Printable Version

Testimony of David K. Garman

Assistant Secretary, Energy Efficiency and Renewable Energy
Department of Energy
Before the Committee on Energy and Natural Resources
United States Senate

July 19, 2001

Thank you for the opportunity to testify on S. 597, Title VI; Sections 710 and 711 of S. 389; and S. 933. These legislative provisions propose to address some of the barriers that exist to the deployment of distributed generation and renewable technologies.

The President's National Energy Policy (NEP) contains a discussion of distributed energy technologies particularly relevant to today's hearing. Interconnection standards, net metering, land-use zoning codes and other barriers to distributed generation are discussed in chapter six of the NEP. Other barriers to distributed generation are also highlighted; including the difficulty of permitting some combined heat and power projects.

By removing barriers related to interconnection standards, net metering, purchases of renewable energy, and combined heat and power, we can increase the efficiency of our electric system by making distributed energy resources more practical in the marketplace. Because distributed resources put electricity generation closer to its point of use, they can help overcome some of the generation, transmission and distribution problems we are experiencing today in some areas of the country.

This is a critically important time, not only because energy supply and price issues are acute, but because demand is growing even as we confront important investment decisions with respect to an aging electricity infrastructure. For example:

Half of the installed transformer banks in the U.S. are reaching retirement age;
More than two-thirds of our boilers and electric power plants are at least 30 years old, and more than forty percent are 40 years or older;
Electric energy losses are increasing as we try to push ever more power through our electric power transmission and distribution system where, at maximum capacity, losses can be ten times higher than normal;
By 2009, 6 of the country's 10 electricity regions — serving about 65 percent of U.S. customers — will fall below the traditional power industry standard of a 10 percent "safe reserve" capacity margin without substantial increases of new power generation; and
By 2020, EIA estimates that U.S. electricity requirements will more than double from today's 700,000 megawatts to approximately 1,500,000 megawatts.

The decisions we make over the next few years will strongly influence the energy supply, energy security, economic strength, and environmental future of our country for years to come. Our goal should be to replace and expand our domestic energy supplies, develop advanced and highly efficient systems to deliver this energy, and improve end-use energy efficiencies. As we revitalize and expand our national energy infrastructure, renewable and distributed energy technologies can help reduce transmission system congestion and energy losses by placing energy generation at or near the point of consumption.

With respect to the specific provisions in legislation before the Committee today, I would note that they are all thoughtful and well intentioned. With some modifications, we are likely to support many of them if they are part of a balanced, comprehensive approach that also addresses energy efficiency and infrastructure issues as contained in the National Energy Policy document.

At this time I would like to address each of the major provisions under consideration.

Renewable Energy Resource Assessment [Sections 601 of S. 597, and 711 of S. 389]

Section 601 of S. 597 and Section 711 of S. 389 call for an annual assessment of renewable energy resources. These sections focus on development of a renewable resource inventory that would create a useful tool for project developers, landowners, and state and local elected and appointed officials to determine their resource potential as well as future development options.

We have already developed some renewable energy resource inventories that have been used to site wind farms and other renewable energy projects. However, the requirement in the legislation that these be done on an annual basis would divert resources from other high priority efforts. In the case of solar, wind and geothermal, for example, the resource does not change appreciably from year to year. Updating these resource assessments once a decade using 30-year averages is probably adequate. Biomass, on the other hand, might benefit from more frequent updates due to changes in annual crop yields and types.

Also, a solar resource assessment is far different than a geothermal assessment, which in turn is different than a wind or biomass assessment. Current approaches to doing these assessments cost up to $5 million each and take from two to three years to complete. We hope to employ new technologies to reduce costs and/or enhance the data collected. We request that the language be modified to allow the Department to undertake these assessments on an as-needed basis after periodic reviews, taking into account market conditions, cost, available technology, and other relevant factors

Federal Purchase Requirement [Section 602 of S. 597]

Section 602 of S. 597 would require from 3 percent to 7.5 percent of the Federal Government's electric power be purchased from renewable energy resources.

We share the view that, as the nation's largest single energy user, the Federal Government offers a significant potential market for renewable energy products, and the Administration supports the establishment of goals for this purpose. The existing goal pursuant to Executive Order 13123 is that 2.5 percent of the federal government's electricity use should be derived from specified renewable resources by the year 2005.

Last month Secretary Abraham announced that the Department of Energy, through the Bonneville Power Administration, would sign pre-development agreements for seven new wind power projects to provide an additional 830 megawatts of generating capacity in the energy-strapped West. This initiative would produce enough electricity to meet the needs of nearly 270,000 homes, and it represents an approximately 20 percent increase in the nation's wind power capacity.

Just this week, I signed a letter of intent to purchase renewable power under the EPA's Green Power Partnership for the National Renewable Energy Laboratory. It is my hope that more than 7 percent of the power supplying this facility will be from renewable resources by the end of the year, the bulk of it coming from new resources. So we are working to make these purchases for ourselves and for the customers of our power marketing administrations, and we are doing it because it makes good business and environmental sense.

However, because the choice to purchase renewable power does not yet exist in many areas of the country, absolute percentage purchase requirements such as those contained in section 602 of S. 597 could unduly benefit the seller in a federal power purchase negotiation. Therefore, until such time that retail competition and greater consumer choice is available, we urge that the Committee express renewable energy use goals rather than absolute requirements in legislation. Moreover, these goals should be for electricity used, not just electricity purchased as some federal entities might have the ability to generate electricity from their own renewable resources on federal land. Finally, the renewable power purchase costs should be reasonable.

Section 602 limits hydroelectric generation to include only the capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric dam. We believe all hydroelectric can be properly termed renewable energy. However, if the purpose is to promote new renewable generation, we recommend modifying the language in order to avoid precluding Federal power purchases either from an existing dam that presently has no hydroelectric capability that could be developed, or hydroelectric power from any new facility that might be developed.

We also recommend that section 602 be modified to add "renewable energy derivatives, such as renewable energy credits or green tags" under the definition of "renewable energy source."

Residential Renewable Energy Grant Program [Section 710 of S. 389]

Residential renewable energy systems dependent on solar or wind are free of the fuel price volatility problems associated with conventional energy technologies. However, higher initial capital costs are often a barrier to wider acceptance and usage of these systems. Section 710 of S. 389 would establish a Residential Renewable Energy Grants program, which would provide incentives for the purchase and installation of residential renewable energy systems.

Because such a grant program would be subject to annual appropriations, the uncertainty of consistent appropriations would send confusing signals to the market. Small manufacturers offering residential renewable energy systems would find it difficult to anticipate appropriations levels and subsequent demand. Thus, they would face difficulty planning capital expenditures to ensure that enough systems would be available in the marketplace.

The alternative approach of a tax credit, as recommended in the National Energy Policy document, is not subject to the uncertainty of the annual appropriations process and would send a stronger, more certain signal to the market. Specifically, we believe that a 15 percent tax credit for residential solar, up to a maximum of $2000, is a superior approach to a grant program that may or may not be funded on a consistent basis.

Interconnection Standards [Section 603 of S. 597 and section 4 of S. 933]

The Administration supports the concept of uniform and enforceable interconnection requirements that will apply to both distribution and transmission systems.

Distributed electricity generation can offer customer benefits such as increased reliability, uninterruptible service, energy cost savings, and on-site efficiencies. However, adding new small grid-connected generating facilities to an existing electricity grid developed around centralized generation will require innovative approaches to managing and operating new distributed energy resources. Customers, vendors and developers of these new technologies cite interconnection barriers including technical, institutional and regulatory policies as some of the principal obstacles separating them from commercial markets.

Current interconnection requirements vary from state to state. In addition, except in the few states that have enacted legislation or regulations to address the interconnection of distributed energy resources with the utility system, interconnection standards can also vary from utility to utility. A national interconnection standard would reduce uncertainty, lower costs, and facilitate deployment of modern distributed generation technologies such as fuel cells, photovoltaics, wind, and microturbines. It would also remove one of the barriers to combined heat and power, a technology that has the potential to double the efficiency of our energy production by utilizing the heat that would normally be wasted by combustion technologies or fuel cells in the process of generating electricity.

The Department has been supporting efforts by industry through the Institute of Electrical and Electronic Engineers (IEEE) to develop voluntary national interconnection standards. This effort has been in effect for the past several years and has involved extensive working group deliberations involving staff from electric utilities as well as equipment manufacturers and distributed energy project developers. The technical standard being developed by the IEEE could very well provide a basis for the rule making process called for in both bills and, at the minimum, should be referenced to ensure that the progress that has been made by this group is not lost or duplicated unnecessarily.

In addition, there are potential jurisdictional issues that should be considered, especially with regard to providing back-up service and the requirement that the distributed facility owner or operator pay costs associated with the interconnection. Such service and rate issues traditionally have been the jurisdiction of State utility regulators. In this regard, the legislation perhaps should provide clearer guidance about how the State utility regulator can act to determine the reasonableness of costs, terms and conditions. We also should be aware that several States have already established rules which not only address the technical requirements for interconnection, but also address in some detail the related business terms and conditions and allocation of costs. These generally treat small distributed generation projects very favorably, exempting them, for example, from the costs of engineering studies or liability insurance. We would not want any Federal legislation to undo this progress.

Net Metering [Section 604 of S. 597]

The Administration supports the concept of net metering, recognizing that these decisions have historically fallen under state jurisdiction. As with interconnection standards, net metering will improve the economic viability of wind, geothermal, solar and other renewable and distributed energy projects, help meet our growing electrical demand and cut power bills for small businesses and families across the country.

To increase the economic viability of a distributed renewable energy project, an effective net metering provision should ensure a fair market price for power generated on site, and remove the burden for an on-site generator to procure, install and maintain additional equipment. Section 604 of S. 597 has attempted to address those issues.

We would note, as a technical observation, that the definition of "net metering service" is overly specific. In some cases, multiple meters need to be used to correctly account for time of use charges or when electronic meters (which do not spin backwards) are in use. Consequently, we suggest striking the words "through the same meter through which purchased electricity is received."

Additionally, under subsection (a) (2), the Committee might wish to consider removing fuel cells as part of the definition of a 'renewable energy resource' and creating a separate clean energy category. Fuel cells in and of themselves are not a renewable resource, but rather fuel cells utilize hydrogen that can come from a variety of sources. While cost-effectively producing hydrogen in large quantities from renewable resources is a long-term DOE Hydrogen Program objective, most fuel cells today use either a reformate or hydrogen extracted from a fossil fuel such as natural gas. Using fuel cells in combined heat and power mode increases fuel use efficiency for electric generation from 33 percent efficiency to more than 70 percent efficiency. Thus, you might want to consider a separate category for other specified high efficiency residential energy systems such as fuel cells and other micro combined heat and power.

Access to Transmission by Intermittent Generators [Section 605 of S. 597]

The Administration supports the goal of ensuring fair access to transmission by intermittent generators such as wind and solar energy. I am informed that the Federal Energy Regulatory Commission is actively looking at this matter, and thus we should avoid being overly prescriptive in the statute to give FERC needed flexibility to address this problem.

Conclusion

Today's electricity system was designed in a regulated environment around central power stations. It was not designed to send real pricing signals to consumers, nor was it designed to accommodate distributed generation or consumer choice. Our shared challenge is to transform that system into a more efficient one that can do all that and more. Fortunately, with some of the tools of the information age, we are starting to envision just how a more open, flexible, and responsive market might be created.

The provisions in the legislation under consideration today are serious and thoughtful attempts to address some of the key obstacles to the widespread adoption of renewable and distributed generation technologies cited in the National Energy Policy. We look forward to working with this Committee and its staff on legislation in this area. I will be pleased to answer any questions you may have in this regard both this morning and in the future.