Testimony of David K. Garman
Assistant Secretary
Energy Efficiency and Renewable Energy
Before the Committee on Energy and Natural Resources
United States Senate
Electricity Generation Portfolio Standards
March 8, 2005
Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify today on electricity generation portfolio standards.
Today, electricity in the United States is generated using a mix of coal (50%), nuclear power (20%), natural gas (18%), renewable energy (9% - mostly hydropower), and oil (2%). Portfolio standards have been discussed as a way to alter the generation mix in pursuit of certain public goals and benefits, and we welcome the opportunity to discuss the use of portfolio standards as a policy tool.
The Federal Government has in the past intervened to alter the electricity generation mix, most notably with the passage in 1978 of the Fuel Use Act which effectively curtailed the use of natural gas for electricity generation. At the time of the Act's enactment, coal generated about 985 billion kilowatt hours of electricity in the United States, while natural gas generated about 305 billion kilowatt hours. By 1988, partially as a consequence of the Act, natural gas generation had fallen by 17 percent to 253 billion kilowatt hours, as coal-fired generation had risen by 56 percent to 1540 billion kilowatt hours. Since the repeal of the Fuel Use Act in 1987, natural gas generation has nearly tripled to over 690 billion kilowatt hours1, but the fleet of coalfired plants put into service from 1970 through the mid-1980s has remained the backbone of our electricity generation capacity. Clearly, Federal interventions in the marketplace can have significant, long-lasting and, unfortunately, sometimes unanticipated negative impacts.
The Administration opposes a national renewable portfolio standard (RPS). Because power generation options and renewable resources vary widely from state to state, because states hold different views of the types of resources that they would like to support, and because retail electricity sales are regulated largely at the state level, we believe that states are best equipped to develop portfolio standards that fit their situation and available resources. A national RPS, on the other hand, could create "winners" and "losers" among regions of the country—the winners generally being the regions with ample renewable resources, and the losers being the regions without. Moreover, a national RPS could lead to higher energy bills and opposition to renewable energy in areas where these resources are less abundant and harder to cultivate or distribute. In the end, this may be counter-productive to renewable energy moving into the mainstream of the Nation's energy supply mix. We do, however, support narrower market interventions in the form of a renewable electricity production tax credit; a personal tax credit for the installation of residential solar; an investment credit for certain combined heat and power applications; and modifications of the tax treatment of nuclear decommissioning funds.
Although the Administration opposes a national RPS, we have not opposed efforts by states to adopt RPS programs at the state level. About a third of the states have enacted mandatory renewables portfolio standards (18 States plus the District of Columbia). These standards already apply to approximately 35 percent of the total U.S. electricity load, and though the policies are still young, they are beginning to drive the development of the renewable energy marketplace at a healthy pace. For example, the EIA has estimated that the development of more than 2,000 megawatts (MW) of renewable energy has been motivated, at least in part, by state RPS policies and other purchase mandates. More importantly, private research companies estimate that on balance, two-thirds of new renewable energy capacity additions will occur in RPS-States2, and Ryan Wiser of the Lawrence Berkeley National Lab, one of the witnesses on our panel this morning, has estimated that nearly 50% of US wind additions over the last four years have been motivated, in part, by state RPS policies. An estimated $30-$50 billion in capital will be necessary over the next decade to meet the requirements of state RPSs, assuming full RPS compliance. Separate forecasts estimate that current state portfolio standards, if implemented in full, will result in new renewable energy capacity additions of over 20,000 megawatts by 2017. To put these numbers in context, the Nation's non-hydro renewable electricity generation capacity will more than double over the next twelve years due to state renewable portfolio standards, rising from about 15,000 megawatts today to over 35,000 megawatts in 2017. Much of the new capacity is likely to be fueled by wind power, with smaller amounts of landfill gas, hydroelectricity, biomass, geothermal, and solar photovoltaic technologies.
The President's own State of Texas is at the forefront of successful state renewables portfolio standards. Signed into law when President Bush was governor, the Texas RPS requires that electricity suppliers in Texas purchase renewable energy, and those suppliers have primarily opted to tap the plentiful wind resources in the western part of the State. As a result of the RPS, in combination with its energy needs and robust renewable resource base, Texas is now the second largest generator of wind energy in the country with 1,293 megawatts of installed wind capacity at the end of 2004. New legislation is being introduced in Texas this year that would expand the current RPS to increase installed capacity of renewable resources to 5,000 MW by 2015, and 10,000 MW by 2025, representing 10 percent of the State's predicted energy needs.
The RPS policies in Texas, New York, Minnesota, California, Colorado, Pennsylvania, and New Mexico are expected to deliver significant new wind capacity additions in the years to come. Coupled with the Production Tax Credit for wind, the high quality wind resources and renewables portfolio standards found in these states are serving to stimulate development of new wind energy projects.
New Jersey stands out as an example of a state that has adopted an innovative set of policies and programs to advance solar power. Along with an RPS, New Jersey has a green tag purchase program, a solar renewable energy certificates program, a tax exemption for solar and wind systems, and a clean energy rebate program, just to name a few. New Jersey's RPS specifically calls for a solar set-aside that will drive approximately 90 megawatts of solar electric generation by 2008 as part of the State's 4 percent Class I renewables requirement. New Jersey's Solar Renewable Energy Certificates (S-RECs) program provides a means for solar certificates to be created and verified and allows the certificates to be sold to electric suppliers to meet their solar RPS requirement. All electric suppliers are required to use the S-REC program to show compliance with this part of the State's renewable portfolio standard. New Jersey's on-line marketplace for trading S-RECs, launched on June 25, 2004, is among the first in the world. Solar projects funded by the State's Clean Energy Program also qualify for RPS compliance, and New Jersey has developed over 5 megawatts of solar through the Clean Energy Program and will continue to provide incentives to help meet the 90 megawatts goal. Other states that have developed solar-focused set-asides as part of their overall RPS include Arizona, Nevada, Colorado, Pennsylvania and New York, as well as Washington D.C.
Four RPS-States have significant geothermal resource potential: California, Nevada, New Mexico, and Arizona. After a decade of dormancy, the market for geothermal power projects is now "picking up steam," partly due to the state renewables portfolio standards. For instance, in California, 235 megawatts of new geothermal capacity is currently under development. In Nevada, Nevada Power has agreed to purchase 50 MW of power from three new geothermal facilities expected to be on-line in 2005. Furthermore, Platt's reports that there are 600 MW of new geothermal contracts with utilities in California and the Northwest that have not yet been publicly disclosed.3
However, state experiences in setting and implementing RPS programs also suggest that we need to be cautious in how we use regulations to stimulate renewable energy markets. If the RPS target is too aggressive, supply constraints and high costs may result. These and other challenges have been confronting many states in the design and implementation of the ir RPS policies, and not all of these RPS policies are operating smoothly. We believe that governors, state legislatures, energy companies, and other regional stakeholders are in the best position to develop a portfolio standard that will meet their states' energy, environmental, and economic needs.
Outside of the renewables area, the Department is also supporting efficiency and cost improvements in other technologies that offer potential for diversifying our Nation's power generation portfolio and reducing pollution and greenhouse gases. In nuclear energy, for example, despite the remarkably improved operating record of the 103 current U.S. reactor plants over the last decade-and-a-half, no new plants have been ordered since the 1970s. Only an incremental expansion in capacity is underway in the U.S. from uprates of current plants (over 3,500 megawatts have been approved, with another 2,000 MW expected) and from the Tennessee Valley Authority's work to bring Browns Ferry Unit 1 back on line by 2007. With only this minor increase in capacity, nuclear generation, which represents nearly three-quarters of our Nation's non-emitting generation today, will not keep pace with growing electricity demand, and its share of the electricity mix, which now is as high as 50 to 75 percent in some states, will fall. Unless new plants are ordered, the nuclear option will be limited to providing today's level of environmental and energy security benefits, foregoing the large potential for additional improvements that would come from new plants. The Administration's FY 2006 Budget addresses this issue by proposing approximately $500 million over six years for the Nuclear Power 2010 program to assist two consortia through the nuclear design and certification process.
Another important resource pathway for cleaner, more efficient electricity generation is Integrated Gasification Combined Cycle (IGCC) technology that converts coal and other hydrocarbons into synthetic gas, which after cleanup is used as the primary fuel for a gas turbine in a combined-cycle system. IGCC systems offer significant environmental benefits compared to traditional pulverized coal power plants, the mainstay of the Nation's electricity generation portfolio. Two IGCC plants, which were built under the Department of Energy's (DOE) Clean Coal Technology Program, are producing commercial electricity in Florida and Indiana, and new locations are being proposed. Although still comparatively expensive, IGCC's future is promising because of its flexible feedstocks, process options and products; its ability to open new markets for coal; and its potential for low-cost emissions reduction, including the option of capturing CO2 emissions for subsequent geologic storage. The Department is supporting research, development, and demonstration on a number of advancements that will significantly drive down the costs of IGCC.
I want to close my statement by noting that while there are a number of policies and programs in place today to bring renewables into the mainstream, the most encouraging sign to me is that many renewable projects are being pursued because they are money-making options for investors. This is largely due to the technological advances that have occurred through the years of sustained Federal and private sector investment in renewables research and development.
This completes my prepared statement, and I am happy to answer any questions the Committee may have.
1Energy Information Administration, 2002 figures
2(Source: An Investor's Guide to Renewable Power Technologies, Markets, and Policies, Nov. 2004)
3An Investor's Guide to Renewable Power Technologies, Markets, and Policies, Nov. 2004, p.33