Including avoided cost for electricity when valuing local generation by wind and solar

September 11th, 2017 by  Originally published at

A federal policy enacted nearly 40 years ago has breathed life into an ongoing argument at the Minnesota Public Utilities Commission over utility opposition to a wind-solar hybrid project proposed in the rural city of Red Lake Falls.

The law, known as PURPA, was designed to promote local renewable generation by requiring utilities — even monopolies — to buy their electricity from qualified distributed and renewable facilities that can provide power at prices that roughly match the utilities’ “avoided cost” for electricity. But even after all this time, questions loom over exactly how to calculate that value. Utilities would like the number to be as low as possible, to deter competing power suppliers. Power producers, on the other hand, want to account for as many “avoided costs” as possible.

At issue is whether existing utility methodology fully reflects the avoided cost of distributed wind-solar hybrid projects like the one proposed for Red Lake Falls. Typically, the avoided cost calculation includes avoided energy (purchased or generated) and avoided capacity (to meet system demands). It infrequently includes avoided transmission costs, an opportunity for facilities like the Red Lake Falls project situated near substations, compared with far-flung traditional power plants.

Minnesota statute may exacerbate the problem by allowing the utility to use the cost of another renewable energy project as a proxy avoided cost, even if that project has very different benefits. For example, most renewable energy projects serving Otter Tail Power are wind only, providing little overlap with daytime peak energy use. But the Red Lake Falls project includes solar that, when combined with wind, will have a relatively high level of availability during peak demand hours. Valuing this benefit is a key role of the avoided cost methodology.

Ahead of a discussion at the Commission over how to proceed with the dispute, ILSR and several allies submitted a letter urging a more comprehensive, broader analysis. While Red Lake Falls provides an example of why it matters, clarifying the process for accurately calculating avoided cost would forge an easier path for similar projects to come online in the future. Without that kind of guidance, protracted proceedings between small-scale developers and deep-pocketed utilities–the project and utility have already been in negotiations for over a year–threaten to derail local energy growth.

The letter is included below, lightly edited for clarity. It builds on earlier comments from ILSR on the importance of addressing issues presented in the docket.

The Institute for Local Self-Reliance respectfully submits this letter in preparation for the April 6 hearing:

The Importance of Timely Resolution

Briefly, we would like to reiterate the importance of a timely complaint resolution process as noted in our comments filed February 10. Although there are many arguments to weigh in this case, the combination of a lengthy and unsuccessful negotiation with the utility and a lengthy dispute resolution process may, regardless of outcome, make it challenging for the Red Lake Falls (or subsequent) qualifying facilities to come to market. Long development timelines threaten the availability of project financing.

The Need for Investigation

Regardless of the Commission decision in resolving this complaint, we strongly support decision option #8 for setting up a separate investigation (per the Commission’s authority under 216B.17).

The importance of this investigation is underscored by the numerous other proceedings examining the changing and increasingly decentralized nature of the electricity system. The value of solar methodology (Docket No. 14-65) provided an alternative to net metering that more robustly accounts for the value of this particular distributed energy resource, and is now in use for community solar projects. The report by ICF International (Docket No. 15-556) on grid modernization notes that the grid will see increasing use of distributed energy resources and that a key element in designing the grid to meet this shift is pricing that accurately reflects locational and other attributes. The interconnection standards proceeding (Docket No. CI-16-521) is updating rules for the grid in recognition that more decentralized energy production is forthcoming.

Across all these proceedings, the Commission and utilities are adapting grid rules to accommodate cost-effective alternatives to traditional methods of supplying energy and capacity to electric customers. Distributed energy projects like the one proposed for Red Lake Falls will be increasingly effective in supplying low-cost electricity, providing peak power capacity, and — when interconnected near substations — avoiding transmission costs incurred by larger, traditional power plants. But the rules have not kept pace with the opportunity to deploy cost-effective electricity supply to Minnesota utilities.

The concern of Otter Tail Power (expressed in their comments filed February 10) is that Juhl Energy’s “proposed PPA rate exceeds Otter Tail’s avoided costs.” This sentiment mirrors concerns voiced by many Minnesota (and non-Minnesota) utilities about net metering and its relationship to the value of solar, which have been contested by solar energy producers. Minnesota has so far been a leader in addressing this issue head on, resolving the value dispute between producers, utilities, and customers by establishing a common methodology for calculating the value of solar.

In particular, the avoided cost methodology relies on a comparison to a “least cost renewable energy facility,” a generic comparison that overlooks the distinctly different operating characteristics and grid benefits of a wind/solar hybrid project like Red Lake Falls.

The Commission can address the larger question of fairness for utilities, producers, and customers by developing a common methodology for long-term estimates of utility avoided costs that accounts for the differing energy and capacity benefits of renewable energy technologies (or even their location-based avoided costs, such as transmission capacity). Like value of solar, such a methodology would provide consistency across different utility service territories, could reduce the need for individual dispute resolution processes, and facilitate more opportunities for utilities to integrate cost-effective renewable energy.

Including Health Cost/Value of Avoided Illness in Energy Pricing

September 11th, 2017 by 

A study done by Lawrence Berkeley National Lab and published by Nature Energy in August finds that wind power in the United States is responsible for saving tens of billions or hundreds of billions of dollars from prevented health care costs and saved lives from 2007–2015. The savings come from reduced pollution that causes asthma attacks and other diseases.
Cumulative wind and solar air-quality benefits of 2015 US$29.7112.8 billion mostly from 3,000 to 12,700 avoided premature mortalities,
and cumulative climate benefits of 2015 US$5.3–106.8 billion. The ranges span results across a suite of air-quality and health
impact models and social cost of carbon estimates. We find that binding cap-and-trade pollutant markets may reduce these
cumulative benefits by up to 16%. In 2015, based on central estimates, combined marginal benefits equal 7.3¢ kwh.

AWEA wind power studyPower plant emissions — including sulfur dioxide, nitrogen oxides, and particulate matter — cause or aggravate respiratory and cardiovascular health, often leading to hospitalization or even death, as documented by the National Academies of Sciences, Engineering, Medicine and others. However, the rapid growth of pollution-free wind power in recent years has helped to decrease emissions of these harmful pollutants.

Solar power is also doing its part, of course. “From 2007 to 2015, solar and wind power deployment increased rapidly while regulatory changes and fossil fuel price changes led to steep cuts in overall power-sector emissions. Here we evaluate how wind and solar climate and air-quality benefits evolved during this time period,” the report authors write. “We find cumulative wind and solar air-quality benefits of 2015 US$29.7–112.8 billion mostly from 3,000 to 12,700 avoided premature mortalities, and cumulative climate benefits of 2015 US$5.3–106.8 billion. The ranges span results across a suite of air-quality and health impact models and social cost of carbon estimates. We find that binding cap-and-trade pollutant markets may reduce these cumulative benefits by up to 16%. In 2015, based on central estimates, combined marginal benefits equal 7.3¢ kWh (wind) and 4.0¢ kWh (solar).”

Wind power is now the country’s largest renewable energy capacity source, with enough installed to power 25 million average American homes every year.

The LBNL study covered a 9 year period. It found that all parts of the United States benefited from wind energy energy generation. The Mid-Atlantic and Upper Midwest regions benefited the most, since they are the areas in which coal-fired generating facilities are most prevalent. Many opponents of wind power claim the federal production tax credit costs taxpayers a great deal of money, but the study found that in the Mid-Atlantic region, the health benefits of wind power were equivalent to between $100 to $250 per megawatt-hour, which is 4 to 10 times greater than the value of the tax credit. In the Upper Midwest, the benefit was between $50 to $120 per megawatt-hour.

The researchers estimated the amount of avoided emissions between 2007 and 2015 using the EPA’s Avoided Emissions and geneRation Tool. It provides a statistical yardstick for determining the amount of emissions avoided by using wind and solar energy. It looks to see which US power plants are most likely to decrease energy production as the result of the availability of renewables.

For last year, the American Wind Energy Association calculated that American wind power generated $7.4 billion in public health benefits through avoided SO2 and NOX emissions, based on cost assumptions provided by the Harvard School of Public Health. Previous work by LBNL found that state policies that promote renewable energy policies have economic benefits that are far greater than their cost, due principally to lower health care expenses.

Fossil fuel advocates like to pooh-pooh the claim that lower emissions mean lower health care costs. They would prefer to scream about how unfair it is for government to pick winners and losers in business, as if government has no business protecting citizens from health risks.

Only those with a severely stunted concept of ethical behavior could argue they should be allowed to continue poisoning people with the waste products created by their economic enterprise. If we all emptied the contents of our septic systems onto their lawns, they would soon start singing a different tune, just like Rex Tillerson, who used to be the head of one of the world’s largest fossil fuel companies but went to court to prevent a competitor from engaging in fracking operations in the vicinity of his home.

How much more evidence do we need that fossil fuel advocates — including the Idiot in the Oval — are two-faced, lying weasels who are content to poison most living things just so long as they can make a profit doing so?

Source: AWEA