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									  RE Price Stability Benefits in
  Utility Green Power Programs

                   Karlynn S. Cory
Coauthors: Lori Bird (NREL) and Blair Swezey (AMAT)
           Strategic Energy Analysis Center
         National Renewable Energy Laboratory

       2008 National Renewable Energy Marketing Conference
                           Denver, CO
                         October 28, 2008
      Why Offer Green Power Customers
        Fuel Price Stability Benefits?
•   Most renewables only have                                LCOE for New Power Plants
    up-front, fixed costs over time
    (i.e. no fuel costs)                                 9
                                                         8
•   Cost-based green power
    premiums should account for                          7

    the difference between fuel-                         6




                                         ¢/kWh ($2006)
    dependent energy and fixed-                          5
    price energy                                         4

•   Customers value the “hedge”                          3
    provided by price stability                          2

     – It could influence their                          1
       decision to buy green power                       0
     – Particularly important for non-                       Scrubbed    Natural          Wind   Wind with
                                                               Coal      Gas CC                    PTC
       residential customers
                                                               capital cost   fuel cost    O&M cost
                                                                                                             2
                                Natural Gas Price Volatility
                                        U.S. Average Monthly Wellhead Natural Gas Price
                                                   January 1990 through June 2008


                            12.00


                            10.00
Nominal dollars per Mcf .




                             8.00


                             6.00


                             4.00


                             2.00


                             0.00
                               Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

                                                                                                       3
                                       Source: EIA
             Pricing Green Power
1. Cost of green power source
   •   Electricity and RECs
   •   Either owned by utility or purchased with PPA
2. Program implementation costs
   •   Administration and marketing
3. Ancillary services cost
4. Cost of displaced utility generation resources
   •   Embedded costs from all other generation (fuel, PPAs)
   •   Utility avoided cost


       Green Power Premium = (1) + (2) + (3) – (4)

                                                               4
Methods of Offering Price Stability
1. Static Premium Modification
  –    One-time premium change                     Utilities can
                                                 employ both static
2. Dynamic Premium Modification                    and dynamic
  –    Regular premium adjustments:                 mechanisms

  i.   Fuel cost adjustment exemption
       –   Short-term collection mechanism used between rate
           cases that eventually gets included in the base rate
       –   Xcel Energy example
  ii. Fixed Green Rate
       –   Replace energy charge with green generation rate
       –   Austin Energy example
                                                                  5
Effective Price Premium of Xcel Energy’s
     Colorado Windsource Program
        cents/kWh
3.00

2.50
                                                                   Initial Prem ium
2.00
                                                                   Net Prem ium
1.50

1.00

0.50

0.00

-0.50

-1.00
     Jan-   Jul-    Jan-     Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-
      02     02      03       03     04     04     05     05     06     06     07


              Note: Xcel included a fuel cost adjustment exemption through Jan 2007
                                                                                      6
              Source: Xcel
                 Impact of Fuel Cost Adjustments on Base Rates

                                                                                                                           FCA rolled into base
                                                                                                                           rate, green premium
Theoretical electricity rate (c/kWh)



                                                                     FCA reset to               Green premium
                                                                                                 is reduced by              reset to initial level,
                                                                   zero and rolled                                         results in loss of fuel
                                                                    into base rate              FCA (compared
                                       1 2




                                                                                                  to standard                 price protection
                                                                                                     service)
                                       1 0




                                        8




                                        6




                                        4




                                        2




                                         0




                                             Typical customer Typical customer Typical customer        Green power    GP customer  GP exempt from
                                                - base rate    - with fuel cost  - new rate (after    (GP) customer exempt from FCA FCA - revised
                                                              adjustment (FCA)       rate case                                      rate (after rate
                                                                                incorporates FCA                                         case)
                                                                                  into base rate)
                                                                                                                                                      7
                                              Base rate                              Base rate increase                 Fuel cost adjustment
                                              FCA exemption                          Green premium                      Green premium overpayment
Austin Energy’s GreenChoice Program:
                    Fixed Green Rate

• Customers pay green charge rather than fuel charge
   – GreenChoice customers are exempt from paying the fuel charge
   – Green charge is fixed and is determined by renewable PPAs,
     ancillary services and program implementation
   – GreenChoice customers pay all other base rate cost
   – Requires unbundled rate structure with separate energy rate or
     fuel charges (not common in regulated utility markets)
• Austin offers a 10- to 20-year fixed price for green power
   – Price depends on associated supply contracts for each “batch”
   – Large customers are required to sign up for 15 years
      • Originally was 10 years.
• Non-residential customer demand is high
   – Leading program in terms of overall sales since 2001
   – ~13% of all green pricing sales nationally in 2007
                                                                      8
      Effective Premium for Austin’s
          GreenChoice Program
6.0
                                             Batch 5
5.0
                                           Batch 4

4.0
                   Batch 3

3.0

                             Fuel Charge               Batch 2
2.0

                                                 Batch 1
1.0



0.0
     00



     01



     02



     03



     04



     05



     06



     07



     08
      0



      1



      2



      3



      4



      5



      6



      7
   l-0



   l-0



   l-0



   l-0



   l-0



   l-0



   l-0



   l-0
  n-



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                                                                 9
   Select Utilities Offering Green Power
          Premium Adjustments
Adjustment type         Utilities
Static                  Madison Gas & Electric, Tri-State Electric
                        Cooperative, Wisconsin Public Power, Alabama
                        Power, Puget Sound Energy, Loveland Water and
                        Power, Mason County PUD #3, Minnkota Power
                        Cooperative, Otter Tail Power, TECO, WE
                        Energies, Wisconsin Public Service, Basin Electric
                        Power Cooperative, Lower Valley Energy, Avista
                        Utilities, Fort Collins Utiilties, Portland General
                        Electric, and Pacificorp
Dynamic – exempt        Alliant Energy (WI), Edmond Electric, Madison Gas
from FCA                & Electric, WE Energies and Xcel Energy (MN).
Dynamic – fixed green   Austin Energy, and Clallum County PUD;
rates                   previously: Eugene Water and Electric Board.
                                                                              10
        Summary and Observations

• Price stability is an important value for customers
   – Could increase demand for green power
   – Most effective if a dynamic green power price adjustment used
• Fuel cost adjustment benefits may be temporary
   – If base rate for all customers absorbs the fuel cost adjustment and
   – Green power premium is not adjusted during rate case
• Utilities with a separate energy or fuel charge can
  substitute a fixed-rate product or “green rate”
• Most utilities can offer fixed-price benefits to customers:
   Revisit the green power price premium frequently

                                                                       11
      Green Power Fuel Price Stability
    Benefits: Program Design Challenges

•   What if customers drop the green power product when conventional
    fuel costs decline?
•   Risk allocation if customers do not sign up to participate for the length
    of the supply contracts
     – Austin requires C&I customers to sign up for 15 years
•   Concerns if green power rate falls below the base rate
     – Problematic to offer lower rate to only some customers?
•   Utility billing can pose challenges
     – Technical challenges with updating system software
     – Substitution of green rate for energy of fuel charges, if bundled rate
•   Possible, but challenging, to structure with REC contracts
•   Adjustments should be considered for environmental, carbon and RPS
    policy costs
                                                                                12
                           Full report:
http://apps3.eere.energy.gov/greenpower/resources/pdfs/43532.pdf


      Thank you for your attention!
                      Karlynn Cory, NREL
                    1617 Cole Blvd., MS 302
                    Golden, CO 80401-3393
                        (303) 384-7464
                    Karlynn_cory@nrel.gov

								
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