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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
                  Renewables
Benefits:
   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
                   Renewables
Challenges:
   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
            (RPS)
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
    debate

   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
    increasing

   Wind is fastest-growing
    renewable

   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
                    Work
   Individual states have chosen energy resources based upon local
    factors
    •   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 . . .
                           to
     . . . 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
                           Summary
   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
    consumers

				
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