Policies for Renewable Electricity Use
The renewable energy screening should include an assessment of several key utility policies at the facility site. In addition to financial incentives, states and local governments have adopted policies to remove barriers to the use of renewable energy and to facilitate the use of these technologies in a safe and fair manner. These policies are focused on electric-generating technologies and enabling the economic use of on-site power generation at a customer's site.
The screening needs to outline the key provisions at the facility site and assess the impact on the use of these technologies at the site under review. Key policies include:
Interconnection standards govern how a renewable electricity technology, such as photovoltaics (PV) or wind, will connect to the power grid. Many states have adopted streamlined interconnection standards that require utilities to let customers connect on-site power systems of a certain type or size. Without these standards, an agency is dependent on cooperation from the local utility to connect a system. Some state policies are only guidelines, and some apply only to investor-owned utilities and not to municipal utilities or rural electric cooperatives.
Interconnection issues can make or break a project. In states without comprehensive interconnection standards in place, it is often more difficult, burdensome, and expensive to connect a system to the grid. In these cases, the interconnection is left to the local utility. Utilities are charged with keeping the power flowing safely to their customers. Any addition to their system, particularly one that they do not control, is often viewed with suspicion.
Lack of utility experience with renewable energy systems, drawn out engineering studies, onerous insurance provisions, or additional non-standard fees can cause havoc with a budget or even put an end to a project. Therefore, interconnection under these circumstances may involve additional work with the utility, additional technical studies, and a fair amount of education of accepted industry standards. On the other hand, high-profile projects, such as a Federal construction project, may interest the utility in enhancing their profile with their customers.
A screening should identify the availability of standardized interconnection with the local utility and detail the specific limitations and requirements. The screening should factor that information into renewable energy types, sizes, and economics. If interconnection is identified as a concern at this stage, the project energy lead and the agency can begin working with the utility early to resolve issues and move forward.
If a new construction or major renovation project is going to be off-grid, or not connected to the utility grid, then interconnection standards do not apply.
Detailed interconnection information is available from the Database of State Incentives for Renewables and Efficiency (DSIRE) website. The site also provides state-by-state details on interconnection standards and guidelines.
For utility customers who generate their own electricity, net metering allows the flow of electricity both to and from the customer. In the simplest cases, the electricity is metered through a simple meter that spins both forwards and backwards depending on the direction power is flowing at the time – either to the customer or back to the utility. When an agency's generation exceeds their usage at a particular site, the excess electricity flows back into the grid for use by other utility customers.
Any power system interconnected to the utility grid is accompanied by a utility tariff or agreement that determines the value of the electricity that the agency provides to the utility. Net metering typically means that any on-site power generation during a billing cycle offsets the electricity charges for that amount of electricity used by the site up to the agency's full electricity usage for that month. In other words, if the meter spins backwards and forwards, the amount left over at the end of the month determines the per kilowatt-hour change that the utility charges the agency, regardless of when the electricity was produced or used. If the agency produces more energy than it uses in a billing cycle, policies vary widely as to how that energy gets valued.
Net metering is extremely important to the economics of a renewable electricity system. It allows the utility to serve as a battery to store excess power generation so it can be used at another time for the same value. Without net metering, for example, an office building with a large photovoltaic system might not use its power over the weekend and would lose most of the value of that electricity. In such cases, renewable energy systems often need to be sized to allow all the energy to be used on site at all times. Renewable energy systems also vary seasonally. A PV system produces the most output during the summary and may line up with air conditioning loads, but a wind system may product its peak power output during winter nights. If a project does not have the ability to net meter with the utility, it dramatically limits the size and type of renewable electricity technologies that can be used.
The screening team needs to look at the provisions of the utility's net metering tariff and determine what types and sizes of renewable energy systems are allowed and economic. Most states require net metering, but these policies vary widely and do not always apply to all utilities within the state. In addition, many policies place limits on the type and size of systems that qualify. All of these issues are critical in determining which technologies should continue to be looked at for the project. Although uncommon, the screening team should pay particular attention to the ownership of renewable energy certificates (RECs) and ensure any utility agreement does not transfer REC ownership without a clear decision by the agency.
In the feasibility study, the team needs to look into the minute details of the net metering and other tariffs with the utility. In some cases, using net metering can preclude the use of other favorable tariffs. Especially because renewable resources vary, the actual renewable energy production versus load of the facility need to be analyzed to determine the likely offset energy savings. In addition, larger facilities typically have two separate components to the utility bill — an electricity charge per kilowatt-hour and a demand charge per kilowatt of peak load. Many renewable energy systems will not offset the latter costs. The details can be extremely important to the economics of these systems, and an expert in this type of analysis needs to review these numbers closely in the feasibility study phase.
Detailed information is available from the DSIRE website. The site also provides state-by-state details on net metering laws and regulations.
Time-of-use rates refer to the practice of a utility charging a separate rate for electricity to the same customer based on when the electricity was used (i.e., day/night and seasonal rates). Typically, the production cost of electricity is highest during the daytime peak usage period and low during the night when usage is low. In many climates, time-of-use rates also charge more for summer usage than winter usage since electricity rates peak during times of high air conditioning use.
Time-of-use metering is a significant issue for renewable energy sources since some systems will offset energy at times of peak usage while others might produce more energy during times when it will be credited for less. For example, photovoltaic systems produce energy during the daylight hours and produce the most power during the middle of summer days. These production times largely coincide with the more expensive time-of-use rates for peak periods. Wind power, on the other hand, often produces power overnight and, in many climates, produces the most power in winter months. In this case, even if the price-per-kilowatt from the wind system is lower than the photovoltaic system when the time-of-use rates are considered, the value from the photovoltaic system may be greater. This rate structure varies by utility. Sometimes, time-of-use rates are mandatory while others they are optional or utilities do not offer them at all.
Although time-of-use rates are designed to follow closely the costs facing the utility, they can be used to advantage by certain renewable energy technologies. Photovoltaics are one example, but the economics of other technologies, such as daylighting and solar water heating, can be assisted by time-of-use rates. Other technologies may not fare as well, so the selection and impact of time-of-use rates might be reviewed in the renewable energy screening and assessed in detail in the renewable energy feasibility study. The agency should contact the facility's local utility for details on time-of-use rates and other tariff issues.
A feed-in tariff is a state-legislated regulation that encourages new renewable energy development by creating a long-term financial incentive to customers who generate electricity with renewable technologies. This kind of tariff offers a standardized and streamlined process for renewable energy projects under which a utility is required to connect the renewable energy generator to the grid and pay that generator for electricity at a fixed rate for the life of the feed-in tariff contract (typically 10 to 20 years). The goal of a feed-in tariff is to create a robust market for renewable energy with a desired effect of lowering technology costs, increasing development, and potentially paving the way for future growth.
A feed-in tariff policy can be designed to encourage the involvement of different customer classes, generation technologies (e.g., solar, biomass, etc.), and capacity sizes, though they are typically aimed at bigger systems. Feed-in tariffs are a newer policy mechanism, and while a number of states are investigating their use, they are only in effect in a few states as of early 2011. If available, they should be investigated carefully, as the regulations can be complex and have other effects. The renewable energy screening team should investigate the availability of feed-in tariffs for the project and determine if they add any additional economic incentives over other tariff options, such as net metering. For example, Hawaii does not allow both net metering and feed-in tariffs to be applied at the same time, and the choice of tariff must be chosen permanently at the time of interconnection.
DSIRE has more information, state by state, on performance-based incentives such as feed-in tariffs.
The discussion of the various policies for renewable electricity technologies touches on a few of the contracting arrangements that are required with on-site power generation, many of which are new to Federal agencies. Contracting issues with renewable power provides an overview of various agreements that may be involved with a power generation facility integrated into a construction project.