A Comparison of Feed-in Laws, RPS, & Tendering Policies Jan Hamrin, PhD President Center for Resource Solutions Bangkok, Thailand August 28,

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

Key National Renewable Energy Policies

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

Feed-in Law Success Factors Long-term Contracts – years Guaranteed buyer under standard contract Tariff that gives reasonable rate of return Flexibility to capture cost efficiencies

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

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

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

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

Criteria for Comparison of Policies

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

Primary Criteria (cont.) Local Industry Development Certainty for Investors Simplicity of Implementation

Comparisons

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

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

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

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

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

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

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

Conclusions

Feed-in Law: –Simplest to administer & enforce –Greatest resource diversity –Greatest local industry development –May be more expensive in short-run Can be mitigated by adjusting price over time –Works best in regulated markets

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

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

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

Contact information Dr. Jan Hamrin, President Center for Resource Solutions San Francisco, CA 415/

Extra Slides

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

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

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

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

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

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

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