Avoided Cost Comparison Levelized Cost of Energy ($/MWh)
Avoided Cost Comparison Levelized Cost of Energy ($/MWh) Avoided Cost Comparison Levelized Cost of Energy ($/MWh)
4.1 Federal Legislation As outlined in Chapter 1, PURPA was the first major federal legislation that opened the way for greater deployment of distributed generation resources. PURPA created a wholesale market for non-utility, independent power projects and required utilities to connect these “qualifying facilities” (QFs) to their transmission grids. QFs produce electricity using alternative sources of power such as renewable fuels or cogeneration. Utilities are required to purchase power from QFs at the utility “avoided cost” of additional generation, with states left to develop methodologies for determining avoided cost. In addition to PURPA, there have been several recent major pieces of federal legislation that have had a direct or indirect effect on the adoption of DPS. 100 See the DSIRE website at www.dsireusa.org for more details on rules and regulations surrounding implementation. 101 Ibid. • Energy Policy Act of 2005 (EPAct 2005) • Energy Independence and Security Act of 2007 (EISA 2007) • American Recovery and Reinvestment Act of 2009 (ARRA 2009) Moreover, FERC has taken several actions influencing DPS-related issues, including interconnection standards, net metering, feed-in-tariffs, transmission and storage. In the following section, we highlight several illustrative federal provisions and rules dealing with DPS according to policy category, while more details are provided in Annex 3. Financial Incentives There are many federal financial incentives for renewable energy and energy efficiency. In this section, we focus on three: tax incentives, loan aSSESSIng THE ROlE OF dISTRIBuTEd POwER SySTEmS In THE u.S. POwER SECTOR 36 guarantees and accelerated depreciation. A summary of several other financial incentives is provided in Annex 3. Tax Incentives Two major federal financial incentives having direct impact DPS are the production tax credit (PTC) and the investment tax credit (ITC). The PTC was initially enacted under the Energy Policy Act of 1992 and has been extended and amended many times over the years. It pays an inflation-adjusted tax credit for ten years, ranging from 1.1-2.2 cents per kWh depending on the technology. 100 The ITC offers a tax credit equal to 30 percent of project costs for eligible technologies (solar, small wind) and 10 percent for others (geothermal, micro turbines and combined heat and power). 101 Section 1603 of ARRA updated the PTC and the ITC: • PTC: Facilities eligible for the PTC can elect to choose the 30 percent ITC or to receive a cash grant from the U.S. Treasury Department covering up to 30 percent of the project cost (under a new program referred to as a 1603 grant) • ITC: Facilities eligible for the ITC can choose to receive a 1603 cash grant covering up to 30 percent of the project cost. Federal Loan Guarantee Program EPAct 2005 authorized support for innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks. These technologies must
also avoid, reduce, or sequester air pollutants or greenhouse gases. 102 The act authorized loan guarantees for certain renewable energy systems (including solar, wind and biomass), electric power transmission systems and leading edge biofuels projects. 103 By guaranteeing loans and agreeing to repay a borrower’s debt obligation in the event of a default for eligible clean energy projects, the program provides a more secure environment for investors. The program also provides direct loans to manufacturers of advanced technology vehicles. In this manner, the mission is “to accelerate the domestic commercial deployment of innovative and advanced clean energy technologies at a scale sufficient to contribute meaningfully to the achievement of our national clean energy objectives.” 104 Thus far, the DOE’s Loans Programs Office has guaranteed $26.67 billion. 105 Modified Accelerated Cost-Recovery System MACRS incentivizes the use of renewable energy by allowing depreciation of eligible renewable generation assets. 106 The terms of cost recovery differ according to the technology involved: solar electric and solar thermal, fuel cells, micro-turbines, geothermal electric, wind installations under 100kW and combined heat and power applications are each considered “five-year property,” allowing them to be depreciated over five years. Recent amendments to the program introduced a first-year “bonus” depreciation of 50 percent for eligible renewable energy systems purchased and installed. 107 aSSESSIng THE ROlE OF dISTRIBuTEd POwER SySTEmS In THE u.S. POwER SECTOR 37 Rules and Regulations Federal rules and regulations also affect DPS deployment, especially in the areas of net metering and interconnection and FERC has issued several decisions dealing with jurisdictional issues related to DPS development. Net Metering and Interconnection Net Metering and Interconnection Standards Net Metering: For electric customers who generate their own electricity, net metering allows for the flow of electricity both to and from the customer—typically through a single, bi-directional meter. When a customer’s generation exceeds the customer’s use, electricity from the customer flows back to the grid, offsetting electricity consumed by the customer at a different time during the same billing cycle. Interconnection Standards: These specify the technical and procedural process by which a customer connects an electricity-generating unit to the grid, including the technical and contractual terms that system owners and utilities must abide by. Source: www.dsireusa.org Two provisions of EPAct 2005 were directly beneficial for the adoption of distributed power systems, through the requirements for utilities to provide net metering and interconnection service. 108 Before the passage of EPAct 2005, utilities determined the standards and technical requirements 102 “1703,” U.S. Department of Energy Loan Programs Office. (https://lpo.energy.gov/?page_id=39) 103 “1705,” U.S. Department of Energy Loan Programs Office (https://lpo.energy.gov/?page_id=41) 104 “Our Mission,” U.S. Department of Energy Loan Programs Office. (https://lpo.energy.gov/?page_id=17). On September 30, 2011, the Loan Guarantee Program’s Section 1705 expired. 105 “Our Projects,” U.S. Department of Energy Loan Programs Office. (https://lpo.energy.gov/?page_id=45). Includes $10.647 billion in loans under Section 1703 and $16.0265 billion under Section 1705. 106 MACRS was created in 1986 and updated in the EPAct 2005 and again under the Energy Improvement and Extension Act of 2008. 107 The bonus depreciation was introduced in the Economic Stimulus Act of 2008 and continued in 2009 and 2010 through the ARRA 2009 and Small Business Jobs Act, respectively. It was expanded in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 to include a 100 percent first year bonus depreciation for systems purchased and installed between September 8, 2010 and the end of 2011. See www.dsireusa.org for more specific rules and regulations governing this program. 108 See: “Subtitle E – Amendments to PURPA of the Energy Policy Act of 2005: Sections 1251a, §11, and 1254a, §15.”
- Page 1 and 2: Energy Security Initiative at BROOK
- Page 3 and 4: About The Brookings Energy Security
- Page 5 and 6: Acknowledgements The authors would
- Page 7 and 8: tAble oF contents LIST OF ACRONYMS.
- Page 9 and 10: list oF Acronyms ACEEE American Cou
- Page 11 and 12: executive summAry The U.S. power sy
- Page 13 and 14: introduction The U.S. power sector
- Page 15 and 16: • Chapters 2 and 3 assess the eco
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- Page 19 and 20: on-site generation. 11 There is far
- Page 21 and 22: 1.3 Overview of DPS technology Dist
- Page 23 and 24: figure 2: disTribuTion of The Purch
- Page 25 and 26: uses an organic, low boiling point
- Page 27 and 28: can be used as energy storage, and
- Page 29 and 30: Similar to battery technologies, a
- Page 31 and 32: solar project. Known as “Project
- Page 33 and 34: CHAPTER 2 economic And environmentA
- Page 35 and 36: Table 2: lcoe financing assumPTions
- Page 37 and 38: figure 8: e3 analysis of economics
- Page 39 and 40: CHAPTER 3 security-relAted beneFits
- Page 41 and 42: scale sources of renewable generati
- Page 43 and 44: total square footage occupied by th
- Page 45 and 46: The integration of DPS into militar
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- Page 51 and 52: pendent System Operator 115 —and
- Page 53 and 54: • Microgrid, defined as “an int
- Page 55 and 56: In addition, states are potentially
- Page 57 and 58: Rules and Regulations Renewable Por
- Page 59 and 60: figure 10: groWing number of neT me
- Page 61 and 62: energy outputs of CHP will not be a
- Page 63 and 64: Permit Act, which will “limit sol
- Page 65 and 66: nancial markets like corporate stoc
- Page 67 and 68: are state renewable portfolio stand
- Page 69 and 70: Many respondents (mostly developers
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4.1 Federal Legislation<br />
As outlined in Chapter 1, PURPA was the first<br />
major federal legislation that opened the way for<br />
greater deployment <strong>of</strong> distributed generation resources.<br />
PURPA created a wholesale market for<br />
non-utility, independent power projects and required<br />
utilities to connect these “qualifying facilities”<br />
(QFs) to their transmission grids. QFs produce<br />
electricity using alternative sources <strong>of</strong> power<br />
such as renewable fuels or cogeneration. Utilities<br />
are required to purchase power from QFs at the<br />
utility “avoided cost” <strong>of</strong> additional generation,<br />
with states left to develop methodologies for determining<br />
avoided cost.<br />
In addition to PURPA, there have been several recent<br />
major pieces <strong>of</strong> federal legislation that have had<br />
a direct or indirect effect on the adoption <strong>of</strong> DPS.<br />
100 See the DSIRE website at www.dsireusa.org for more details on rules and regulations surrounding implementation.<br />
101 Ibid.<br />
• <strong>Energy</strong> Policy Act <strong>of</strong> 2005 (EPAct 2005)<br />
• <strong>Energy</strong> Independence and Security Act<br />
<strong>of</strong> 2007 (EISA 2007)<br />
• American Recovery and Reinvestment<br />
Act <strong>of</strong> 2009 (ARRA 2009)<br />
Moreover, FERC has taken several actions influencing<br />
DPS-related issues, including interconnection<br />
standards, net metering, feed-in-tariffs,<br />
transmission and storage.<br />
In the following section, we highlight several illustrative<br />
federal provisions and rules dealing<br />
with DPS according to policy category, while<br />
more details are provided in Annex 3.<br />
Financial Incentives<br />
There are many federal financial incentives for<br />
renewable energy and energy efficiency. In this<br />
section, we focus on three: tax incentives, loan<br />
aSSESSIng THE ROlE OF dISTRIBuTEd POwER SySTEmS In THE u.S. POwER SECTOR<br />
36<br />
guarantees and accelerated depreciation. A summary<br />
<strong>of</strong> several other financial incentives is provided<br />
in Annex 3.<br />
Tax Incentives<br />
Two major federal financial incentives having<br />
direct impact DPS are the production tax credit<br />
(PTC) and the investment tax credit (ITC).<br />
The PTC was initially enacted under the <strong>Energy</strong><br />
Policy Act <strong>of</strong> 1992 and has been extended and<br />
amended many times over the years. It pays an<br />
inflation-adjusted tax credit for ten years, ranging<br />
from 1.1-2.2 cents per kWh depending on the<br />
technology. 100 The ITC <strong>of</strong>fers a tax credit equal to<br />
30 percent <strong>of</strong> project costs for eligible technologies<br />
(solar, small wind) and 10 percent for others<br />
(geothermal, micro turbines and combined heat<br />
and power). 101<br />
Section 1603 <strong>of</strong> ARRA updated the PTC and the<br />
ITC:<br />
• PTC: Facilities eligible for the PTC can elect<br />
to choose the 30 percent ITC or to receive a<br />
cash grant from the U.S. Treasury Department<br />
covering up to 30 percent <strong>of</strong> the project<br />
cost (under a new program referred to as a<br />
1603 grant)<br />
• ITC: Facilities eligible for the ITC can choose<br />
to receive a 1603 cash grant covering up to 30<br />
percent <strong>of</strong> the project cost.<br />
Federal Loan Guarantee Program<br />
EPAct 2005 authorized support for innovative<br />
clean energy technologies that are typically unable<br />
to obtain conventional private financing due<br />
to high technology risks. These technologies must
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