PSC’s cost-benefit test unfairly penalizes renewables

Posted on October 20, 2011. Filed under: Energy Policy, Focus on Energy/Public Benefits, Renewable energy - generally, Solar |

An e-mail exchange between Burke O’Neal (Full Spectrum Solar), Robert Norcross (Public Service Commission of Wisconsin – PSC), and Niels Wolter (Madison Solar Consulting) illustrates the agency’s institutional bias against renewable energy in Wisconsin’s Focus on Energy program.

Excerpts from O’Neal’s e-mail (Harming WI Industry: Poor Handling of Focus on Energy Renewables Program) to the PSC and Governor Walker:

Full Spectrum Solar employs seventeen people directly in good paying construction jobs in WI. Many more are employed indirectly as subcontractors and in manufacturing and distribution of the products we use. We are very concerned about the handling of the renewable energy program by the Shaw Group. Nearly all the Focus on Energy incentives for renewable energy systems require that they be installed by the end of this calendar year, but there is no indication whether there will be any renewable energy programs at all next year. In fact, the Shaw Group has not even selected subcontractors to administer this program next year! This uncertainty, along with the normal year-end rush to secure federal tax credits, is creating a massive push to get systems installed by the end of this year. This is requiring installers to hire additional employees and take on additional vehicles and tools, without any assurance of future work. If there is no Focus renewable program at the beginning of next year, but a possibility of a future program, every potential customer will put their work on hold. It is hard to imagine a funding approach that would be more destructive to the renewable energy industry in Wisconsin than what seems to be getting set up by Focus on Energy.

Excerpts from the response of Robert Norcross, Administrator, Gas and Electric Division at the PSC:

The Commission appreciates hearing your perspective on the Focus on Energy renewable programs. While I understand your concerns, changes to the renewable programs are necessary to ensure their sustainability in the long run. Administrative rules require that the portfolio of Focus on Energy programs achieve a cost-benefit ratio of at least 1.0, based on the Total Resource Cost test. With the exception of biomass, no renewable resource measure meets this criteria. In the past, inclusion of non-cost-effective renewable resources was deemed appropriate as the goal of Focus on Energy was to assist in building the renewable infrastructure. Previously, this has not greatly affected the cost-effectiveness of the overall portfolio of programs because renewable projects were a fairly small component of Focus on Energy. However, in 2011 there was a significant increase in renewable projects approved. This resulted in about twice the entire 2011 renewable budget being committed by mid-year. It also put the entire Focus on Energy program in jeopardy of not being cost-effective.

Niels Wolter then offered his analysis of the PSC’s reliance on the Total Resource Cost test and the resulting consequences:

The TRC test is not from the customer’s perspective. It does not include a solar electric system owner’s federal tax benefits, nor does it consider their electric bill reductions. Rather it considers the system from a broader societal perspective. That means that the value of the generation is what it costs a utility to generate the power and meet demand (marginal cost). So what was an economically viable system for a customer may become non viable from the TRC perspective.

Read more about the TRC test here (starting on page 6-5).

Interestingly given how these cost tests work, reducing the Focus on Energy incentive level, does not improve the solar electric program’s benefit cost ratio. If the Focus program has a given amount of incentive funds and demand for incentives outstrips supply, then reducing the incentive per kW would result in more people installing systems, and the Focus program’s portfolio (all the technologies they support) benefit cost ratio would be further reduced. In other words, the reduced incentive would result in more people making the non economic decision (based on the TRCt test) of installing a solar electric system, and pull down the TRC of the entire Focus program. So reducing incentive levels is not a solution to this issue… strangely raising the incentive levels would. But that’s not going to happen.

The TRC tests seems to be an alternative reality that no one lives in… and strange things can happen there.


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