Friday, May 23, 2008

Comments on Strawman Proposal for Governor Doyle’s Global Warming Task Force - June 18, 2008

These comments, submitted on behalf of RENEW Wisconsin, address the strawman proposal developed by the co-chairs of Governor Doyle’s Global Warming Task Force. I represented RENEW in the Electric Generation and Supply Workgroup and took part in the drafting and preparing of several specific proposals that were submitted to the full Task Force. Among them were proposals to establish (1) uniform permitting standards for wind projects, (2) fixed-rate production-cost-based tariffs to stimulate customer-sited renewable energy systems; and (3) post-2015 renewable energy requirements on utilities. The comments address various proposed changes to the existing renewable energy standard (RES).

In-State Set-Aside

The strawman proposal sets forth a 30% in-state set-aside by 2020 (6 percentage points out of 20 by 2020) and a 40 % in-state set-aside by 2025 (10 percentage points out of 25%) RENEW strongly supports an aggressive in-state set-aside for renewables, for reasons of economic development and energy supply security. Producing renewable kilowatt-hours (kWh) and therms within our borders will spark significant economic activity in the fabrication of equipment, installation of systems, and the provision of high-value services. Those economic benefits would be largely forfeited if those kWh and therms were imported from other states and nations.

Moreover, the sourcing of renewable energy within our borders represents the path of lowest risk from an energy supply and price stability perspective. In the past 12 months, we have seen crude oil prices jump from $66 to $121 per barrel, NYMEX natural gas prices double to $12.60/MMBtu, the national average retail price of diesel fuel increase from $2.80 to $4.70, and the national average retail price of gasoline rise from $3.08 to $4.04. In the first five months of 2008, the PSC approved requests from all five investor-owned utilities to add fuel surcharges to customer bills to collect an addition $149 million in revenues this year. That number is certain to increase before the end of the year.

As most people are aware, the fuel cost increases are being driven by ever-tighter world markets for fossil fuels, which affect wholesale market prices. It is worth pointing out that renewable energy sources in Wisconsin are in no way responsible for the price volatility roiling wholesale markets.

The presumption in this particular set-aside proposal is that renewable energy produced in Wisconsin will be more expensive than renewable energy produced elsewhere. With respect to windpower, it is true that Dakota wind generation will be less expensive than Wisconsin windpower when there is sufficient transmission capacity to move the electricity to market from the Dakotas. The trouble is: no one can guarantee that there will be sufficient transmission capacity to accommodate Dakota windpower throughout the 17-year window between now and 2025. Moreover, competition for low-cost windpower in the Great Plains is certain to intensify as more MISO states like Ohio adopt renewable energy requirements on their utilities.

But this view of Wisconsin windpower assumes that it will always be more expensive than fossil generation, and on this point RENEW disagrees with conventional wisdom. Between the escalating cost of transporting coal to Wisconsin power plants and the global competition for liquefied natural gas, RENEW can easily envision a moment in the not too distant future when locally based windpower facilities like We Energies’ recently completed Blue Sky Green Field project becomes one of the lower-cost energy producers in eastern Wisconsin.

Even if electricity from Manitoba Hydro became an eligible resource under an expanded Renewable Energy Standard, the vast majority of the energy applied toward that requirement would come not from Manitoba, but from wind energy, whether generated in Wisconsin or elsewhere. There is simply no other renewable energy resource that can scale up to supply a double-digit slice of Wisconsin’s electric load.

That said, RENEW is very concerned about the ability of wind energy developers, manufacturers, installers and shippers to do business in the state of Wisconsin if the barriers that are in place right now aren’t resolved or mitigated. These barriers include:

(1) Local opposition to siting and permitting utility-scale wind turbines;

(2) Private airport expansions by wind opponents aimed at blocking turbines;

(3) Wisconsin Department of Transportation’s restrictions on transporting oversized loads in and through Wisconsin; and

(4) Growing utility preference for out-of-state wind over in-state wind.

The difficulties developers encounter in securing land use permits for in-state wind projects are well-known and don’t need to be rehashed. In unanimously recommending legislative changes to address this problem, the Global Warming Task Force recognized the necessity of this initiative to achieving current and successor renewable energy requirements.

Another obstacle encountered by developers is the obstructionist tactic of upgrading private landing strips to public use airports for the purpose of rendering nearby land off-limits to turbines. Once the upgrade has been approved, the Federal Aviation Administration has the power to restrict turbine installations presumed to be hazardous to airport operations, regardless of whether the field is capable of being used by the general public or not. Until the State of Wisconsin establishes procedures and standards for reviewing airport upgrade applications, determined opponents of wind installations will continue to employ this tactic with impunity.

An even larger obstacle has emerged in the construction of wind energy projects, namely restrictions in transporting oversized wind generation equipment across Wisconsin roads and highways. Last year, just as construction of We Energies’ Blue Sky Green Field and Invenergy’s Forward Energy projects commenced, Wisconsin Department of Transportation (DOT) imposed a prohibition on transporting oversize loads during the day, which made it impossible to haul the blades, nacelles and tower sections directly to the erection sites. At the Blue Sky Green Field project site, We Energies had to expand the laydown area behind its operations center in order to accommodate deliveries of the equipment. Some 792 pieces of equipment had to be offloaded in the yard and then reloaded on separate vehicles and taken to the 88 turbine sites. Double-handling this equipment is expensive. WE estimates that the restrictions on transportation added nearly $4 million to the cost of constructing Blue Sky Green Field.

In regards to Alliant Energy’s Cedar Ridge project now under construction, DOT will allow limited daytime transportation of oversize equipment. However, to reduce the cost of transporting turbines, nacelles and blades through Wisconsin, Vestas decided to ship that equipment to the United States via the Port of Galveston in Texas, and transport it by rail to Green Bay. It’s worth noting that those components could easily have been shipped to a Wisconsin port"Milwaukee, Green Bay, and Menominee-Marinette"where they would have been handled by our labor force.

Wisconsin also requires haulers to obtain an individual permit for each load carried along a surveyed route. Contrast that requirement with Iowa’s practice of issuing a permit that covers all trips involving oversized equipment along that route for a defined period of time.

Between the extra costs incurred by heavy haulers and the lost port traffic, Wisconsin’s transportation policies have imposed a heavy economic cost on in-state wind development in Wisconsin. The economic damage could spread to neighboring states if turbine manufacturers continue to avoid Wisconsin ports in favor of less convenient locations that require more truck or rail travel after the equipment is unloaded. To demonstrate to U.S. turbine suppliers, component manufacturers and heavy haulers that Wisconsin is open for business, the State needs to establish a regulatory framework that provides certainty and consistency in the transportation arena.

The unanticipated costs caused by the barriers enumerated above negatively affect utility perceptions on the economic viability of in-state windpower. When this perception is added to the lower wind speeds here compared with Iowa or Minnesota, the prospects for adding significant capacity beyond 2009 starts to fade. In the last three months, two Wisconsin utilities have announced plans to add, by 2010, 300 MW of windpower situated in Iowa and Minnesota. It’s clear that Wisconsin utilities have become very wary of the risks involved in pursuing wind development here, and in response have adjusted their resource acquisition efforts to source more renewable energy from out of state. I do not think it’s an exaggeration to say that some utilities have written off Wisconsin as a source of windpower for the foreseeable future.

While we at RENEW are steadfastly in support of expanding wind generating capacity in Wisconsin, we must point out that the in-state targets enumerated in the strawman proposal are unlikely to be achieved unless they are accompanied by meaningful regulatory reforms to facilitate project permitting, project construction, equipment transport, and component manufacturing in the Badger State. So long as in-state windpower is treated as a second-class resource in the renewable energy world, it is hard to imagine why the global wind industry would want to invest in new productive capacity here when the economic returns are higher elsewhere and the headaches fewer.

Changes to Resource Eligibility

The strawman proposal suggests an expansion of RES-eligible resources to include the following:

(1) Renewable energy credits (REC’s) created outside of the MISO region;

(2) Hydro in excess of 60 MW; and

(3) Renewable energy sold in the voluntary marketplace.

Simply adding these renewable energy sources to the existing Renewable Energy Standard will result in several negative outcomes. Voluntary renewable energy programs would implode overnight if they were folded into the utilities’ mandated portfolio. The whole value proposition of a voluntary program disappears when the utility takes the renewable energy attributes away from customers who paid extra to create the renewable generation in the first place.

While exporting dollars out-of-state to acquire distant sources of large-scale hydro and REC’s may seem like a cheap compliance strategy right now, it would stifle local renewable energy development"and the jobs and business opportunities that come with that--as long as the newly eligible resources remain in plentiful supply.

RENEW suggests recasting the proposed changes in such a way to prevent the new category of resources from competing with existing RES-eligible resources to meet the higher standard. This could be accomplished by creating two tiers of resource eligibility, a Tier 1 group and a Tier 2 group. The Tier 1 group would consist of the current group of RES-eligible resources (and renewable thermal energy). Tier 2 resources would consist of non-MISO REC’s, hydro greater than 60 MW, and renewable energy from the voluntary markets.

RENEW propose that the RES consist of a “hard” target, the compliance of which must be met from Tier 1 resources. Above that, there could be a “soft” goal that can be met with Tier 2 resources. But to ensure that Tier 2 resources don’t crowd out Tier 1 resources, the amount of Tier 2 resources that could be applied to the soft goal has to be capped. While there would be a not-to-exceed amount for Tier 2 resources, there would be no cap on Tier 1 resources.

To illustrate: if the state were to adopt a 20% hard renewable target by 2025 and a soft renewable goal of 25% for that same year, utilities would then be required to source a minimum of 20% of the electricity they sell from current RES-eligible resources. They could incorporate Tier 2 resources and apply them to the soft target up to 5% of their retail sales. But utilities would not be able to apply the Tier 2 resources to any part of the 20% requirement. Therefore there would be no compliance benefit to a utility that aggregates Tier 2 resources in excess of the 5% cap. Interim hard targets and soft goals could be established as well.

It is worth pointing out that Wisconsin already has a similar arrangement in place today. Act 141 requires utilities to increase the renewable energy content of retail electricity sales by six percentage points above their 2004 benchmarks. The same law also sets forth a 10% goal by 2015. The required additions to the Wisconsin utility resource mix will, by themselves, raise the state’s renewable energy percentage to somewhere between 9% and 10%. That percentage does not include the volume of renewable electricity purchased by the State of Wisconsin and by its residences and businesses. Moreover, it is entirely possible that utilities will “overcomply” with their mandated minimums, especially if the cost of conventional fossil fuels keeps rising. Between the renewable electricity mandated under Act 141, voluntary renewable energy sales and any “excess” renewable electricity not serving a utility’s RES requirements or supplying a voluntary program, the prospects for achieving the state’s 10% renewable energy goal are very favorable.

Advanced Renewable Tariffs

RENEW is a very strong supporter of Advanced Renewable Tariffs (ART’s), which are buyback rates for distributed applications of renewable energy that are (1) based on production costs; (2) technology-specific; (3) fixed for a period of time; and (4) uniform across service territories. RENEW believes that ART’s are appropriate for any nonutility-owned renewable generation project under 20 MW and located in Wisconsin.

The strawman proposal rightly sees ART’s as a policy mechanism that would stimulate the development of distributed renewable energy sources that would otherwise be left behind under a typical RES. From a diversity of supply perspective, the establishment of ART’s would encourage utility customers to produce--and receive a fair price for"renewable electricity that a utility can apply toward either its RES requirements or resell to its renewable energy subscribership.

However, the strawman proposal identifies two renewable energy sources"biogas and solar--whose development should be encouraged through ART’s. Conspicuously absent from that list is windpower. This is a significant departure from the technology-neutral approach the proposal takes with respect to other recommended policies, such as the low-carbon fuel standard for vehicles. The proposal offers no rationale for explaining why biogas and solar are worthier resources for this policy treatment than wind.

Apart from the Act 204 wind projects built by utilities in 1999, distributed wind generation has not gone anywhere in Wisconsin. With the notable exception of WPPI, Wisconsin utilities have shown no interest in buying the output from community-scale wind projects. Nor do they have plans to build and operate community-scale wind installations of their own.

The potential exclusion of wind energy from being supported through ART’s provides another example of the state’s peculiarly unwelcoming attitude toward the wind industry in general. Community-scale wind projects elsewhere in the Midwest enjoy strong support from both policymakers and local communities. Minnesota and Iowa have supported community wind projects with public dollars and tax credits, and the results have been impressive. In Wisconsin, community wind finds itself in a policy no-man’s-land, too large to be supported by Focus on Energy, and too small to be supported by utility initiatives (other than WPPI’s excellent community program). The strawman proposal does nothing to correct that situation.

Submitted by:
Michael Vickerman
Executive Director
RENEW Wisconsin
June 18, 2008