1. Renewable Energy: A Co-op Point of View Renewable Energy Resources Committee of the American Bar Association Section of Environment, Energy, and Resources July 20, 2005 Jay Morrison National Rural Electric Cooperative Association (703) 907-5825 jay.morrison@nreca.coop

2. Who Are The Co-ops? 930 Consumer-owned, Consumer-governed utilities Not-for-profit Over 37 million consumers in 47 states –12% of the population, 75% of nation’s area 2.3 million miles of line or close to half of nation’s total distribution Average of 61 employees and 10,600 consumers v. 1,957 employees and 375,000 consumers for IOUs Seven customers per line-mile v. 35 for IOUs

3. Cooperative Service Territories

4. NRECA’s 2005 Resolution Supporting Renewable Energy “NRECA supports power developed from renewable resources that naturally replenish, utilize residual materials, or recycle waste... The use of these resources can be beneficial to our environment and assist rural economies throughout much of the U.S.”

5. Co-ops Are Encouraged To: “support the responsible development and use of cost effective renewable resources” on their own systems and through the political process “develop appropriate policies on consumer-owned generation, including renewable energy” such as DG interconnection contracts, procedures, and rates “develop outreach programs to educate state policymakers, local communities and members about renewable energy”

6. Cooperatives Support Large & Small Renewable Resources The Cooperative Research Network, in cooperation with U.S. DOE, has spent over $1.6 million in renewable energy RD&D CRN, in cooperation with U.S. DOE, has spent over $ 6.5 million in other DG RD&D NRECA has partnered with DOE and USDA to promote alternative energy resources. NRECA belongs to UWIG, SEPA, USFCC, PLMA, ACORE, and other organizations that promote alternative energy resources

7. More Support for Alternative Energy Resources Nearly 300 cooperatives offer consumers a green product. Cooperatives supply power from hydro resources, wind, manure digestion, landfill gas, co-fired biomass, distributed generation, and other alternative resources. Some cooperatives are strongly supporting ethanol development

8. Co-op Green Power Source: Power On-Line Survey 2003, NREL and CRN NRECA: Strategic Analysis, August 2004 There are nearly 300 rural electric systems that offer Green Power

9. Renewable Generation policies must be consistent with cooperatives’ goal to provide all consumers with reliable, affordable, electric service The Key for Cooperatives

10. That requires due diligence: By co-ops By consumers By state and federal legislators and regulators

11. What Does That Mean? Be realistic about the value of renewable energy Be realistic about the costs of renewable energy Target support for renewable energy in a way that: –Is consistent with continued safe, reliable, and affordable electric service to all consumers –Focuses support on the responsible development of the most cost-effective resources –Ensures that those who benefit pay the costs

12. Be Realistic About the Value of Renewable Energy

13. Capacity and Energy Capacity How much capacity does the generation provide? How much capacity does the generation provide during peak period? Is the capacity needed? Is the capacity cost competitive? Energy Is the energy needed? Is the energy cost competitive? Can the energy be delivered to interested customers?

14. Utility System Benefits System Benefits are very situation specific and can depend on whether the generation: –Can substitute for a line extension –Is located in an area with expanding demand and inadequate grid facilities –Is dispatchable and dispatch is coordinated with the local utility –Is maintained in coordination with the local utility –Is reliable –Etc.

15. Other Benefits Who benefits from the environmental, economic, and other social values of renewable energy? –Local ratepayers –State taxpayers –Nation as a whole?

16. Be Realistic About the Cost of Renewable Generation

17. Wind Economics — Not including state or federal incentives Note, total national grid connected small wind is only 15 MW. Small Wind (~5-15 kW) Large Wind (~1.3 MW) Combined Cycle Gas Turbine Installed cost ($/kW) $2,500-$3,000$900-$1,000$400-$800 Electricity Cost ($/kWh) Up to 15¢5.5¢4¢-6¢

18. Other Costs Cost of generation is NOT equal to the fully installed cost of a generator + fuel Cost of generation also includes all of the other reasonable and appropriate costs of producing energy and delivering it to consumers The last cost added to the ledger is not the one at fault for making an investment uneconomic

19. Safety & Reliability Unit must disconnect when system faults Unit must not unduly impact voltage, frequency, harmonics, short circuit capacity, etc. Local flexibility is critical to preserve safety and reliability

20. System Upgrades Distribution systems are not designed for dispersed generation Few rural transmission systems have the capacity for large new generators Cost, if any, will depend on size of unit, stiffness of system, amount of generation, etc. Consumers should not bear the cost of upgrades unless they benefit from the generation or

21. Stand-by Service It costs money to have power available when consumers’ generation goes down, the wind doesn’t blow or the sun doesn’t shine

22. Properly Target Support for Renewable Energy Policies can be designed that benefit the environment, consumers, and rural communities. But, done wrong, policies can raise power costs and undermine service for rural communities.

23. Avoid Mandates Renewable Portfolio Standards, Net Metering requirements and other mandates are poorly targeted. Mandates ignore important local differences, can raise energy costs to consumers, and can impose undue burdens on rural consumers.

24. Avoid Policies That Impose Reliability Risks Legal presumptions about engineering issues, i.e., all “small” generators can be interconnected reliably anywhere on any system Adoption of national engineering standards as applicable everywhere without exception Permitting renewable resources to avoid meeting reliability standards or testing requirements, or shifting the burden to utilities to demonstrate “need” for standards applied to all other resources

25. Beware of hidden subsidies Permitting renewable resources to shift interconnection costs, study costs, standby charges, insurance costs, etc. onto other consumers Over-compensating renewable resources for energy, capacity, or system benefits

26. Subsidies If the government chooses to subsidize renewable energy: –Subsidies should be tightly matched to the benefit to be achieved. –The costs should be spread broadly to all in the state/nation, not just to other ratepayers: Production incentives for renewable generationProduction incentives for renewable generation Tax credits for renewable generation equally available to all sectors (personal, corporate, sales, capital gains taxes all work) Grants or low interest loans for renewable generation investments Support for businesses developing or manufacturing renewable generation Support for RD&D and education –Or, let interested consumers pay a premium for green power.

27. Other Approaches Lower transaction costs –Support RD&D on generation, interconnection, communication and control techniques and technologies –Support IEEE’s further efforts to develop 1547 and the Application Guide –Support balanced and accurate education of consumers and utilities –Facilitate voluntary green tag trading Help consumers and developers find federal and state dollars for renewable energy

28. Conclusion Alternative energy resources CAN be good for rural communities and consumers Focus FIRST on reliable, affordable, electric service for all consumers Do your due diligence, recognizing ALL of the reasonable costs of alternative energy resources Support for alternative energy resources should be broad-based, not imposed only on local consumers Focus on research, GOOD education, & broad-based economic support