively small volume would likely result in prices for the generators being below the prevailing market prices.  

 

            F.         Customer Rebates

 

                        Customer rebates, funded by a surcharge on utility bills (i.e. an SBC) or tax credits, are a common mechanism used in other states to promote renewable resource on-site applications. [36]  Customer rebates (typically referred to as “buydowns”) are payments made to customers to offset the installed cost of designated renewable technologies.  Buydown rebates are usually made on the basis of the installed capacity of the facility.  They are typically applicable to photovoltaic and wind installations, but sometimes extend to fuel cells, biomass and other resources.  Buydowns in other states commonly range from $3.00 to $5.00 per watt up to a specified percentage of total cost, or 10% to 30% of the installation and capital costs.  In some programs, the installation must undergo a prior inspection and payments are made over time to ensure that the installation produces the expected amount of energy.

 

                        Customer buydown programs in other states are often part of “clean energy fund” activities that operate similar to energy efficiency fund implementation.  In addition to customer buydowns, clean energy fund programs include low interest loans for facility installations, grants for developing technologies, public education, and market development.  The Commission could administer such a program in conjunction with its energy efficiency program, although additional resources (including additional personnel) would likely be required.[37]

                       

G.        Green Product Demand

 

                        Several states have programs that seek to support renewable resources by stimulating retail demand for “green” electricity products.  One approach is to reduce the retail cost of green electricity products by providing a credit for the purchase of green electricity.[38]  The credit is funded by a surcharge on utility bills (i.e. an SBC) and is generally paid to green marketers rather than retail customers for administrative reasons.  A second approach is to require a “green standard offer.”[39]  A green standard offer is arranged for by the state or a utility and provides all customers with a readily accessible option to purchase a green electricity product.  Finally, some states require or encourage green purchases by state government.[40]

 

                        All these approaches are an indirect means to promote the development of grid-scale renewable generation resources and it is difficult to determine their effectiveness compared to other resource mechanism.  A green product credit program would involve significant resources to implement, while a green standard offer would create some additional administrative burden.  Both could be implemented by the Commission with some additional resources.

 

IV.       FUELS AND TECHNOLOGIES

 

            This section of the report discusses individual generating fuels and technologies, current barriers to their development and use, and possible promotional mechanisms or activities.  The section examines the three resources specified in the Resolve, the fuels and technologies that are currently eligible for Maine’s RPS and other potential candidates for public support.  The following table summarizes key issues associated with each fuel.  The sections following the table discuss the issues in more depth.

 

Fuel	Barriers	Effective Support Mechanisms	Potential Goals	Current Capacity in ME
Biomass	·      Unpredictable fuel availability and cost ·      Electricity prices ·      Uniform disclosure label rule – CO2 offsets ·Non-PTF charges	·      Redesigned RPS or SBC that exclude lower-cost resources ·      Small generator aggregation ·      Elimination of non-PTF charges	·      In-state jobs, economy (including support for wood products industry) ·      Geographic diversity ·      Fuel diversity ·      Environmental benefits ·      Renewable	258 MWs 12 facilities
Municipal Solid Waste	·      Competition for MSW ·      Electricity prices ·      Limits to RPS value	·      Redesigned RPS or SBC that exclude lower-cost resources	·      Environmental benefits (of waste disposal) ·      In-state jobs, economy ·      Renewable	62 MWs 4 facilities
Efficient Cogeneration	·      Electricity prices	·      Redesigned RPS so percentage is closer to supply ·      SBC	·      In-state jobs, economy ·      Environmental benefits	328 MWs 4 facilities
Grid-scale Hydro (>5 MW)	·      Fish passage requirements ·      Electricity prices ·      Non-PTF charges ·      Low-impact demands	·      Redesign RPS so percentage is closer to supply ·      SBC ·      Fish passage reconsideration or assistance ·      Elimination of non-PTF charges	·      Environmental benefits ·      Renewable ·      Maintain ecosystem ·      Recreational benefits, flood control ·      Fuel diversity ·      Geographic diversity ·      Price stability	613 MWs 29 facilities
Small-scale Hydro (< 5 MW)	·      Access to market ·      Electricity prices ·      Non-PTF charge ·      Fish passage requirements	·      Small generator aggregation ·      “Other renewables” RPS or SBC ·      Increase net billing breakpoint ·      Allow multiple accounts to net bill ·      Eliminate non-PTF charges ·      Fish passage reconsideration or assistance	·      Environmental benefits ·      Renewable ·      Maintain ecosystem ·      Fuel diversity ·      Geographic diversity	12 MWs 36 facilities (<1 MW)   63 MWs 28 facilities (1-5MW)
Grid-scale Wind	·      Public reaction (visual) ·      Siting ·      High capital costs ·      Long-term contracts needed ·      Non-PTF charges	·      “New and other renewables” RPS or SBC ·      Siting requirements reconsideration ·      Elimination of non-PTF charges	·      Environmental benefits ·      Renewable ·      Long-term price stability ·      Geographic diversity ·      Fuel diversity	105 MWs 2 facilities (planning stage)

 

 

On-site Wind	·      Costly at small-scale ·      Access to market ·      Lack of public awareness	·      Customer rebates ·      Small generator aggregation ·      Increase net billing breakpoint ·      Educate institutions	·      Support overall State renewables policy	On grid: 300 kW 18 facilities   Off grid: Far more
Grid-scale Solar	·      High capital cost and limited hours of sun	·      “New and other renewables” RPS or SBC	·      Environmental benefits ·      Renewable ·      Long-term price stability ·      Fuel diversity	None
On-site Solar	·      Costly ·      Lack of public awareness	·      Customer rebates ·      Educate institutions ·      State sponsored demonstrations and licensing	·      Support overall State renewables policy	700 kW 270 facilities
Peat	·      Has been costly ·      Concern over sludge, if used	·      Redesign RPS to include peat ·      SBC		1 facility currently not operating
Landfill Gas (methane)	·      Access to market	·      “New or other renewables” RPS or SBC	·      Environmental benefits (of methane removal)	None
Geothermal	·      Lack of public awareness ·      Lack of qualified installers	·      State sponsored demonstrations and licensing	·      Support overall State renewables policy	2 commercial 20 residential
Tidal	·      Not yet viable			None
Fuel Cells	·      High capital & operating cost ·      Need improved efficiency and lower costs	·      Customer rebates ·      R&D support	·      Environmental benefits ·      High power quality	None

 

 

A.        Biomass

 

            Biomass is an eligible resource under Maine’s current RPS law.  The law does not define “biomass.” In Maine, the term has generally referred to facilities that burn wood and wood byproducts to generate electricity.[41]  Some biomass facilities are stand-alone electric generators and some are cogenerators that use the electricity to serve their own load as well as for export to the electrical grid.   In Maine, there are nine stand-alone biomass plants ranging in size from 15 to 46 MW and three small wood products companies with capacities less than 2 MW (four cogenerators - three also using coal, oil, or hydro - range in size from 40 to over 100 MW; in this report, we consider those plants to be efficient cogenerators).[42]  The 12 biomass plants have a combined capacity of over 250 MWs.  In addition, a significant number of non-Maine biomass plants participate in New England’s market.[43] 

 

                        Maine’s existing biomass plants were built when utilities were paying a relatively high price for electricity produced by qualifying facilities (QF).  The majority of the stand-alone biomass QF contracts have expired, causing the facilities to sell their electricity at substantially lower market prices.  Biomass plants have relatively long ramp-up procedures, which limits their ability to respond quickly to hourly changes in market prices.  In addition, the availability and cost of fuel are currently unpredictable, increasing operational costs.  Because of rising costs and falling revenues, as many as six plants are reported to have been idled for various periods of time over recent years and at least three are currently idle.  However, at least three stand-alone plants whose contracts have expired are operating.

 

                        Biomass plants provide benefits that extend beyond electricity generation.  First, biomass plants allow for local disposal of wood byproducts.  The economic impact to the sawmill industry has been cited in both Maine and New Hampshire as perhaps the most compelling reason to support the biomass industry.[44]  In the absence of biomass facilities, the 200-plus sawmills in Maine would be required to establish landfills to dispose of as much as 875,000 tons of waste produced annually or to dispose of the waste in municipal landfills.[45]  Under either of these options, sawmills would lose the revenue they currently receive from the sale of their waste and would incur costs estimated in the tens of millions of dollars.  In addition, Maine’s biomass facilities directly employ more than 200 people and pay over $2.6 million in local taxes.

 

Biomass facilities are scattered around the State in remote locations, adding geographic diversity to Maine’s generating mix, and they reduce Maine’s reliance on fossil fuels.  

 

                        In many states, biomass is eligible for support through an RPS or SBC, but eligibility is generally limited to facilities that are smaller than 30 MW, that meet certain emissions standards, or that are fueled by sustainable biomass.  Only two of Maine’s biomass plants qualify for the Massachusetts RPS and there is no reason to believe that any qualify for other states’ RPSs.  A federal inflation-adjusted $0.015 per kWh Production Tax Credit is available to “closed-loop” biomass operations (those that both produce and consume fuels used to generate power), but no plant in Maine qualifies for that credit and no facility in the country has ever taken advantage of the credit since it was created in 1992.

 

A 2002 study of the biomass industry in New Hampshire[46] indicates that biomass plants in that State cost $0.054 per kWh on average to operate, resulting in the need for approximately $0.014 per kWh of public support to be competitive with market generation that averages $0.04 per kWh.[47]   Partial data on Maine’s biomass facilities indicate a possible need for a subsidy ranging from $0.00 to $0.03 per kWh if the market price is in the range of $0.04 to $0.045 per kWh, with individual facility requirements varying significantly.  The 1999 report from Maine’s biomass committee hypothesized the need for a subsidy in the $0.01 per kWh range.  Neither the Commission nor the 1999 Biomass Committee has had access to individual facility costs and operation data that would allow verification of the validity of these estimates.[48]  However, based on the available, unverified estimates, it appears that some subsidy – probably in the range of $ 0.01 per kWh – is necessary to maintain some or all of Maine’s biomass industry.  Because costs vary among plants, a fixed cent-per-kWh subsidy would be more than is necessary for some facilities and not enough for others.  In addition, changing market prices would change the needed subsidy level. 

 

To put potential subsidies in perspective, if all biomass plants operated at an 85% capacity factor and received a $0.01/kWh subsidy, the subsidy would cost ratepayers approximately $19 million per year.[49]  It appears that the need for the subsidy would be permanent in nature unless wholesale electric energy prices rise significantly.

 

Environmental Issues:  Biomass generators emit CO₂, a greenhouse gas.  However, waste wood that fuels some facilities would ultimately emit CO₂ as it degraded.  A biomass plant that generates in conjunction with sustainable forest practices can be considered to be a neutral emitter of CO₂, in that new growth absorbs the CO₂ in equal or greater amounts than that emitted.[50]  Biomass generation emits lower levels of NO_X and SO₂ than do plants using fossil fuels.  

 

Barriers

 

·        Unpredictable fuel availability and cost:  Under utility contracts, facilities could enter into long-term fuel contracts, while under current, less-certain operating conditions, fuel is generally purchased on a short-term basis.  This situation has proven problematic to both the biomass plants and the wood products industry that depends on the plants to dispose of its waste stream, and has resulted in price volatility of fuel costs.  In addition, wood waste is not always located in close proximity to a plant, resulting in significant transportation costs.[51] 

 

·        Electricity prices:  The price that facilities can receive from the competitive market for electricity has dropped significantly below the price utilities paid under earlier utility QF contracts.  The situation has been exacerbated by the introduction of locational marginal pricing, which has acted to lower clearing prices in Maine relative to the region.

 

·        Uniform disclosure label rules:  Because biomass generators are not automatically assumed to be neutral emitters of CO₂ for purposes of Maine’s uniform disclosure label, “green” marketers are hesitant to include biomass in their portfolios.  When biomass has been used in green products, some customer dissatisfaction has occurred.

 

·        Non-PTF charges:  In BHE’s service territory, generating plants located on non-PTF facilities must pay non-PTF charges to transport energy to the wider grid.[52] 

 

            Support Mechanisms

 

·        Redesigned RPS or SBC:  A redesigned RPS or SBC that excludes lower-cost resources would provide financial benefits to Maine’s biomass facilities. The existence of relatively low-cost hydroelectric and efficient cogeneration facilities limits the effectiveness of the current RPS for biomass facilities.  Massachusetts’s RPS, which is limited to higher-cost renewables, would be advantageous for Maine biomass plants that qualify.

 

·        Small generator aggregation:  A mechanism whereby a single entity aggregates generation from all small generators and sells or disburses the aggregated generation into the market would benefit the four biomass plants with capacities below 1 MW.  Such mechanisms are discussed in section III of this report.

 

·        Eliminate non-PTF charges:  Although CMP has eliminated non-PTF charges by socializing its non-PTF costs among all ratepayers, socializing the charge would be relatively more costly to BHE’s ratepayers.  However, socializing the charge would lower costs and make generation more competitive for biomass facilities in BHE’s territory.

 

B.        Municipal Solid Waste

 

                        “Municipal solid waste (MSW) in conjunction with recycling” is an eligible resource under Maine’s current RPS law.  Four eligible MSW plants, with combined capacity of over 60 MWs, operate in Maine.  Three of the four in-state facilities still obtain relatively attractive electricity revenues under utility QF contracts.  These contracts will end between 2007 and 2018.  A significant number of MSW plants located outside Maine participate in New England’s market and are eligible for Maine’s RPS.[53]  

 

Revenue for MSW facilities is produced through two means – tipping fees and electricity sales.  MSW plants typically operate 24 hours a day throughout the year, thus providing a steady source of generation.  Some burn all solid waste (i.e., “garbage”) brought to their facilities and some remove metals and glass before burning.  The material burned to produce electricity thus includes such things as household refuse, tires, and wood scraps. 

 

Three conditions made MSW plants attractive when they were constructed: 1) a State prohibition on new commercial landfills appeared to make alternative disposal methods necessary; 2) a municipality could require trash haulers to deposit all waste from the municipality’s residents in the MSW facility; and 3) utilities paid a relatively high price for generated electricity.  The effect of all these conditions has diminished significantly.

 

                        Evaluating the current economic viability of MSW facilities is complicated by the fact that MSW facilities have two sources of revenue: electricity sales and tipping fees.  Thus, if electricity prices fall, a MSW plant can attempt to make up the losses through higher tipping fees.  However, the ability to raise tipping fees for commercial MSW is constrained by the existence of a healthy competitive market for MSW; attempts to increase tipping fees could result in haulers bringing their MSW to other locations.  In addition, municipalities own or have an interest in three of the four facilities,[54] so residents, not private investors, must absorb financial losses.  Similarly, increased tipping fees increase waste removal costs for local residents. 

 

To the extent that a MSW facility obtains higher electricity revenues because of an RPS or other ratepayer funded mechanism, Maine’s electricity ratepayers are subsidizing trash disposal in municipalities other than their own.

 

                        The Commission has been provided with very limited information regarding the costs required to operate Maine’s MSW facilities.[55]  It appears that, if MSW were evaluated solely as a source of electricity, it would be extremely costly when compared with other forms of electricity generation and would require subsidies far exceeding those required by biomass or wind generation.  However, if tipping fees cover a significant percentage of a facility’s cost, MSW facilities might be economically viable.  The Commission cannot judge a reasonable or likely subsidy level.

 

To put potential subsidies in perspective, if all MSW plants operated at an 85% capacity factor and received a $0.01/kWh subsidy, the subsidy would cost ratepayers approximately $4.6 million.

 

Environmental Issues:  While MSW facilities burn material that can be environmentally harmful, in some cases they may be more environmentally benign than alternative MSW disposal methods.  The State has developed air emission control requirements as a condition for licensing MSW facilities.  In the absence of the facility, waste residing in landfills might emit more methane than do MSW generating facilities.  However, landfill methane can be eliminated through flaring which may be more environmentally benign than burning MSW to produce electricity.  Finally, without adequate emission controls, burning mercury-containing items volatizes the mercury, and ash produced by MSW facilities contains mercury and other harmful materials that must be disposed of in some manner.

 

            Barriers

 

·        Competition for MSW:  Competition (from other in-state and out-of-state MSW facilities and landfills) now exists for municipal solid waste, effectively capping commercial tipping fees.

 

·        Electricity prices:  The price that the facilities can receive from the competitive market for electricity has dropped significantly below the price paid by utilities under QF contracts.  This becomes a barrier when utility contracts expire.

 

·        RPS value:  RPS programs in Maine and in other New England states have created no discernible economic value for Maine’s MSW facility selling power in the competitive market.  Out-of-state MSW facilities have been used to satisfy suppliers’ RPS requirements in Maine, but the Commission is unaware whether a premium was paid for this power.  RPSs in some states have emissions requirements for MSW plants, limiting the eligibility of Maine’s facilities.

                                   

Support Mechanisms

 

·        Redesigned RPS or SBC:  A redesigned RPS or SBC that excludes lower-cost resources would provide financial benefits to Maine’s MSW facilities, assuming that MSW facilities need public support to remain profitable after their contracts expire (a likelihood that the Commission cannot judge without more knowledge of facilities’ operating costs).                          

 

C.        Efficient Cogeneration

 

                        An “efficient resource” is defined in Maine’s RPS statute as a facility that qualifies as a cogeneration facility under PURPA rules and that meets a specified efficiency standard.[56]  As a practical matter, this definition encompasses most, if not all, of Maine’s cogenerating facilities constructed before 1997.  Four large cogeneration facilities, with combined capacity of over 300 MWs, generate power in Maine.[57]  These facilities burn biomass for all or a portion of their generation and use coal, oil or hydro as well.  Only two of the facilities have declared themselves, under the region’s Generation Information System (NE-GIS), to be eligible under Maine’s RPS, even though all are presumed to qualify as “efficient resources.” 

 

In addition, four smaller cogeneration facilities generate at less than 1 MW capacity, burn biomass (and are included in the biomass discussion in this report) and have not declared themselves to be efficient cogenerators.  At one time, all these facilities sold generation to utilities under QF contracts at prices that significantly exceed today’s market price of electricity.  Two of the larger facilities still obtain electricity revenues under utility contracts that will expire between 2008 and 2012.  It is presumed that no out-of-state facilities satisfy Maine’s efficiency criteria, and none has been used to satisfy Maine’s RPS.

 

Cogeneration is concentrated in wood products businesses such as paper mills and sawmills.   These businesses account for a significant level of employment and industrial output in Maine.  The merits of biomass-fueled generation are discussed in the biomass portion of this section. 

 

Cogeneration is a very efficient, low-cost way to produce electricity.  Cogeneration facilities either use the heat from a thermal process that is inherent in its business operation or produce heat that fuels both electricity generation and industrial processes.  Thus, the process is relatively less costly than stand-alone generation.  Cogenerators usually use a portion of their generation to serve their own load, selling the remainder to the market.  As a general matter, cogeneration is commercially viable without any type of ratepayer subsidy. 

 

The Commission has no data on the amount of electricity that is generated but not sold through the grid, but it is a significant amount.  Thus, the impact caused by encouraging cogeneration cannot be estimated.             

 

Environmental Issues:  As mentioned elsewhere, the predominant fuel used in Maine cogeneration facilities is wood-based biomass.  Because some facilities additionally use coal or oil, they have environmental impacts associated with those fuels.  However, because these facilities are relatively efficient, their environmental impact is reduced compared with stand-alone facilities.   

 

            Barriers

 

·        Electricity prices:  The price that facilities can receive from the competitive market for electricity has dropped significantly below the price paid under prior utility contracts.  While this fact does not generally make cogeneration uneconomic, it has significantly reduced the value of cogeneration to the industrial plant.

 

            Support Mechanisms

 

·        Redesigned RPS or SBC:  An RPS redesigned so that the required percentage is closer to the eligible supply or an SBC could provide financial benefits to cogeneration facilities.  Because cogeneration is less costly than most other forms of generation that typically meet RPS requirements, suppliers would likely make significant purchases of cogeneration to meet their RPS requirement.

 

D.        Grid-Scale Hydroelectric[58] (above 5 MW)

 

            Hydroelectric facilities with capacity less than 100 MW are eligible resources under Maine’s current RPS statute.  Four hydro facilities with capacity between 30 and 90 MWs, with combined capacity of 270 MWs, exist in Maine.  Twenty-five facilities with capacity between 5 and 30 MWs have combined capacity of over 300 MWs.   Approximately 20 facilities with a capacity between 5 and 30 MWs (and over 20 smaller facilities) were sold by Maine’s utilities at the time of restructuring, and are now owned by FPL Energy, PPL, and WPS-ESI.  Six of the facilities retain utility QF contracts and are therefore receiving attractive prices for their generation.  The owners of hydroelectric facilities sell generation at both the wholesale and retail level. 

 

Most of Maine’s hydroelectric facilities were constructed during the 1980s or much earlier, and no new facilities are likely to be built (although it is possible that additional capacity can be added to existing facilities).  Thus, a resource support mechanism would generally act to provide assistance to existing facilities, rather than encourage new ones.  Hydroelectric facilities have created ecosystems and recreational opportunities along waterways that depend upon the flow of water, and they provide flood control.  They offer a reliable alternative to natural gas and are not subject to price volatility associated with fossil fuel facilities.

 

Because there are a number of these smaller facilities scattered throughout the State, they provide geographic diversity that offers voltage support to the utility grid.  Geographic diversity, however, is only an advantage if the grid is structured to transport the generation and to accommodate the voltage support.  Because these hydroelectric facilities have existed for many years, the grid is structured to benefit from their diversity.  In addition, these facilities form the basis for black-start capability of Maine’s grid.  Because they are of medium size and are widely disbursed, they are brought on line early in the sequence, creating a valuable contingency service. 

 

Grid-scale hydroelectric facilities have been among the least costly forms of electric generation for decades.  While costs differ among plants, grid-scale hydroelectric power traditionally has cost less than $0.03 per kWh to generate, which is comfortably competitive in the open market.  During months when water flows, hydroelectric facilities run 24 hours per day and thus provide an inexpensive source of base load electricity.  However, the economics of hydroelectric facilities can be significantly affected by the amount of rainfall in a given year.  Additionally, recent federal and state[59] rules have required the installation of environmental improvements, primarily to allow fish passage where it is determined to be needed.[60]  The additional cost of fishway accommodations has added millions of dollars to some facilities’ costs.  It has been suggested that, because the additional cost supports a societal benefit, it should be supported by societal sources and not through utility rates.   However, although some facilities may be struggling financially, the Commission is not aware of any grid-scale hydroelectric facility that has ceased operations.[61]

 

Maine’s current RPS limits eligibility to facilities that generate at lower than 100 MWs of capacity.  Hydro-Quebec (HQ) owns significant amounts of hydroelectric facilities that exceed 100 MWs in capacity.  When electric restructuring began, HQ expressed considerable interest in selling its generation in Maine’s retail market.  However, despite the significant amounts of hydroelectric power it owns, HQ must purchase 30% of its portfolio to meet Maine’s RPS, a factor that discouraged HQ from entering Maine’s market.  Currently, HQ engages primarily in short term transactions in the American wholesale markets and has indicated that it would continue to operate only at the wholesale level even if Maine removed its RPS exclusion of facilities larger than 100 MW. 

 

Environmental issues:  Grid-scale hydroelectric generation does not create harmful air emissions, and thus plays an important role in reducing global climate change impacts.  Hydroelectric facilities do, however, impact fish and the surrounding ecosystem. [62]   There is substantial debate within the environmental community as to the relative impact of hydroelectric generation, and the term “low-impact” facility has been coined to differentiate between facilities that are relatively benign and those that are not.  The size of the facility is not the determining factor with regard to environmental impacts; rather, each facility’s environmental impact must be considered based on its characteristics.  The Low Impact Hydropower Institute has developed criteria that would qualify a facility as “low impact.”  These criteria include river flows that avoid danger to fish and wildlife, and compliance with State and federal water quality standards.

 

Barriers

 

·        Fish passage:  State and federal requirements to provide fish passage have added significant capital expenses for hydroelectric facilities of all sizes. 

 

·        Electricity prices:  The price that facilities in Maine can receive from the competitive market has been reduced as a result of the introduction of locational marginal pricing which has acted to lower clearing prices in Maine relative to the region.

 

·        Non-PTF charges:  In BHE’s service territory, generating plants located on non-PTF facilities must pay non-PTF charges to transport energy to the wider grid. 

 

·        Low-impact features:  Some environmental supporters are hesitant to support hydroelectric facilities without further refinement based on case-by-case impacts.

 

            Support Mechanisms

 

·        Redesigned RPS or SBC:  An RPS redesigned so that the required percentage is closer to the eligible supply or an SBC could provide financial benefits to grid-scale hydroelectric facilities.  Because some hydroelectric facilities are less costly than most other forms of generation that typically meet RPS requirements, suppliers would likely make significant purchases of hydroelectricity to meet their RPS requirement.

 

·        Fish passage:  The State might increase its efforts to review fishway requirements to find ways to remove or mitigate financial impacts. 

 

·        Eliminate non-PTF charges:  Although CMP has eliminated non-PTF charges by socializing its non-PTF costs among all ratepayers, socializing the charge would be relatively more costly to BHE’s ratepayers.  However, socializing the charge would lower costs and make generation more competitive for hydroelectric facilities in BHE’s territory.

 

E.        Small-scale  Hydroelectric (below 5MW)

 

                        Hydroelectric facilities that generate very small levels of power are scattered across Maine.  There are 36 facilities, totaling 12 MWs, that generate below 1 MW and there are 28 facilities, totaling 63 MWs, that generate between 1 and 5 MWs.  Some provide electricity for a local residence or business, and many control the water level of small lakes. All were constructed long ago, and no new facilities are likely to be built.  Thus, a resource support mechanism would provide assistance to existing plants, not encourage new ones. 

 

A small (100 kW) hydroelectric facility might generate 22,000 kWhs per month on average.  If sold at $0.04 per kWh on the open market, the facilities would receive less than $900 per month in revenue.  Even a 1 MW facility generating 10% of the time would produce 72,000 kWhs and receive about $2,900 per month in revenue.  Thus, any significant cost quickly erodes these facilities’ profitability.

 

The restructuring of the electric industry (both on the federal and State levels) has resulted in increased financial burdens for small facilities.  For example, insurance and metering for these customers costs as much as $500 per month.  Lack of economies of scale makes many costs almost as high for small facilities as for large.  In recent years, the Commission has worked with CMP to eliminate some of these insurance and metering costs. 

 

Small hydroelectric generators also face problems associated with the sale of generation on the open market.  Most had utility QF contracts that paid attractive prices for their generation.  These contracts have gradually expired and some facilities continue to find it impossible to operate profitably at market prices.  In addition, generators find it difficult or impossible to contract with wholesale buyers because competitive marketers are generally unwilling to purchase from small facilities.[63] 

 

Even with reduced insurance and metering costs, many small hydroelectric facilities find it difficult to operate profitably, and some have ceased operation.

 

Environmental Issues:  Small-scale hydroelectric generation does not create harmful air emissions, and thus does not contribute to global climate change.  Hydroelectric facilities do, however, impact fish and the surrounding ecosystem.

            Barriers

 

·        Access to market:  Joining NEPOOL and following the procedures for selling into the wholesale market are costly – annual dues are $10,000 and daily reporting and metering are necessary.  Moreover, wholesale and retail electricity suppliers are unwilling to expend the administrative costs for such a small amount of power, leaving the small generator with no ready access to the market. 

 

·        Electricity prices:  As utility contracts expire, lower market power prices cause generators’ revenue to drop significantly.  This situation has been exacerbated by the introduction of locational marginal pricing which has acted to lower clearing prices in Maine.  Lack of economies of scale make generation relatively costly.

 

·        Non-PTF charges:  In BHE’s service territory, generating plants located on non-PTF facilities must pay non-PTF charges to transport energy to the wider grid. 

           

            Support Mechanisms       

 

·        Small generator aggregation:  A mechanism whereby a single entity aggregates generation from all small generators and sells or disburses the aggregated generation into the market would benefit small-scale hydroelectric facilities.  Such mechanisms are discussed in section III of this report.

 

·        “Other renewables” RPS or SBC:  An RPS or SBC that includes resources such as wind, solar, and fuel cells but that excludes larger, low-cost hydroelectric and cogeneration facilities would add financial value to small-scale hydroelectric generation by increasing the demand and therefore the price the generator would receive for its power.

 

·        Raise net billing breakpoint:  Raising the net billing breakpoint from 100 kW to 1 MW could benefit some small hydroelectric facilities, but only if the customer’s load is large enough to absorb the increased amount of generation.  Typically, a residential customer could not benefit from an increase in the breakpoint.

 

·        Allow multiple accounts to net bill:  Allowing small hydroelectric facilities who net bill to use their generation to offset the load of affiliates and associates located elsewhere in the state, or the load of neighbors, could significantly benefit small hydroelectric facilities.  This is especially the case if the breakpoint is increased from 100 kW to 1 MW. 

 

·        Eliminate non-PTF charges:  Although CMP has eliminated non-PTF charges by socializing its non-PTF costs among all ratepayers, socializing the charge would be relatively more costly to BHE’s ratepayers.  However, socializing the charge would lower costs and make generation more competitive for small scale hydroelectric facilities in BHE’s territory.

 

F.         Grid-Scale Wind

 

Wind is an eligible resource under Maine’s current RPS statute.  Two grid-scale wind projects, with combined capacity of 100 MWs, are in the permitting stage in Maine, and national studies indicate that there are a number of sites in Maine where wind conditions are favorable for grid-scale wind facilities.  Because of its intermittent nature, a grid-scale wind facility is likely to sell its generation to a wholesale or retail electricity supplier rather than become a retail supplier of electricity.  This gives a facility the potential to obtain a long-term sales contract, which is extremely desirable for a developer to receive financing for capital investment.  A wind facility will likely be built only if it can operate at a 30% capacity factor or better.  While wind is sporadic, many believe that wind patterns in portions of Maine generally coincide with peak electric load needs, making wind a useful supplement to base load generation. 

 

Grid-scale wind technology has advanced to the point where, with the current federal Production Tax Credit, it can compete with other sources of generation.  A reasonable estimate of generation costs is about $0.06-$0.07 per kWh over the long-term.  At this cost, wind is close to being competitive in the current short-term generation market and offers long-term price stability.  The federal government provides an inflation-adjusted $0.015-per-kWh tax credit (currently $0.018 per kWh) to for-profit wind generation.  This credit lowers the cost of wind generation to about $0.04-$0.05 per kWh, which is in the range of prevailing market prices.  

 

Those who support wind generation point to the long-term economic benefits.  The price of fuel is not volatile, the fuel will not be depleted, and operating costs are relatively low because of the lack of thermal processes and complex mechanics.  

 

The RPS program in Massachusetts (discussed in section V of this report), which is limited to new renewable generation, has created discernible economic value for wind generation in Maine.  In addition, the $0.018 federal Production Tax Credit is critical to the economic viability of wind generation.  The credit will soon expire, but it appears likely that it will be renewed.

 

Proliferation of wind facilities is likely to increase the geographic diversity of generation in Maine.  As discussed in section II of this report, this feature provides both benefits and risks to the utility grid.  Depending on the configuration of the grid in the vicinity of the facility, the generator could provide voltage support; however, the sporadic nature of wind generation limits this benefit.  Alternatively, in some locations the grid must be upgraded significantly to allow for generation into (as opposed to out of) the area.

 

Environmental Issues:  Wind is generally viewed as an environmentally benign source of electrical generation in that it produces no air emissions and, thus, does not contribute to global climate change.  Objections focus on visual and migratory bird impacts.

Barriers

 

·        Public reaction:  Visual impacts often cause significant negative public reaction. 

 

·        Siting:  State siting requirements may require costly studies.  For example, generators may be required to study wetland, bird migration, and visual impacts.

 

·        High capital costs:  Facilities have proportionately higher capital costs than most types of generation. However, fuel is essentially free. 

 

·        Long-term contracts:  Because wind facilities have higher capital costs, long-term contracts (10 years or more) for electricity sales are often necessary to attract capital investment.  The generation market generally does not offer contracts of this length.

 

·        Non-PTF charges:  In BHE’s service territory, generating plants located on non‑PTF facilities must pay non-PTF charges to transport energy to the wider grid.

                                   

            Support Mechanisms

 

·        “New or other renewables” RPS or SBC:  An RPS or SBC that includes new renewable resources or renewables such as wind, solar, geothermal, and fuel cells but that excludes larger, low-cost hydroelectric and cogeneration facilities, would add financial value to wind generation by increasing demand and thus the price the generator would receive for its power.  In addition, an RPS or SBC may reassure investors that the State is likely to continue long-term support for wind generation and that the facility therefore will continue to be financially viable.

 

·        Siting requirements:  The State might review siting requirements to find areas that could be removed or streamlined, and might confer with environmental and local groups to examine ways to mitigate public concern over visual impact. 

 

·        Eliminate non-PTF charges:  Although CMP has eliminated non-PTF charges by socializing its non-PTF costs among all ratepayers, socializing the charge would be relatively more costly to BHE’s ratepayers.  However, socializing the charge would lower costs and make generation more competitive for wind facilities in BHE’s territory.

 

G.        On-Site Wind

 

                        Small 10 kW wind turbines that generate power for use by residential and small business consumers are well established, and newer 1 kW and 50 kW turbines are beginning to appear.  For larger applications, 660 kW turbines are well established and are far more efficient.  Pursuant to Commission rule, customers have the option to net bill generation against their load over time.  The procedure is explained in section III of this report.  Approximately 15 small on-site wind facilities, most generating with a 10 kW turbine and with a total capacity of approximately 300 kW, net bill in Maine and a higher number exist off-grid.  The amount of generation exported to the grid is insignificant.  Consumers that are not connected to the utility grid typically maintain propane or diesel backup to the wind generator. 

 

Small-scale wind is not an economic alternative if the customer is connected to the grid.  A 10 kW turbine might cost $35,000 to $70,000 to install, and might generate 13,000 kWhs per year, translating to a $0.15-$0.30 per kWh installation cost if recovered over 20 years.  Borrowing costs and operating costs add to the ongoing expense of the facility.  Economies of scale make larger wind turbines significantly more efficient (and therefore less costly) than smaller turbines.  For example, a 660 kW turbine might cost $700,000 to install and produce 1,500 MWhs of electricity per year, translating to as low as a $0.03 per kWh installation cost (ignoring borrowing and operating costs) if recovered over 20 years. With the addition of operating costs, these turbines still remain economically uncompetitive without some form of public support.

 

Eleven states offer personal and/or corporate tax credits for the installation of wind generators, with credits ranging from 10% to 35% of equipment and installation costs.  Six states offer direct rebates in the form of a buydown of installation costs.  Buydowns are commonly part of Clean Energy Funds that are used to support a variety of renewable initiatives.  The $0.018 federal Production Tax Credit is not available to wind generators that are not built for profit.  Small-scale wind is, however, sometimes an economic alternative to a lengthy line extension.  While rebates make some wind generation economically viable, consumers who own small-scale generation generally do so for environmental reasons or to avoid costly line extensions in remote locations.

 

In most cases, owners of on-site wind seek only to cover their own load at a reasonable price, and are not looking to sell their generation into the market.  However, adopting a mechanism that facilitates smaller wind generators selling into the market would reduce the need to expand net billing (with its inherent subsidy) and thus would be a superior long-term means of encouraging small-scale generation from wind and other sources.  In the near term, fewer than a handful of customers are likely to sell into the market.

 

                        Finally, some advocates believe that small wind turbines engender favorable public reaction, and that visible State support would offer an impetus for other environmentally benign forms of power.

 

Environmental Issues:  Although wind is considered environmentally benign relative to other sources of electricity, small-scale on-site generation produces such an insignificant amount of power that it cannot be considered a replacement for generation produced by other resources.

                       

Barriers

 

·        Costly at small scale:  A small turbine – especially one smaller than about 660 kW – is an extremely costly form of generation.

 

·        Access to market.  For customers who wish to sell excess generation, joining NEPOOL and following the procedures for selling into the wholesale market are costly – annual dues are $10,000 and daily reporting and metering are necessary.  Moreover, wholesale and retail electricity suppliers are unwilling to expend the administrative costs for such a small amount of power, leaving the small generator with no ready access to the market. 

 

·        Lack of public awareness:  Wind generation might well be attractive to many homeowners for non-economic reasons or as a long-term generation alternative, but some view the public as not generally aware that the technology is available. 

 

            Support Mechanisms

 

·        Customer rebates:  Customer rebates in the form of a buydown or tax credit applied against the capital investment would facilitate the initial installation of on-site wind generators.  A rebate would reduce the costs, potentially speed the development of economic small-scale generation, and signal the State’s support of renewables.

 

·        Small generator aggregation:  A mechanism whereby a single entity aggregates generation from all small generators and sells or disburses the aggregated generation into the market would benefit on-site commercial wind sales.  Such mechanisms are discussed in section III of this report.

 

·        Increase net billing breakpoint:  Increasing the net billing breakpoint from 100 kW to 1 MW might make 660 kW turbines a marginally economic form of on-site generation for some larger businesses whose load could absorb this level of generation.  Raising the net billing breakpoint would not be advantageous to residential consumers, whose use is already far below the current 100 kW breakpoint.  Raising the breakpoint would also be advantageous if customers were allowed to aggregate the loads of affiliates and associates or if the proximity requirement (discussed in section III of this report) were removed.  The amount of excess generation exported to the grid would likely remain insignificant.   

 

·        Educate institutions:  State sponsorship of seminars or other mechanisms to inform financial institutions of facts surrounding wind generation could facilitate financing of installations.

 

H.        Grid-Scale Solar

 

                        Solar generation is an eligible resource under Maine’s RPS statute.  Grid-scale solar generation exists in mid-western and southern states, but will not be economically viable in Maine or New England in the foreseeable future.   

 

            Barriers

 

·        High capital costs and limited hours of sun:  Limited sunlight in the Northeast makes grid-scale solar power uneconomic in New England. 

 

·        Other:  Until grid-scale solar generation becomes less costly, it is not possible to judge what other barriers might exist.

 

            Support Mechanisms

 

·        “New and other resources” RPS or SBC:  If solar generation should become less costly, an RPS that is limited to new resources or resources such as wind, solar, and fuel cells would add financial value to solar generation by increasing demand and thus the price the generator would receive for its power. 

 

I.          On-site Solar

 

                        Small, well-established photovoltaic (PV) panels produce energy primarily in the homes of residential consumers.  PV panels replace on-grid power in three ways, each widely used:  to produce electricity for use in the home, to actively heat hot water, or to actively provide space heat.  Residential PV installations are commonly 1 kW to 5 kW in size. When not connected to the utility grid, customers maintain battery storage and/or propane or diesel backup generation. 

 

Solar generation shares many of the characteristics of on-site wind generation.  If the consumer is connected to the utility grid, he or she purchases generation when the on-site facility is insufficient to meet the consumer’s load and provides generation to the grid that exceeds load.  Pursuant to Commission rule, customers have the option to net bill generation[64] against load over time, as discussed in section III of this report.  Approximately 40 consumers with solar panels, for a total capacity of 90 kW, net bill in Maine.  An additional 175 off-grid installations are recorded through the Million Solar Roofs program[65] and installers have found that the vast majority of installations are off-grid.

 

On-site photovoltaics are not an economic alternative to electricity supplied from the grid.  A typical home PV installation costs $20,000 or more to install, and might generate 5000 kWhs per year if connected to the grid,[66] making a capital cost payback of 20 years unlikely.  A federal Business Investment Tax Credit of 10% of investment and installation cost is available for all PV installations.  Thirteen states offer personal and/or corporate tax credits, with credits ranging from 10% to 35% of equipment and installation costs.  Sixteen states offer buydowns ranging from $2 to $5 per Watt.  Buydowns are commonly part of Clean Energy Funds that are used to support a variety of renewable initiatives.  Most states require compliance with installation standards and some require post-installation inspection.[67]  Incentives do not make PV technology economically competitive, but are intended to provide assistance to those who desire the technology.

 

Unlike wind generation, solar technology does not yield significant economies of scale through larger solar panels.  Like wind, small-scale solar can be an economic alternative to a lengthy line extension, there is no fuel price volatility, and operating costs are relatively low because of the lack of thermal processes and complex mechanics.  Consumers who install small-scale generation generally do so for environmental reasons or to avoid costly line extensions in remote locations, and have no interest in selling the generation.  However, interest is developing in aggregating renewable credits for credit trading.

 

Many states, including Maine, participate in the Department of Energy’s (DOE) Million Solar Roofs program, a program that offers a forum for state assistance, education, and data gathering.  Maine’s Department of Economic and Community Development (and more recently the Public Utilities Commission) oversees solar installation licensing exams[68].

 

Some believe that small solar-powered homes engender favorable public reaction, and that visible State support would offer an impetus for other environmentally benign forms of power.

 

Environmental issues:  While PVs are an environmentally benign source of electricity, small-scale on-site generation produces such an insignificant amount of power that it cannot be considered a replacement for generation produced by fossil fuel.

 

            Barriers

 

·        Costly:  Producing electricity with solar panels is extremely costly. 

 

·        Lack of public awareness:  Solar generation might well be attractive for non-economic reasons to many homeowners, but some believe that the public is not generally aware that the technology is available. 

 

            Support Mechanisms

 

·        Customer rebates:  Customer rebates in the form of a buydown or tax credit applied against the capital investment would facilitate the initial installation of PVs.  A rebate would reduce the costs, potentially speed the development of economic small-scale generation, and signal the State’s support of renewables.

 

·        Educate institutions:  State sponsorship of seminars or other mechanisms to inform financial institutions of facts surrounding solar generation would facilitate financial of installations.

 

·        State sponsored demonstrations and licensing:  State support of programs that emphasize public outreach and solar home demonstrations, such as DOE’s Million Solar Roofs and annual Solar Home Tours might increase the market for solar installations by making the public more aware of the benefits of PVs.  State sponsorship of PV electric installer certification[69] would assist the public in obtaining efficient PV installations.

 

J.         Peat

 

One peat-burning facility, with a capacity of 23 MW, exists in Maine.  The facility was constructed in 1988 and the cost of generation has generally not been economic.  However, consideration is being given to reconfiguring operating processes and supplementing peat with sludge, as a means of making the plant economically viable.  It is reported that the plant would employ approximately 50 people in an economically depressed location.  No other peat facilities operate in New England.

 

Neither peat nor sludge are explicitly included as eligible resources in Maine’s RPS.  Peat is created in a wetlands environment over thousands of years and is not generally considered renewable.  Whether peat should be considered renewable, whether peat and sludge should be considered biomass, and whether sludge is municipal solid waste have not been addressed in the context of Maine’s RPS. 

 

Environmental Issues:  Sludge exhibits some characteristics of MSW.  It emits heavy metals and requires emissions controls as part of its permitting requirements.  However, it would emit heavy metals as it decomposed, so burning in a controlled generating facility might be a more environmentally benign way to dispose of the sludge.  Peat emissions resemble those of biomass, and are therefore more benign than burning fossil fuels.  However, peat, unlike sustainable biomass, cannot be considered CO₂ neutral as a result of sustainable growth practices.  In addition, elimination of a peat bog and the transport of sludge can cause public concern.

 

Barriers

 

·        Unknown:  Until Maine’s peat facility pursues re-activation, the barriers are unknown.

 

Support Mechanisms

 

·        Redesigned RPS or SBC:  A redesigned RPS that includes peat or an SBC could provide financial benefits to peat-burning facilities.

 

K.        Landfill Methane Gas

 

                        The technology to use methane gas produced by landfills to generate electricity is well established.[70]  Because generation from methane requires natural gas, its technical potential has been limited in Maine until the recent expansion of gas in the State.  However, approximately 17 landfill methane facilities, with typical capacities of 1 MW to 5 MWs, exist elsewhere in New England and several facilities are under consideration.  The Commission has ruled that landfill gas can be considered as biomass and thus is an eligible resource under Maine’s current RPS statute. 

 

                        The Commission has not investigated the costs and competitive economic viability of methane gas generation.

           

            Environmental Issues:  Landfill gas facilities are less environmentally harmful than the alternative method of flaring the methane gas produced by landfills.  The generation of electricity from landfill gas does emit CO_2.  However, CO₂ is considered a less harmful greenhouse gas than the methane that would otherwise be released.  Thus, these facilities create a positive environmental impact. 

 

            Barriers

 

·        Access to market.  Joining NEPOOL and following the procedures for selling into the wholesale market are costly – annual dues are $10,000 and daily reporting and metering are necessary.  Moreover, wholesale and retail electricity suppliers are unwilling to expend the administrative costs for such a small amount of power, leaving the small generator with no ready access to the market. 

 

           

Support Mechanisms

 

·        “New or other renewables” RPS or SBC:  An RPS or SBC that includes new renewable resources or renewables such as wind, solar, geothermal, and fuel cells but that excludes larger, low-cost hydroelectric and cogeneration facilities, would add financial value to landfill gas generation by increasing demand and thus the price the generator would receive for its power.   

 

·        Small generator aggregation:  A mechanism whereby a single entity aggregates generation from all small generators and sells or disburses the aggregated generation to the market would benefit landfill gas facilities.  Such mechanisms are discussed in section III of this report.

 

L.         Geothermal

 

            Geothermal energy may be used to produce grid-scale electricity, but only in a few western states[71] where volcanic activity creates extremely high temperatures close to the earth’s surface.  Grid-scale geothermal facilities create no air emissions and are a relatively economic source of reliable baseload generation.

 

Geothermal energy, from lower temperature ground sources, is also used throughout the country to actively heat space and water, replacing electricity, oil, or gas for that purpose.  In this application, electricity is not generated and delivered to the grid.  In Maine, the most common and most economic technology - the ground source coupled heat pump - extracts heat from well water to heat and cool the owner’s space and water.  Particularly in cases where the customer already owns a well and cooling and dehumidification are required in addition to heating, this method is reported to realize a payback of 5 years or less when compared to electricity or oil used for the same purpose.[72]  In 2002, at least 20 residences in Maine installed new geothermal systems.  A few states offer tax credits or rebates for on-site geothermal installations of this type.

 

                        A contractor must receive training to become qualified to install geothermal technology.  Such training does not generally exist within Maine.  Such training has been provided in Maine since the late 1990s, on an “as required” basis from a qualified training organization in New Hampshire.  New Hampshire provides governmental support for geothermal energy and training is also available there.

 

                        Like wind and solar energy, geothermal energy creates no air emissions, does not deplete resources, and increases fuel diversity.  While on-site applications are economically viable for some people, many are not generally familiar with the technology.  Ratepayer support could encourage new installations by educating the public about the technology and motivating contractors to become proficient at geothermal installations.    

 

            Environmental Issues:  Geothermal energy is one of the most environmentally benign sources of space and water heat.

 

Barriers

 

·        Lack of public awareness:  Geothermal energy is economically attractive for some homeowners, but the public is not generally aware that the technology is available. 

·        Lack of qualified installers:  Electrical and space conditioning contractors must become qualified to install geothermal technologies; many have not yet done so.

 

            Support Mechanisms

 

·        State sponsored demonstrations and licensing:  State support that emphasizes public outreach and demonstrations might increase the market for geothermal installations by making the public more aware of its benefits.  Requiring State building activity to consider geothermal options would add visibility and might result in additional installations.

 

M.        Tidal or Wave

 

                        Electricity may be generated by the ocean in two ways: through tidal movement and through wave movement.  Both sources are appealing because they would not produce air emissions and are non-depleting resources.  Projects have not generally been pursued because of high construction costs.  However, in the past three decades, tidal power projects have been considered in locations off Maine’s coast (most notably at Half Moon) and were considered to be economically viable.  These sources of electricity interest organizations such as the U.S. Department of Energy as an eventual means of producing electricity with low environmental impacts for a large proportion of the population, and continued research in the technologies is likely to occur.

 

Barriers

 

·        High capital costs:  The technology is immature and capital costs are high. 

 

·        Other:  Until grid-scale tidal or wave generation becomes less costly, it is not possible to judge what other barriers might exist.

 

            Support Mechanisms

 

·        “New or other renewables” RPS or SBC:  If wave or tidal generation becomes less costly, an RPS that includes new resources or “other resources” such as wind, solar, and fuel cells would add financial value to ocean generation by increasing demand and thus the price the generator would receive for its power. 

 

N.        Fuel Cells

 

Fuel cell technology has existed since the 1800s, and government agencies such as the Departments of Energy and Defense as well as other advocates believe that fuel cells will eventually be among the most efficient and environmentally benign forms of power production.  However, improvements in cost and implementation practicality must be made before fuel cells will be viable without significant subsidization.  Currently, virtually all fuel cell installations are demonstration or research projects supported by state, federal, or private funds.

           

                        Existing fuel cell facilities that deliver power to the electric grid typically have a capacity of approximately 250 kW.  In Maine, such facilities would encounter market barriers similar to those encountered by wind and hydro facilities of this size.  On-site fuel cells with capacities of 5-10 kW also exist to serve customers’ loads.  On-site fuel cells tend to follow a customer’s load, and applications in which a customer generates to serve load and sell excess to the grid appear to be rare.[73]  On-site generators would encounter barriers similar to those encountered by on-site solar installations.  On-site fuel cells commonly use a proton exchange membrane technology (PEM), while 250-kW facilities commonly use phosphoric acid technologies (PAFC).  Other technologies exist. 

 

All fuel cells require hydrogen for operation and all produce water and heat.  Most commonly, hydrogen is extracted from natural gas or propane.  Using pure hydrogen requires hydrogen production, storage, and infrastructure systems that are less available and far more costly than are systems that use natural gas.  This is important when establishing qualifications for fuel cell eligibility in an RPS or SBC program.  Some states require that fuel cells use a “renewable resource” to be eligible for an RPS.  This requirement appears to limit eligibility to the higher-cost fuel cell technologies that do not extract hydrogen from fossil fuels.  While encouraging more environmentally benign fuel cell development, this constraint might inhibit development of the fuel cell models that show some likelihood of becoming commercially available within a reasonable amount of time.

 

Environmental Issues:  Fuel cells produce power through electrochemical means rather than combustion, and therefore emit very low levels of NOX and CO2. 

 

Barriers:

 

·                    Costly:  Fuel cells of all sizes remain extremely costly. 

 

·                    No customer rebates:  Many states offer rebates, in the form of buydowns or tax credits, to fuel cell installations and many states and utilities provide research grants or operate demonstration projects.  Maine does not offer any of these benefits.[74]

 

·                    Access to market:  The barriers a 250-kW fuel cell facility would face in selling its power are similar to those described for small wind and hydro electric generators.

 

Support Mechanisms

 

·                    Customer rebates:  Customer rebates in the form of a buydown or tax credit applied against the capital investment would facilitate the initial installation of both on-site generation and generation for grid sale.  Because significant improvements must be made in fuel cell technology, rebates would be most effective when used for demonstration or research installations.

 

·                    Small generator aggregation:  A mechanism whereby a single entity aggregates generation from all small generators and sells or disburses the aggregated generation to the market would benefit fuel cell facilities that sell to the market.  Such mechanisms are discussed in section III of this report.

 

V.        OTHER STATE MECHANISMS

 

            In this section of the report, the Commission presents a description of resource support mechanisms used in other states.  The section focuses on Massachusetts and Connecticut because they are New England states with comprehensive renewable programs that include both an RPS and an SBC.  The Massachusetts and Connecticut programs illustrate a variety of typical approaches.  Information on the mechanisms used in other states is provided in Appendices E, F, G, H, I, and J  to this report. 

 

            A.        Massachusetts

 

                        1.         Massachusetts RPS

 

                                    As part of its 1997 electric utility restructuring legislation, Massachusetts required the adoption of an RPS.  The final regulations were adopted in 2002 and are applicable to service beginning in 2003. 

 

                                    The Massachusetts RPS applies only to new resources, defined as systems installed after December 31, 1997.  New resources that are eligible under the Massachusetts RPS are:

 

·          solar photovoltaic or solar thermal energy;

·          wind energy;

·          ocean thermal, wave, or tidal energy;

·          fuel cells using renewable fuels;

·          landfill gas; and

·          low-emission, advanced biomass power conversion

      technologies[75] 

 

                                    The percentage requirements in Massachusetts begin at 1.0% and increase annually as follows:

 

·                    2003-1.0%

·                    2004-1.5%

·                    2005-2.0%

·                    2006-2.5%

·                    2007-3.0%

·                    2008-3.5%

·                    2009-4.0%

·                    additional 1% each year thereafter (until terminated)

 

The Massachusetts program has an alternative compliance mechanism that allows electricity suppliers the option paying into the State’s Renewable Energy Trust (discussed below).  The alternative compliance amount is $0.05 per kWh.  The alternative compliance amount was established to be higher than the assumed incremental cost of new renewable resources.

 

2.         Massachusetts SBC

 

            The Massachusetts restructuring law also created a “public benefit fund” to promote renewable fuels and technologies.  The fund is referred to as the “Renewable Energy Trust Fund” and is supported through an SBC.  Beginning in 2003, the SBC is set at 0.5 mills ($0.0005) per kWh, which is expected to result in funding of approximately $25 million per year.

 

            The fund is administered by the Massachusetts Technology Collaborative (a quasi-public research and development entity) with oversight and planning assistance from the State’s Division of Energy Resources.  The following fuels and technology are eligible for assistance:

 

·                    solar photovoltaic and solar thermal electric energy;

·                    wind energy;

·                    ocean thermal, wave or tidal energy;

·                    fuel cells;

·                    landfill gas;

·                    waste-to-energy;

·                    naturally flowing water and hydroelectric; and

·                    low emission, advance biomass technologies.

 

The Massachusetts fund has established the following six areas of focus:

 

                                    1.   Green Power:  Identify and remove barriers to the development of renewable technologies and facilitate their development.

 

                                    2.   Green Policy Development:  Facilitate policy debate on renewable energy development on the state and federal levels.

 

                                    3.   Renewable Energy Industry Support:  Develop industry support programs for renewable energy companies.

 

                                    4.   Education and Public Awareness:  Educate through school curricula, museum resources, and universities. 

 

                                    5.   Community Outreach and Siting:  Work with communities and regions to create tools and resources for the understanding of the renewable energy environment.

                                    6.   Green Buildings and Schools:  Develop guidelines and standards to facilitate market transformation through demonstrations on new and renovated buildings.

 

            B.        Connecticut

 

                        1.         Connecticut RPS

 

                                    Connecticut’s 1998 electric restructuring law included a requirement for the establishment of an RPS.  Initially, the requirement did not apply to the standard offer.  This exemption was removed in 2003. 

 

                                    The Connecticut RPS has two tiers, referred to as “classes.”  Class I renewable sources are:

 

·                    solar power;

·                    wind power;

·                    new sustainable biomass;[76]

·                    landfill gas;

·                    fuel cells;

·                    ocean thermal power;

·                    wave or tidal power;

·                    low emission advanced conversion technologies; and

·                    new run-of-the-river hydropower of 5 MW or less. 

 

Class II renewables are: 

 

·                    trash-to-energy;

·                    biomass that meets specified emissions criteria; and

·                    run-of-the-river hydropower of 5 MW or less.  

 

The percentage requirements in Connecticut increase annually as follows:

 

                                                Class I               Class I or II          Total

 

·        2004         1.0%                          3.0%               4.0%

·        2005         1.5%                          3.0%               4.5%

·        2006         2.0%                          3.0%               5.0%

·        2007         3.5%                          3.0%               6.5%

·        2008         5.0%                          3.0%               8.0%

·        2009         6.0%                          3.0%               9.0%

·        2010         7.0%                          3.0%               10.0%

 

The Connecticut statute specifies that the eligible resources may be located within the ISO-NE control area or in neighboring states that have comparable renewable portfolio standards. 

 

2.         Connecticut SBC

 

            Connecticut also has a “public benefit program” to promote renewable energy technologies.  The program is referred to as “The Connecticut Clean Energy Fund” and is supported by an SBC.  The SBC in 2003 is 0.75 mills ($0.00075) per kWh and increases to 1.0 mill ($0.001) per kWh beginning in 2004.  The SBC is expected to result in funding of approximately $30 million per year.

 

            The fund is administered by Connecticut Innovations, Inc. (a quasi-governmental investment organization) with guidance from a Renewable Energy Investments Advisory Committee whose members are appointed by the Connecticut Legislature and Governor.  By statute, funds may be used for grants, equity investments, contracts or other actions to support research, development, manufacture, commercialization, deployment and installation of renewable energy technologies and actions which expand renewable technology expertise within the State.  All investments from the fund must have a direct economic benefit for Connecticut.  Existing investments from the Connecticut fund include:

 

·        development of a green marketing program; 

·        seed funding to develop portable solar power systems;

·        wind energy study;

·        promotion of retail demand for renewable electricity; and   

·        demonstration fuel cell and photovoltaic projects.

 

VI.               RECOMMENDATIONS

 

            At the outset of this section, the Commission emphasizes that this report makes no recommendations as to fundamental public policies regarding the promotion or subsidization of particular categories of generation resources.  Rather, this section of the report provides the Commission’s recommendations as to the effective design of various resource support mechanisms that would support specified policy goals or objectives.

 

A.                 Maine’s Current Portfolio Requirement

 

                        As discussed in section II(B) of this report, Maine’s current eligible resource portfolio requirement is not accomplishing the policy goal of promoting the use of renewable, efficient and indigenous resources that would not otherwise occur.  The current mechanism is not providing financial assistance to the designated resources and technologies.  It does add some administrative burden for retail suppliers and may be a barrier to entry into Maine’s retail market.

 

            The Commission recommends that the Legislature repeal Maine’s portfolio requirement in its current form.

 

            B.        Policy Goals and Objectives

 

                        In determining whether to adopt one or more of the resource support mechanisms discussed in this report, the Legislature should consider and establish its policy goals and objectives regarding electricity generation resources.  Potential policy goals and objectives are discussed in section II(C) of this report.  It is the Legislature’s role to establish fundamental public policy and to set policy goals involving the use of public or ratepayer funds to support particular objectives.  In doing so, the Legislature should determine which, if any, resources or technologies should receive public assistance consistent with State policy. 

 

                        Accordingly, the Commission does not offer in this report recommendations as to fundamental public policy goals, whether any resource support mechanism should be established using public or ratepayer funding, or which particular resources should be favored over others.  Moreover, a major purpose of promoting renewable resources is to improve the environmental impact of electricity generation.  The Commission is not an expert body on environmental issues.  Accordingly, the Legislature may wish to seek the input of those agencies – notably the Department of Environmental Protection – that are vested with the responsibility to develop and implement environmental objectives and priorities.

 

                        The Commission recommends that the Legislature assess and establish electric generating resource policy goals and objectives and determine whether resource support mechanisms should be established, the generating resources that should be promoted to serve public policy goals, and the amount of public funding that should be devoted to support generating resources.

 

            C.        Resource Support Mechanisms

 

                        The Commission’s expertise is in determining the most effective means to accomplish legislatively stated goals and the impact of various implementation approaches on the State’s electricity consumers.  Thus, this portion of the report will provide the Commission’s recommendations as to the design of the most effective mechanisms to support electricity resources given particular policy goals.[77]  The recommendations provided will be presented in the following three categories:

 

                        1) grid-scale resources (larger resources);

                        2) on-site applications (smaller units primarily under 1 MW); and                                               3) emerging technologies (research and development).

 

                        1.         Grid-Scale Resources

 

                                    This section of the report focuses on the three mechanisms listed in the Resolve to support grid-scale resources:

 

• renewable portfolio standard
• system benefit charge
• purchases to supply standard offer

 

                                    The three mechanisms, if properly designed, can be effective in promoting the use of designated categories of resources.  For the reasons discussed below: 

 

                                    The Commission recommends either an RPS or an SBC if the Legislature decides to adopt a mechanism funded by electricity consumers to support grid-scale facilities.         

 

                                    The Commission recommends against the use of purchases to supply standard offer service as a mechanism to support generating resources.

 

Renewable Portfolio Standard

 

·        Cost capping mechanism:  A major defect in the use of an RPS is that the cost to consumers cannot be determined with any certainty in advance.  This defect can be remedied to a large extent by the inclusion of an “alternative compliance mechanism” that acts to cap consumer cost exposure.  An alternative compliance mechanism would provide retail suppliers with the alternative of paying a specified amount per megawatt-hour into a resources support fund rather than having specified percentages of resources in their portfolios.  Thus, if the premium above market prices for the required resources is greater than the alternative compliance amount, suppliers would be expected to pay into the fund, thereby capping cost exposure at the alternative compliance amount. 

 

                                    An alternative compliance mechanism would also reduce to some degree market power concerns that might result if there is a concentration of ownership or control in categories of designated resources within the RPS.  The mechanism would limit consumer exposure to price impacts resulting from any market power consequences that might derive from the adoption of an RPS.

 

                                    The Commission recommends that an RPS be adopted only if it includes an alternative compliance mechanism as a cap on consumer cost exposure.

 

·        Regional deliverability:  There are serious questions as to whether an RPS can be limited to facilities located within Maine due to Commerce Clause restrictions.  However, a deliverability requirement (similar to that included in the current RPS) can be adopted that would restrict applicability of an RPS to those facilities that actually deliver power to the New England or Maritimes control areas.  This would ensure that facilities that are located in remote areas and do not serve Maine customers will not receive financial assistance from Maine’s consumers through an RPS.

 

                                    The Commission recommends that electricity used to satisfy a Maine RPS be delivered to the New England or Maritimes control areas.

 

·        Credit trading:  A system that allows for the trading of the renewable attributes of generation separate from the energy commodity generally reduces the cost of compliance for suppliers, allows for more transparency in the price of renewable power, and provides for superior verification of compliance.  Such a system, referred to as the New England Generation Information System or NE-GIS, is currently in operation in New England.  Due to the size of the market, there is no similar system in northern Maine.

 

                                    The Commission recommends that a Maine RPS allow for renewable credit trading if a reliable system is in existence.

 

·        Exclusion of certain resources:  The purpose of an RPS is to provide financial assistance (in the form of increased market prices) to particular resources that would not be developed or operated without assistance.  As discussed in section IV of this report, cogeneration and hydroelectric facilities above 5 MW[78] are generally commercially viable and not in need of public assistance to maintain their operation.  Moreover, resources that have long-term qualifying facility (QF) contracts that predate industry restructuring are generally paid substantially above market prices and, in any case, must operate pursuant to their contractual terms.[79]  The inclusion of commercially viable resources or those with QF contracts in a newly designed RPS would divert funds away from other resources that need assistance and diminish the resource promotion objective of an RPS.[80]

 

                                    The Commission recommends that cogeneration, hydroelectric facilities above 5 MW, and facilities with qualifying facility contracts be excluded from any newly designed RPS because public assistance is not necessary to support their development and operation.

 

·        Resource tiers:  Resource tiers with separate portfolio percentages within an RPS can be used to accomplish specified policy goals by ensuring that stated percentages of designated categories of resources are in the State’s resource mix. 

 

                                    The Commission recommends that resource tiers be included in an RPS if the policy goals include promotion of particular categories of resources.

 

                                          Biomass facilities:  The difficulties of Maine’s biomass facilities after industry restructuring and the corresponding impact on Maine’s wood product industry have been discussed before the Legislature for several years.  In the event that the Legislature determines Maine’s existing biomass capacity[81] should receive public support,[82] the adoption of an RPS separate tier for biomass facilities would be an effective means of providing that support.  However, assuming that a separate tier could not constitutionally exclude out of state facilities, Maine consumer public support may well go to facilities outside of Maine.  Thus, it would be extremely difficult to design an RPS biomass tier (i.e., choose the appropriate RPS percentage) that would support all of Maine’s existing biomass capacity without providing financial support to facilities that are outside the State.  This difficulty would be mitigated to some degree because many of the facilities outside of Maine have QF contracts that would be excluded if the Commission’s recommendation regarding such contracts were adopted.  Additionally, as discussed in section III(A) of this report, any attempt to use an RPS to maintain all of Maine’s existing biomass capacity would raise market power concerns.

 

There is a debate as to the environmental impact of different types of biomass facilities.  If the Legislature decides that biomass facilities should receive public support for environmental reasons, it should consider eligibility standards such as those adopted in other states.  Such standards could include advanced emission technology, fuel that is harvested in a sustainable manner, use of only “clean fuel” wood or wood waste (which would not include items such as contaminated construction debris), and compliance with all applicable federal and State environmental laws and regulations.  Such criteria would render some of Maine’s facilities ineligible.

                                    Based on the approximate potential output of Maine’s biomass facilities compared to Maine’s total electricity usage, a portfolio percentage for an RPS biomass tier would be in the range of 17%.  Assuming an average subsidy of $0.01 per kWh (as discussed section IV of this report), the expected cost to consumers would be in the range of $19 million per year.[83]  A $0.03 per kWh alternative compliance mechanism should be high enough to allow the more costly facilities to benefit from the RPS.  This would cap consumer cost exposure at approximately $60 million per year.

 

 However, the design of an RPS is an imprecise exercise, based on incomplete data, complex supply and demand relationships, and unknown future market prices.  Thus, a more cautious approach using a lower portfolio percentage and alternative compliance cap would be advisable.  The impact of the mechanism and its cost to consumers could then be evaluated after a few years to determine whether it is adequately serving its public policy goals.  A 10% biomass tier would provide assistance to at least some facilities and have an expected cost to consumers in the range of $11 million assuming a $0.01 per kWh average subsidy.  A $0.015 per kWh alternative compliance mechanism would cap consumer cost exposure at approximately $17 million per year.[84]

 

                                          The Commission recommends that a separate biomass tier be included in an RPS if the Legislature determines that electricity consumer funded support should be directed to Maine’s biomass industry.  A reasonable portfolio percentage for this purpose would be 10% with an alternative compliance mechanism set at  $0.015 per kWh.  The mechanism should be reviewed after two years to determine whether it is satisfying its public policy goals at an acceptable cost to consumers.

 

                                          Municipal solid waste:  As discussed in section IV of this report, municipal solid waste (MSW) facilities present unique considerations in determining whether support from electricity consumers is warranted.  Currently, three of the four facilities in Maine have QF contracts and would be excluded from an RPS pursuant to the Commission’s recommendation regarding facilities with such contracts.  However, there are a number of MSW facilities in other states that could receive support from Maine consumers if MSW is included in a Maine RPS that is not restricted to in-state facilities and there could be no assurance that the Maine facility would obtain any assistance.  If the Legislature determines that MSW facilities should be supported by the State’s electricity consumers, it would be sensible to include MSW in the biomass tier.   This would, however, have the likely effect of diluting the benefit to the biomass industry by providing a benefit to out-of-state MSW facilities. 

 

                                          The Commission recommends that municipal solid waste facilities be included in the biomass tier if the Legislature determines that electricity consumer funded support should be directed to these facilities. 

 

                                          Other resources:  Resources (other than biomass and MSW) typically included in RPSs in other states are: wind, solar, tidal, wave, geothermal, small hydroelectric,[85] landfill gas, and fuel cells.  These resources make up an extremely low percentage of the resource mix in New England and (except for hydroelectric resources) can be considered as developmental.  In the event the Legislature determines that developing renewable resources should receive public assistance, it would be reasonable to establish a separate tier for such resources.  It is likely that such an approach would primarily benefit wind, small hydroelectric, and landfill gas facilities, in that the other resources are far from economic viability or not designed to provide significant amounts of power to the grid.[86]  Including the other mentioned resources, however, would not do any particular harm and may have some promotional benefit.  Because these resources are currently extremely limited in the region, the other renewables tier would primarily promote new facilities.  For this reason, the approach adopted in Massachusetts where the percentage amount is initially relatively small and increases gradually over time is sensible.  Additionally, the adoption of a similar approach in Maine would promote regional consistency.[87] 

 

      The Massachusetts RPS has an alternative capping mechanism of $0.05 per kWh.  If this cap were adopted in Maine, electric consumers cost exposure would initially be capped in the range of $11 million growing to approximately $22 million in 2009 (assuming the RPS percentages are the same as in Massachusetts).  The Massachusetts cap was designed to be higher than the subsidy needed by the applicable resources, but no data is yet available on the cost of the program.  To be cautious, a lower cap would be advisable at this time.  A $0.025 per kWh alternative compliance mechanism would cap consumer exposure at approximately $5.5 million initially growing to approximately $11 million in 2009.

 

                                          The Commission recommends that an “other renewables” tier be adopted if the Legislature determines that electricity consumer funded support should be provided to developing resources and smaller hydroelectric facilities.  The tier would include wind, solar, tidal, wave, geothermal, small hydroelectric, landfill gas, and fuel cells.  A reasonable portfolio percentage for this purpose would start at 2.0% in 2005 and grow at a half percent a year until it reaches 4.0% in 2009 with an alternative compliance mechanism set at $0.025 per kWh.

 

                                     System Benefit Charge

 

·        Resource categories:  Resource categories within an SBC can be used to accomplish specified policy goals in a similar manner as resource tiers within respect to an RPS.  Thus, for reasons discussed above, the Legislature should consider a separate biomass category (that may or may not include MSW) and an “other
renewables” category to support less developed resources and smaller hydroelectric facilities.[88] 

                                          The Commission recommends that a separate biomass category be included as part of an SBC if the Legislature determines that electricity ratepayer funded support should be directed to Maine’s biomass industry.

 

                                          The Commission recommends that municipal solid waste facilities be included in the biomass category if the Legislature determines that electricity ratepayer funded support should be directed to these facilities. 

 

                                          The Commission recommends that an “other renewables” category be included as part of an SBC if the Legislature determines that electricity ratepayer funded support should be directed to developing resources and small hydroelectric facilities.  The category would include wind, solar, tidal, wave, geothermal, small hydroelectric, landfill gas, and fuel cells.

 

·        Maine facilities:  The distribution of funds collected from Maine’s T&D ratepayers through an SBC can be lawfully restricted to generating facilities located within Maine.  This allows for a more targeted approach then is possible with an RPS if the primary goal is to maintain or expand renewable capacity in the State.

 

                                          The Commission recommends that the distribution of funds collected through an SBC be restricted to electric generating facilities located within Maine.

 

·        Funding levels:  A funding level needs to be established for each resource category within the SBC mechanism.  The considerations in determining the funding levels are essentially the same as those in establishing the resource percentages and capping amounts for an RPS.  

 

      Biomass (and MSW):  As discussed in section IV of this report, the biomass facilities in Maine appear to require a subsidy that ranges from $0.00 to $0.003 per kWh.  If an average subsidy of $0.01 per kWh is assumed, the total amount of ratepayer support would be approximately $19 million per year.  This would translate into an SBC surcharge on all kilowatt-hour sales in the State of $0.0017 (1.7 mills) per kWh.  However, the determination of an SBC funding amount is an imprecise exercise and, for the same reasons as discussed above with respect to an RPS, a cautious approach would be advisable.  A total funding level comparable to the expected consumer cost associated with the recommended RPS would be in the range of $11 million.  This would translate into an SBC surcharge on all kilowatt-hour sales in the State of $0.001 (1.0 mill) per kWh. [89]

                                          Other renewables:  As mentioned, the maximum cost exposure for consumers if the recommended “other renewables” RPS tier is adopted would range from approximately $5.5 million to $11 million over time. Thus, a total funding level of $7.5 million for an “other renewables” SBC category would be comparable to the overall funding of the recommended “other renewables” RPS tier.  This would translate into an SBC surcharge on all kilowatt-hour sales in the State of $0.0007 (0.7 mills) per kWh. 

 

                                          The Commission recommends as a reasonable SBC surcharge for the biomass (and MSW) category  $0.001 (1.0 mill) per kWh on all kilowatt-hour sales in the State to produce an annual funding level in the range of $11 million and for the “other renewables” category  $0.0007 (0.7 mills) per kWh on all kilowatt-hour sales in the State to produce an annual funding level in the range of $7.5 million if the Legislature determines that electricity ratepayer funding should be directed at these categories of resources.

 

·        Distribution of funds:  Funds should be distributed to facilities only if they actually operate.  There are two primary methods to distribute funds collected through a system benefit charge to support grid-scale resources:

 

      1)  competitive bidding by facilities for available

            funding within a category; and

 

      2)  providing a pre-establish amount per kilowatt-hour

to all facilities in the category. 

 

Competitive bidding for available funds, in concept, has the advantage of maximizing the amount of kilowatt-hours from a specified resource category given a set amount of funding.  The more efficient facilities within the category would receive funding, while the less efficient might not receive assistance (depending on the amount in the fund).  However, the competitive bidding approach is problematic if there is a concentration of ownership or control among facilities in a designated category.  In addition, the winning facilities would be those that need assistance the least or perhaps not at all.  Pre-establishing a funding amount per kilowatt-hour of generation has the effect of spreading available assistance among facilities within a category.  Under that approach, however, some facilities receive more assistance than they need, while others do not receive enough assistance to operate profitably.

 

                                          Biomass facilities: Pre-establishing a per kilowatt-hour amount (rather than competitive bidding) would be appropriate for a biomass category assuming that the policy goal is to maintain as much of the existing biomass capacity in the State as possible.  Additionally, competitive bidding would be problematic since there are relatively few facilities and some concentration in ownership.  The pre-established amount would be set periodically (presumably by the Commission) based on actual cost data of the biomass facilities[90] and a mechanism would be included to vary the amount actually distributed to facilities depending on market prices.[91]

 

                                          The Commission recommends that funds to facilities in the biomass category (as well as MSW if included in the category) be distributed based on a pre-established amount per kilowatt-hour that varies with actual market prices as determined through periodic Commission proceedings if the legislative goal is to spread available assistance among facilities.

           

                                          Other resources:  For the broader category of other resources, a competitive bidding approach would be preferable assuming the policy goal were to obtain as many kilowatt-hours of energy from resources within the category given the limited funding amounts.  Essentially, facilities would bid for the amount of subsidy that they need.  The lowest bids would receive subsidies first until the amount of funding is exhausted.  Because the “other resources” category would include both existing and new facilities, bids for both shorter terms (e.g. one year) and longer terms (e.g. ten years) would be allowed.

 

                                          The Commission recommends that funds to facilities in the “other resources” category be distributed on the basis of competitive bids in which the lower bids are funded up to the total funding amount if the legislative goal is to maximize energy from the qualifying resources. 

 

                                    Standard Offer Supply

 

·        Fairness:  Any resource support mechanism that uses only standard offer load to support designated resources raises questions of fairness in that only standard offer customers (who tend to be residential and small business customers) would pay the cost of the State’s policy of supporting renewable generation.  Customers that take service from competitive suppliers (who tend to be larger businesses and industrial customers) would not contribute to the cost of the State’s policy.[92]

                                          The Commission recommends that the Legislature not adopt any resource support mechanism that uses only standard offer load to support renewable resources as it would be unfair to standard offer customers and other mechanisms exist to more fairly apportion the burden among Maine’s electricity consumers.

 

·        Preferred design:  In the event the Legislature decides to use the supply to standard offer load as a resource support mechanism, the most efficient approach would be to adopt a portfolio requirement applicable only to standard offer providers.  The choice of eligible categories of resources (including the designation of tiers) would involve the same considerations as those in designing a more broad-based RPS,[93] but the applicable percentages would have to be increased to reflect the smaller amount of standard offer load relative to the State’s total electric load.  This approach maintains the existing method for procuring standard offer supply and avoids the need for the State or T&D utilities to enter the business of purchasing and selling electricity.

 

·        Cost capping mechanism:  The use of standard offer load to support particular resource categories should include a mechanism to cap the cost exposure to standard offer customers.  An appropriate mechanism to cap cost exposure under the preferred design would be to include an alternative compliance mechanism that would allow standard offer providers to pay into a fund if the market prices of eligible resources rise above a pre-established amount.

 

                                          In the event that the Legislature decides to use standard offer load as a resource support mechanism, the Commission recommends that an RPS applicable only to standard offer providers be adopted and that cost exposure be capped through an alternative compliance mechanism.

 

                                          Green Product Demand

 

·        Green standard offer:  A “green” standard offer sanctioned by the State would likely impede and perhaps prevent the development of a retail market for green products.  Accordingly, such an approach would only be warranted if there were indications that a green market would not develop on its own.  In Maine, green retail products have recently appeared through the competitive market.  Because these products are relatively new, their long-term viability is unknown.  Thus, a green retail market should be given a chance to develop before the introduction of a state-sponsored green product is considered.

 

                                          The Commission recommends that a green standard offer not be adopted at this time. 

 

·        Green retail credits:  In the event the Legislature adopts an SBC, a mechanism that exempts customers that buy a green product[94] from the SBC could be a cost effective means to support renewable resources through stimulating retail demand.  Because generators have to be provided enough money to be commercially viable, buyers might require less due to individual desires to support environmentally benign power.  Additionally, a T&D bill credit for customers that buy green could have substantial marketing value.  The approach could, however, result in providing credits to customers that would have purchased green without any inducement and the amount devoted to this purpose would need to be capped to avoid exhausting funds for other promotional purposes.

 

                                          The Commission recommends that the entity administering an SBC be authorized to adopt a program in which customers that buy a green product are exempted from the SBC up to a specified cap.

 

                        2.         On-Site Applications

 

                                    On site-applications generally refer to the use of solar, wind, small hydroelectric facilities, geothermal heat pumps, and fuel cells to primarily provide customers’ own electrical needs.  This section of the report examines the following three mechanisms to support on-site generating resource applications:

 

• net billing
• small generator aggregation
• customer rebates

 

                                          The Commission recommends against the expansion of net billing as a means to provide public support for on-site renewable resources.

 

   The Commission recommends the adoption of a small generator aggregation mechanism to provide wholesale market access to small generators.

 

                                          The Commission recommends that a Clean Energy Fund program including customer rebates, grants and other initiatives, be established if the Legislature decides that certain on-site applications should be supported through a surcharge on utility rates.  

 

                                    Net Billing

 

·        Arbitrary subsidy:  As discussed in sections III and IV of this report, increasing the net billing limit to 1 MW, removing the proximity restriction, and allowing the generation resource to offset the load of the customer’s affiliates and associates could provide a significant benefit primarily to small wind and some hydroelectric installations.  However, net billing represents a subsidy in the amount of the difference between total retail electricity costs (supply and T&D) and the value of the customer’s generation.  This subsidy would approximate $0.07 and $0.08 per kWh for residential net billing customers.  There has been no indication that this is the amount of subsidy necessary to assist smaller renewable resources.  Thus, the net billing subsidy is arbitrarily determined.  In addition, the current 100 kW limit is high relative to other states.  Because there are means to facilitate small generators to aggregate and sell into the market (discussed below) that do not involve a subsidy, as well as other initiatives that can better target any necessary subsidy, the Commission does not recommend the expansion of net billing at this time.  The matter should be reconsidered in the future if other small generator support mechanisms prove ineffective.

 

                                          The Commission recommends against the expansion of net billing at this time either through an increase to the net billing kW limit or an expansion of the applicable load because net billing represents an arbitrarily determined subsidy and other mechanisms exist that do not involve subsidies or that can better target subsidies.  The Commission recommends that the expansion of net billing be reconsidered if other support mechanisms are shown to be ineffective.

 

·        Net billing expansion:  In the event that the Legislature determines that net billing should be expanded to support on-site renewable applications, raising the current 100 kW to 1MW would be reasonable.  However, removing the proximity restriction and allowing the generation resource to offset the load of the customer’s associates would be contrary to the traditional purpose of net billing which was to promote on-site applications of renewable resources.[95]  Because the expansion of net billing would have a cost impact in terms of lost utility revenues and there is uncertainty as to the number of customers that might take advantage of net billing in the future, net billing should be capped to limit utility and ratepayer exposure.  The cap could be used as a trigger for an investigation to determine if further net billing should be allowed.  The Commission’s current net billing rule has a mechanism whereby an investigation is triggered if the cumulative capacity of net billing generating facilities reaches 0.5% of a utilities’ peak load.[96]  A similar mechanism can be used as a statutory net billing cap. 

 

                                          If the Legislature determines that net billing should be expanded to support specified on-site resources, the Commission recommends that the kW limit be increased to 1 MW, that applicable load for net billing not be expanded by removing the proximity requirement or by allowing the load of associates to be netted against generation, and that a cap on net billing generation of 0.5% of each utility’s peak load be instituted.

 

                                    Small Generator Aggregation

 

·        Standard offer provider purchasers:  A sustainable market for the output from small generators (5 MW or less) has not developed and the Commission does not expect the near-term development of such a market.  A requirement that standard offer providers in the ISO-NE portions of Maine purchase the output of small generators at the applicable clearing prices with T&D utilities administering the transactions would be an advisable method to remove this market barrier.  The mechanism would not constitute a subsidy in that the generator is compensated at the market value for its power, and it would be revenue neutral to standard offer providers.  Due to differences in market design (primarily the lack of a spot market), it is unclear whether a similar mechanism could work in northern Maine.  The feasibility of developing such a mechanism would require additional investigation.

                       

·        Qualifying resources:  Because the mechanism does not involve a subsidy and acts only to remove a market barrier, the mechanism need not be restricted to particular categories of resources that the Legislature determines should receive public or ratepayer funding.

                       

·        Administration:  T&D utilities can administer the mechanism through the settlement process similar to net billing contracts.[97]  This would amount to a relatively small burden on utilities and would create no additional burden on competitive suppliers who desire to participate in the standard offer bidding process.  In the event that utilities discover that there are significant administrative costs, they would be allowed to petition the Commission for recovery of those costs consistent with the terms of applicable rate plans.  The absence of a requirement for participating generators to pay the costs of administration is a form of subsidy, but the cost is expected to be relatively small.

 

                                          The Commission recommends that a mechanism be adopted that requires standard offer providers in the ISO-NE portions of Maine to purchase the output of generators with a capacity of 5 MW or less at applicable clearing prices with utilities administering the process through settlement procedures.

                       

                                    Customer Rebates and Other Initiatives

 

·        Clean Energy Fund:  As discussed in section III and IV of this report, customer rebates (typically referred to as “buydowns”), as well as other initiatives, are common in other states to promote photovoltaics[98] and wind power, as well as fuel cells to some degree.  These activities typically occur through a “Clean Energy Fund” that is funded by utility rates (i.e. SBC) and administered much like an energy efficiency/conservation fund.  Other initiatives that occur through Clean Energy Funds include loans and grants, public education, infrastructure development, and “green building” promotion.[99]

 

·        Qualifying resources:  Buydown programs and other initiatives used in other states could be an effective means to promote photovoltaic installations, small wind systems, and fuel cell applications.  A 1 MW or less restriction would target the program to smaller on-site applications.  

 

·        Funding amount:  Other State’s surcharges range from 0.1 mills ($0.0001) per kWh to 1.0 mill ($0.001) per kWh.[100]  A surcharge of 0.1 mills on all kilowatt-hour sales in the State would produce approximately $1.1 million to fund clean energy programs in Maine.  This would appear to be a reasonable initial level of funding that could be increased if the programs were viewed as successful in meeting legislative goals. 

 

·        Administration:  The administration of a clean energy fund program is similar to administering the State’s energy efficiency programs.  Thus, it would be appropriate for the Commission to have the administrative responsibilities.    Administration could include determining the best uses for the fund under broad legislative guidelines or the legislative directive could be specific as to funding for particular purposes.  The responsibility of administering a clean energy fund would likely require a significant amount of additional Commission resources (including additional personnel).

 

                                          The Commission recommends that a Clean Energy Fund be established if the Legislature determines that small (1 MW or less) on-site applications of photovoltaics, wind power and fuel cells should be promoted through public assistance. The fund would initially be funded by a 0.1 mills per kWh surcharge on T&D rates to produce an annual funding level of $1.1 million, and would be administered as part of the Commission’s energy efficiency program. The funding level would be reviewed after two years.

 

3.                  Emerging Technologies

 

·        Mandatory funding:  As discussed in section II of this report, Maine currently provides support for renewable resource research and development (R&D) through voluntary ratepayer contributions.  This program has resulted in the collection of over $100,000 for R&D funding.  A mandatory program funded through a surcharge on utility rates (i.e. SBC) would represent an enhanced commitment by the State to the development of new renewable resource technologies.

 

·        Clean Energy Fund:  The funding for renewable resource R&D can be efficiently administered as part of a Clean Energy Fund that provides support for the development of renewable resources more broadly.

 

      The Commission recommends that the funding for renewable resource research and development occur through mandatory surcharges on utility rates and administered as part of a Clean Energy Fund if the Legislature determines that public assistance should be directed to emerging renewable technologies.    

 

D.        Legislation

 

            Draft legislation to implement the Commission’s recommendations as discussed in this section is contained in Appendix K to this report.  The Commission again emphasizes that its recommendations as to the effective structures of resource support mechanisms assume that the Legislature has made certain fundamental public policy decisions.  The Commission makes no recommendation in this report as to whether public support in the form of ratepayer subsidies should be provided to categories of generation resources or whether any category of resources should be favored over any other for purposes of public support.              

 

Appendix A

Entities that Provided Comments and Input to Report

 

¨               Electricity Generators

 

o       Biomass

¨      Boralex

¨      Swift River Hafslund (Greenville Steam Co.)

¨      Wheelabrator-Sherman Energy Co.

 

o       Hydroelectric

¨      Sparhawk Mill Co.

¨      FPL Energy

¨      Rocky Gorge Corp.

¨      PPL Maine

¨      Ridgewood Power Management

¨      UAH-Hydro Kennebec

 

o       Waste-to-Energy

¨      Maine Energy Recovery Company

¨      Penobscot Energy Recovery Company

¨      Regional Waste Systems, Inc.

¨      Mid-Maine Waste Action Corp.

 

o       Wind

¨      UPC Wind Partners, LLC

¨      Endless Energy

¨      Energyworks, LLC

¨      Dain Trafton

 

o       Peat

¨      Worcester Energy

 

o       Geothermal

¨      Water Energy Distributors, Inc.

 

o       Solar

¨      Energyworks, LLC

¨      Solar Winds Northern Lights

¨      Talmage Solar Energy

¨      Maine Solar Energy Association

¨      Vote Solar Initiative

 

o       General

¨      Independent Energy Producers of Maine (IEPM)

 

¨               Electricity Suppliers

o       Constellation Power Source

o       Select Energy

o       Competitive Energy Services

o       Energy Atlantic

 

¨               Ratepayer Interests

o       Office of the Public Advocate

o       Industrial Energy Consumer Group

 

¨               Environmental Interests

o       Natural Resource Counsel of Maine

o       Maine Department of Environmental Protection

o       Environment Maine

o       Environmental Health Strategy Center

o       Toxic Action Center

o       Maine Energy Investment Corporation

 

¨               Utilities

o       Central Maine Power Company

o       Bangor Hydro-Electric Company

o       Maine Public Service Company

 

¨               Other

o       Regulatory Assistance Project

o       Resource Solutions

o       Ascendant Energy Company

 

Appendix B

Maine Generating Facilities  

 

                      Generating Unit                             Maximum

 Capacity (MWs)

 

 

 

 

Sources and Disclaimer:  The Public Utilities Commission no longer regulates generation and

    has no systematic means of tracking generation or generating facilities in Maine.

    This appendix was compiled using a variety of sources, including the ISO-NE GIS system,

    IEPM reports, and historic information.
                                                       Appendix B (continued)

Maine Generating Facilities

 

 

Generating Facility                              Maximum

                                                            Capacity

                                                               MWs                                                             

  

 

 

Sources and Disclaimer:  The Public Utilities Commission

    no longer regulates generation and has no systematic

   means of tracking generation or generating facilities in Maine.

   This appendix was compiled using a variety of sources,

   including the ISO-NE GIS system, IEPM reports, and

   historic information.
                                                                 Appendix B (continued)

Maine Generating Facilities

 

                     Generating Unit                                Maximum

                                                                            Capacity (MWs)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Sources and Disclaimer:  The Public Utilities Commission no longer regulates generation

              and has no systematic means of tracking generation or generating facilities in Maine.

              This appendix was compiled using a variety of sources, including the ISO-NE GIS system,

              IEPM reports, and historic information.

                                                             Appendix B (continued)

Maine Generating Facilities – Statewide Summary

        

 

                   Notes: Does not include generation consumed on site.

                              Does not include 105 MW of wind generation currently in the planning phase.

                              Does not include 23 MW of generation from a peat facility that is not currently operating.

 

 

 

 

Sources and Disclaimer:  The Public Utilities Commission no longer regulates generation and has no systematic

       means of tracking generation or generating facilities in Maine.  This appendix was compiled using a variety of

       sources, including the ISO-NE GIS system, IEPM reports, and historic information.
                                                                                   Appendix C

Resources Serving Maine’s Customers in 2002

 

In addition to the graph in Section I of this report, the following graphs provide information about the source of resources that served Maine’s customers’ loads during 2002.  The first graph displays the percentage of generation obtained through purchases of system power, as compared with dedicated contracts.  The second graph displays the portion of dedicated contracts that purchased power from facilities outside of Maine.

 

Source:  Annual Reports of Competitive Electricity Providers

 Appendix D

Economic Impact of Some Eligible Resources

 

 

The following data was supplied by the Independent Energy Producers of Maine (IEPM) to portray the impact of their member companies on the economic health of Maine.

 

 

 

Source:  Industrial Energy Producers of Maine

 

 

Appendix E

States with Resource Portfolio Standards

 

 

 

Source:  Database of State Incentives for Renewable Energy (DSIRE)

 

 

Appendix E (Continued)

Terms of Other States’ Resource Portfolio Standards

    

Appendix F

Constitutional Issues Associated with In-State Location Requirements

 

            Any attempt to limit eligibility for an RPS to in-state generators raises serious constitutional issues.  The Commerce Clause of the U.S Constitution restricts a state’s ability to enact legislation that discriminates against interstate commerce.  In particular, laws that discriminate on their face in favor of in-state resources are generally viewed as economic protectionism and subject to a “virtually per se rule of invalidity.”   Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978). 

 

            State laws that discriminate on their face against out-of-state entities are subject to what is referred to as the “strict scrutiny” standard of court review.  Wyoming v. Oklahoma, 502 U.S. 437, 454-458 (1992).  Strict scrutiny means that discriminatory legislation will be held to be invalid as unconstitutional unless it is demonstrated that there is some other legitimate purpose that is not related to economic protectionism, and that the legitimate purpose cannot be adequately addressed by legislation that is not discriminatory.  Id; Hughes v. Oklahoma, 441 U.S. 322, 337 (1979).

 

            To illustrate, the U.S. Supreme Court has concluded that a state cannot reserve a portion of a market for its own resources and exclude those of other states.  In Wyoming v. Oklahoma, the Court struck down an Oklahoma statute that required coal-fired plants in the state to burn at least 10% coal mined in Oklahoma when generating power for sale in Oklahoma.  The Court concluded that the statute violated the Commerce Clause in that it was protectionist and discriminatory by excluding coal solely by virtue of it being mined in another state.

 

            Similarly, an RPS reciprocity requirement would raise Commerce Clause concerns.  For example, a requirement that conditions RPS eligibility of out-of-state generators on the existence of a similar portfolio requirement in their state could be viewed as unconstitutional in that it discriminates on the basis of state boundaries.   The Supreme Court has invalidated state legislation that allows the sale of specified products from other states only if the products are accepted in the other state on a reciprocal basis.  Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.s. 366 (1976); Sporhase v. Nebraska, 458 U.S. 941 (1982).  The Court reasoned that a state cannot condition its compliance with the Commerce Clause on the activities of other states. 

 

            However, a limitation of the distribution of funds from an SBC to in-state generating facilities does not raise the same type of Commerce Clause concerns as those related to RPS eligibility restrictions.  The Supreme Court has stated that the provision of funds to in-state entities from a state’s general fund generally does not implicate the Commerce Clause.  West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).  There could be constitutional concerns if funds were obtained from both in-state and out-of-state entities, but distributed to only in-state entities.  Id.  However, an SBC is a surcharge on the rates of Maine’s T&D utilities and are thus paid only by Maine ratepayers.  Accordingly, use of SBC funds to support in-state generators should be viewed as constitutional.    

Appendix F (Continued)

Other States’ Treatment of Out-of-State Resources

 

   

 

    State with RPS       Treatment of out-of-state generation within state’s RPS

 

Source:  Ryan Wiser, Berkeley Lab and Kevin Porter, Exeter Associates, report of June 19, 2003
Appendix G

System Benefit Charge - Funding for Renewables in Other States

 

 

 

 

 

Appendix H

Other States’ Net Billing Terms

 

     State                      kW breakpoint            Resources Eligible

  

 

 

 

 

                                               Appendix H (Continued)

Other States’ Net Billing Terms

 

     State                       kW breakpoint            Resources Eligible

 

 

 

 

  Source:  Database of State Incentives for Renewable Energy (DSIRE)

Appendix H (Continued)

Net Billing Generation and Resources – CMP

 

 

The following table contains the two measurements metered for net metered

Customers.  The amount of kWhs generated on-site and consumed by the

Customer is not measured.

 

Number of customers included in aggregates below: approximately 60.

 

 

 

 

Source:  Extracted from CMP data
Appendix I

Rebates and Tax Incentives in Other States

 

          S=state                  L=local                       P=private                     U=utility or ESCO

                            Source:  Database of State Incentives for Renewable Energy (DSIRE)  

Appendix J

Government Purchases of Renewable Generation in Other States

 

 

 

 

 

      Source:  Database of State Incentives for Renewable Energy (DSIRE)  

 

Appendix K

Draft Legislation

 

This appendix presents draft legislation that implements the recommendation section of this report.  The draft legislation is presented in the following four alternatives:

 

§         Alternative 1—Renewable Portfolio Standard

§         Alternative 2---System Benefit Charge

§         Alternative 3---Clean Energy Fund

§         Alternative 4---Small Generator Aggregation

 

The first two alternatives are both intended to promote grid-scale resources and should thus be considered mutually exclusive.  However, the second two alternatives should be considered independent of the others.  Alternative 3 or Alternative 4 (or both) can be adopted in conjunction with either Alternative 1 or Alternative 2, or either one (or both) can be adopted regardless of whether any of the other alternatives are adopted.

 

If Alternatives 2 and 3 are adopted, consideration should be given to combining the alternatives into a single system benefit charge section that combines the administration of the fund for all stated purposes.

 

 

 

 

 

 

 

 

 

 

 

 

Alternative 1--Renewable Portfolio Standard

 

§3210-A.  Renewable resources

 

            1.         Policy.  [Policy statement to be determined by the Legislature]

 

            2.         Portfolio requirements.     Beginning _____, each competitive electricity provider in this State must demonstrate, in a manner satisfactory to the commission, that:

 

A.        No less than 10% of its portfolio of supply sources for retail electricity sales in this State is accounted for by tier 1 renewable resources; and

 

B.        No less than 2% of its portfolio of supply sources for retail electricity sales in this State is accounted for by tier 2 renewable resources.  This percentage shall increase 0.5% per year after the effective date of this section until it reaches 4%.

 

If a competitive electricity provider represents to a customer that the provider is selling to the customer a portfolio of supply sources that exceeds the requirements of paragraph A or B, the resources necessary to supply the excess may not be applied to meet the aggregate requirements of paragraph A or B.

 

            3.         Eligible renewable resources.  Eligible renewable resources that may satisfy the portfolio requirements of this section are as follows:

 

A.        Tier 1 renewable resources are biomass[101] [and municipal solid waste]; and

 

B.        Tier 2 renewable resources are wind, solar, tidal, wave, geothermal, hydroelectric[102] with a capacity that does not exceed 5 megawatts, landfill gas, and fuel cells.

 

4.         Alternative compliance mechanism.  A competitive electricity provider may meet all or part of its tier 1 and tier 2 requirements under this section by making an alternative compliance payment into the Maine Renewable Power Fund established in section 5.  The payment to meet the tier 1 requirement shall be calculated by multiplying the unmet tier 1 megawatt-hour requirement by $15 per megawatt-hour.  The payment to meet the tier 2 requirement shall be calculated by multiplying the unmet tier 2 megawatt-hour requirement by $25 per megawatt-hour.

 

5.         Maine Renewable Power Fund.  There is established the Maine Renewable Power Fund, referred to in this section as the “fund.”  The fund is a nonlapsing fund dedicated to support the policies of this section.  The commission[103] shall administer the fund and disperse the money in the fund to eligible resources listed in subsection 3 in a manner that satisfies the policies, goals and objectives of this section.  The commission shall adopt rules governing the disbursement of money from the fund.

 

6.         Exclusion of resources.  Notwithstanding subsection 3, qualifying facilities that are obligated to sell their electrical output to transmission and distribution utilities pursuant to a contract entered prior to March 1, 2000 are not eligible renewable resources and cannot be used to satisfy the portfolio requirements of this section.

 

7.         Regional deliverability.  Electricity used to satisfy the portfolio requirements of this section must be delivered to the New England or Maritimes control area.

 

8.         Credit trading.  The commission shall allow competitive electricity providers to satisfy the portfolio requirements of this section through renewable credits if it determines that a reliable system of electricity attribute trading is in existence.

 

9.         Rules.  The commission shall adopt rules necessary to implement this section.  Rules adopted under this section are major substantive rules as defined in Title 5, chapter 375, subchapter 2-A.

 

 

 

 

 

 

 

 

 

 

 

Alternative 2—System Benefit Charge

 

§3210-A.  Renewable resources

 

            1.         Policy.  [Policy statement to be determined by the Legislature]

 

            2.         System benefit charge.  The commission[104] shall establish a program to promote the generation of electricity from renewable resources located in this State.  The program shall be funded through a system benefit charge included in the rates of each transmission and distribution utility in the State as determined by the commission in accordance with this section.

 

            3.         Eligible renewable resources.  Renewable resources that are located in this State and that are in the following categories may receive funds pursuant to this section:

 

A.        Category 1 renewable resources are biomass[105] [and municipal solid waste]; and

 

B.        Category 2 renewable resources are wind, solar, tidal, wave, geothermal, hydroelectric[106] with a capacity that does not exceed 5 megawatts, landfill gas, and fuel cells.

 

4.         Funding level.  The funding level for each category of eligible resources is as follows:

 

A.        The funding level for category 1 renewable resources shall equal $0.001 multiplied by all kilowatt-hour usage in the State; and

 

B.        The funding level for category 1 renewable resources shall equal $0.0007 multiplied by all kilowatt-hour usage in the State.

 

5.         Distribution of funds.  The commission shall distribute the funds to the categories of eligible renewable resources as follows:

 

A.        All facilities in category 1 shall be eligible for an amount determined by the commission in periodic proceedings.  This amount may vary with prevailing market prices and other factors the Commission considers relevant to accomplish the purposes of this section; and

 

B.        All facilities in category 2 shall be eligible for funds through a periodic bidding and selection process designed to maximize the number of kilowatt-hours generated from category 2 facilities through use of available funds.

 

Funds not used in any year remain in the program to be used in future years in accordance with the purposes of this section.  Funds not necessary to serve the purposes of this section shall be returned to electricity ratepayers through rate adjustments as determined by the commission.

 

6.         Operational requirement.  Notwithstanding any other provision of this section, eligible renewable resources must operate and generate electricity as a condition of receiving funds pursuant to this section.

 

7.         Need for assistance.  The commission shall ensure, to the maximum extent possible, that funds are distributed to eligible renewable resources that require funding to operate or to generate more electricity than would occur without funding.  To fulfill this requirement, the commission may:

 

A.        Require eligible renewable resources to submit, subject to appropriate protective order, their books of account or any other relevant information as a condition of receiving funds; and

 

B.        Employ a mechanism to adjust funding amounts as the market price of electricity changes.

 

8.         Administration fund.  The commission may establish a fund to be used solely to defray the administrative costs of this section.  The commission annually may deposit funds collected pursuant to this section into the administrative fund up to a maximum in any fiscal year of $500,000.  Any interest on funds in the administrative fund must be credited to the administrative fund and any funds unspent in any fiscal year must either remain in the administrative fund or be transferred to the program fund.

 

9.         Funds held in trust.  All funds collected from electricity ratepayers pursuant to this section are collected under the authority and for the purposes of this section and, whether held by the commission, transmission and distribution utilities or their agents, are deemed to be held in trust for the purposes of benefiting electricity ratepayers.

 

10.       Renewable purchases.  The commission may exempt customers that purchase retail electricity products composed primarily of eligible renewable resources from the payment of the system benefit charge authorized in this section. 

 

11.       Report.  On February 1^st of each year, the commission shall submit a report describing the commission’s activities in carrying out the requirements of this section.  The report shall include the amount of available funds, the eligible renewable resources that received funding, the amount of funding received by eligible renewable resources, the amount of generation produced by each eligible renewable resource as a result of the funding, and whether the amount of funding is sufficient or necessary to satisfy the policies of this section.

 

12.       Rules.  The commission shall adopt rules necessary to implement this section.  Rules adopted under this section are major substantive rules as defined in Title 5, chapter 375, subchapter 2-A.

Alternative 3—Clean Energy Fund

 

§XXXX.  Clean energy fund

 

            1.         Policy.  [Policy statement to be determined by the Legislature]

 

            2.         Clean energy fund.  The commission[107] shall establish a program to promote the on-site application of renewable resources in this State through a Clean Energy Fund.  The program shall be funded through a system benefit charge included in the rates of each transmission and distribution utility in the State as determined by the commission in accordance with this section.

 

            3.         Eligible renewable resources.  For purposes of this section, eligible renewable resources are generating resources in the State:

 

A.        That have a capacity of one megawatt or less;

 

B.        That are used on-site primarily to offset all or part of a customer’s electricity needs; and

 

C.        That are either photvoltaics, wind power, or fuel cells.

 

4.         Funding level. The funding level for the program created by this section shall equal $0.0001 multiplied by all kilowatt-hour usage in the State.  

 

5.         Research and development.  The commission may use up to 25% of the annual funding under this section to fund renewable resource research and development. 

 

6.         Administration fund.  The commission may establish a fund to be used solely to defray the administrative costs of this section.  The commission annually may deposit funds collected pursuant to this section into the administrative fund up to a maximum in any fiscal year of $200,000.  Any interest on funds in the administrative fund must be credited to the administrative fund and any funds unspent in any fiscal year must either remain in the administrative fund or be transferred to the program fund.

 

7.         Funds held in trust.  All funds collected from electricity ratepayers pursuant to this section are collected under the authority and for the purposes of this section and, whether held by the commission, transmission and distribution utilities or their agents, are deemed to be held in trust for the purposes of benefiting electricity ratepayers.

 

8.         Report.  On February 1^st of each year, the commission shall submit a report describing the commission’s activities in carrying out the requirements of this section, including descriptions of all Clean Energy Fund programs implemented during the prior calendar year and all programs that the commission plans to implement over the next calendar year.  The report shall include the amount of available funds, the eligible renewable resources that received funding, the amount of funding received by eligible renewable resources, the amount of generation produced by each eligible renewable resource as a result of the funding, and whether the amount of funding is sufficient or necessary to satisfy the policies of this section.

 

11.       Rules.  The commission shall adopt rules necessary to implement this section.  Rules adopted under this section are major substantive rules as defined in Title 5, chapter 375, subchapter 2-A.

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative 4—Small Generator Aggregation

 

§XXXX.   Small generator aggregation

 

            1.         Standard offer provider purchases.  Standard offer providers that serve areas of this State that are within the ISO-NE control area shall purchase the output of generators with a capacity of 5 megawatts or less at applicable clearing prices.

 

            2.         Financial impact.  The purchase requirement in subsection 1 shall only be applicable if it can be accomplished in a manner that is financially neutral to the standard offer providers. 

 

3.         Administration.  Transmission and distribution utilities shall administer the purchase and sale of electricity required under this section.  Transmission and distribution utilities may seek to recover administration costs if consistent with the terms of any applicable rate plan or commission ratemaking methodologies.

 

            3.         Northern Maine.  The commission shall require standard offer providers that serve areas of the State that are in the Maritimes control area to purchase the output of generators with a capacity of 5 megawatts or less if it finds that the market design in the northern Maine region will accommodate such purchases consistent with the purposes of this section.

 

            4.         Rules.  The commission shall adopt rules to implement this section.  Rules adopted pursuant to this section are routine technical rules as defined in Title 5, chapter 375, subchapter 2-A.