Extending Energy Tax Credits

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					  Stimulating Renewables
Do We Need A Federal RPS?
        David K. Owens
       Executive Vice President
       Edison Electric Institute

     NARUC Summer Meeting 2007
               July 2007
Energy Mix 2005
          Electricity Generated from
   Fuel supply diversification
   Renewables becoming bigger part of fuel mix
     • Wind, solar, geothermal, and biomass
   Generally less environmental impact
   According to EIA non-hydro renewables: 2.9% Today  3.7% by 2030
     • Biomass produces 1.5% of generation
     • Wind 0.4%
     • Geothermal 0.4%
     • Solar 0.01%
   Largely CO2 emission free
All resource options are needed to meet our energy challenges
           Electricity Generated from
   High initial capital costs
     • Need tax credits or other incentives

   Geographic limitations

   Intermittent nature of supply (i.e., wind and solar)

   Transmission availability

   Frequent expiration of production tax credit

   Environmental and aesthetic challenges
          States Already Stimulating
          Renewables Through RPSs
   State RPSs already mandating renewables, based on their own
    unique circumstances and available resources
     • 24 states and DC have RPS
     • 90+ electric companies in over 30 states have implemented or announced
       green pricing programs
     • 48 states support programs that offer incentives, grants, loans or rebates to
       consumers using renewable energy resources

   Electricity suppliers in 9 states with competitive retail markets are
    offering green power products to consumers

   Bottom line
     • State RPSs balance available renewables with consumer benefits
     • States balancing fuel diversity and energy supply
  24 States & D.C. Mandate
Renewable Portfolio Standards
Congress Stimulating Renewables
 Through Production Tax Credits
                            (PTC) be the single most effective
 A long-term extension of the PTC could
    action Congress could take to promote renewables

   Credits are a proven means of getting renewable generation built
    and brought online
    • Current PTC to expire on 12 / 31/ 08
    • Short-term, start-and-stop tax credits discourage utilities, developers,
      manufacturers and investors from maximizing the potential of renewable
      technologies and other resources
    • Extending the credit for at least 5 years will provide the necessary stability to
      the private sector to plan and finance renewable energy projects
        – Senate Finance energy tax bill provides 5-year extension (inflation
          adjustment deleted for future projects)
        – House bill includes a 4-year extension but it changes the calculation of
          the credit for future projects.
Congress Stimulating Renewables
 Through Investment Tax Credits
                             (ITC) of renewable and
 Another vehicle for stimulating development
    decentralized technologies is extending ITC beyond 2008

   Senate and House tax bills would support such extension
    •   New 10% ITC for combined heat and power (Senate)
    •   Solar 30% ITC extended for 8 years (House and Senate)
    •   Geothermal ITC permanent (House)
    •   Utilities would be able to claim solar and geothermal ITC (House)

   Senate failed to get cloture on its tax package during energy bill

   House tax bill expected to be considered as part of House energy
    bill later this month
Renewables Key to Climate Change
       CEO Perspective
            Commitment To Renewables
   Non-hydro renewables                                             2005

   Wind is fastest-growing

   Wind farms operate in 32
    states with > 10,000 MW

      Note: Numbers exceed 100% due to rounding.
      Source: U.S. DOE/EIA Form EIA-906, Power Plant Report, Form EIA-920 Combined Heat and Power Plant Report;
      2005 preliminary data
      *Includes agricultural byproducts, landfill gas, municipal solid waste, sludge waste and tire-derived fuels.
                    A Federal RPS?
                    Key Questions
   Should a Federal RPS preempt existing state programs?

   Which renewables should be included?

   Should energy efficiency count?

   What should be the target percentage?

   What is the timeframe for implementation?
   Who should be required to meet a Federal RPS standard?
        One-Size-Fits-All RPS Doesn’t
   Individual states have chosen energy resources based upon local
    •   Geographic availability of renewable energy resources
    •   Technologies, including energy efficiency
    •   Timetable for implementation
    •   Ability to integrate into grid
    •   Cost implications
    •   Economic development implications
    •   Environmental implications
      Federal RPS Mandate Could
    Undercut or Preempt State Efforts
   Each state RPS plan includes carefully considered
    •   Resources and technologies to be included
    •   Timetables
    •   Targets based on what makes sense in that particular state
    •   Impacts on consumers

   Mandating a national target, timetable and technologies could
    undercut or preempt state efforts
    • E.g., 10 of the 25 existing state plans would fail to meet currently
      proposed federal RPS target of 15% by 2020
    • All state RPS plans include eligible resources that would not be counted
      under federal proposals

   A federal RPS mandate that does not provide the flexibility to be
    inclusive of state programs would undermine state programs and
    increase costs
     A Federal RPS Will Do Little For
         Energy Independence
   10% RPS mandate would save the equivalent of less than one
    gallon of gasoline per household per year! (EEI estimate based upon
    EIA analysis of electricity savings from oil-fired generating plants)

   Only 3% of electricity comes from oil
     • Mainly in Hawaii and Alaska or for backup
     • Electricity industry is not a significant contributor to our oil dependence
     • Plug-in hybrid vehicles and other electric transportation technologies should
       be part of our plan to reduce dependence on foreign oil
        – Direct offsets to dependence on petroleum products
            Federal RPS Results In A
                Wealth Transfer
   Many retail electric suppliers / retailers will not be able to meet an
    RPS requirement through their own generation
     • They will have to purchase renewable energy credits or renewable
       generation from others

   Potentially massive wealth transfer

     Consumers in states with little or no renewable resources . . .
     . . . Federal government or states where renewables are more abundant
     RPS Mandate Will Also Require
       Additional Indirect Costs
   New high-voltage transmission lines often must be built
    • Wind turbines usually located in remote areas requiring transmission over
      long distances to populated areas

   Transmission expansions can cost ~ $1-3 million / mile
    • Problems include crossing federal lands, and private lands “Not In My Back
      Yard” (NIMBY)
    • Transmission one of the most significant challenges to promoting growth in
      renewable generation
        – Adequacy, siting, financing and construction of transmission

   System upgrades to accommodate the intermittency
   Renewables must be part of our overall energy strategy for meeting
    our energy and climate change challenges

   Extension of the federal production tax credit and investment tax
    credit for renewables is essential

   Existing state programs carefully balance
     • Availability of renewable resources and technologies
     • Cost effectiveness of such technologies
     • Environmental benefits

   Federal RPS would undermine state programs and increase costs to

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