RENEW to PSC: Specify a date for resumption of renewable program
Letter to Public Service Commission Regarding Focus on Energy
Support for Renewable Energy
February 14, 2012
In July 2011, Focus on Energy stopped accepting applications for funding new renewable energy installations owned by businesses, schools and local governments. Later that year, Focus on Energy expanded the suspension to cover residential customer-sited renewable energy systems as well. So far in 2012, Focus on Energy has not resumed accepting applications for new systems. While some installation activity is still occurring, the pipeline of previously approved renewable energy systems is starting to run low.
On January 30, RENEW Wisconsin presented an open letter to the Public Service Commission (PSC) requesting the rapid restoration of Focus on Energy financial support for renewable energy resources at historic levels. (http://tinyurl.com/7ss7qgc) Signed by over 150 businesses, organizations, local officials and schools, the open letter was a clear and unequivocal statement of our desire to get back to work and expand the sustainable energy marketplace, strengthening Wisconsin’s economy and creating jobs and business opportunities in the process. Shortly thereafter, the PSC responded to our letter with one signed by Gas and Energy Division Administrator Robert Norcross, which is posted on its web site and other on-line forums. http://tinyurl.com/norcrossletter
The PSC letter begins with a defense of the funding suspension, which was prompted by the over-commitment of program dollars to renewable energy projects approved in previous years. The problem arose from a lack of internal controls at the program administrator level to balance approved obligations with available funding. As expressed in a July 2011 press release, RENEW acknowledged the agency’s responsibility to correct that deficiency and to ensure that future outflows do not exceed revenues.
We also support the PSC’s recent decision to allow public policy to influence and shape Focus on Energy’s renewable energy offerings. As noted by the PSC, the regulatory test used to determine Focus on Energy’s cost-effectiveness does not adequately capture the full range of benefits that renewable energy provides. To overcome these limitations, the PSC adopted new evaluation criteria to help the program administrator determine which renewable technologies should be funded in the future, and at what levels.
While an improvement, the new evaluation criteria may not be robust enough to support a renewable energy allocation at historic levels (roughly 10% of Focus on Energy’s annual revenues). It will be a challenge for the PSC to compensate for the significant weight that the PSC’s cost-effectiveness test gives to short-term energy savings, even with this new formula in place. This emphasis on short-term energy savings in the PSC’s cost-effectiveness test invariably puts renewable energy at a disadvantage compared with energy efficiency.
The theme of cost-effectiveness is reiterated throughout the PSC letter, leaving the reader with the impression that renewable energy is still something of a sideshow activity and certainly not an economic engine ready to power Wisconsin’s future. RENEW respectfully disagrees with that characterization. We take the audacious view that conventional generation sources have seen their heyday and that electricity supply additions in the future will center on renewable resources. With that in mind, we believe it makes more sense to measure the cost-effectiveness of distributed renewable energy against utility-scale renewable energy investments as opposed to energy efficiency investments.
In drawing comparisons between these two categories of renewable energy investments, a number of conclusions stand out.
1. When loads are flat and are expected to remain flat for the foreseeable future, distributed renewables are less likely to result in overcapacity and excess generation than utility-scale facilities.
2. Distributed renewable energy investments supported by Focus on Energy will occur within Wisconsin. This is an attribute that smaller-scale renewables share with energy efficiency, but not necessarily with utility-scale renewables.
3. With utility-scale renewable generating facilities, the entire cost of the investment is recovered through rates. With customer-owned renewable generation facilities supported by Focus on Energy, a significant fraction of the installation cost is borne by the owner.
4. The availability of customer-supplied capital for renewable energy capacity additions is enhanced through Focus on Energy incentives. Utility-owned renewable capacity additions have no effect on the availability of customer-supplied capital.
In our view, incremental increases in distributed renewable energy generation can result in long-term capacity substitutions that can justify retirements of older fossil generation units, something that energy efficiency by itself cannot achieve. But this benefit is not monetized in standard cost-effectiveness tests. This fact alone argues for an alternative approach to measuring the cost-effectiveness of renewable energy.
One element left unstated in the PSC’s letter is a date certain for the resumption of Focus on Energy funding support for renewables. The absence of a specified resumption date creates a climate of uncertainty that will likely result in project cancellations and workforce reductions. We urge the PSC to specify a target resumption date at the earliest moment possible.
Finally, we wish to respond to the following statement in the letter: “While the Focus on Energy program has an impressive payback, the over-inclusion of renewables in the portfolio has the potential to reduce the cost-benefit below the mandatory 1.0 ratio.”
This statement verges on hyperbole. It would take a combination of improbable events for that outcome to become a mathematical possibility, let alone reality. Even in early 2011, with renewable energy accounting for 25%-30% of total program allocations, the program was never in danger of achieving a negative cost-benefit ratio. Avoiding overstatements like the one above would go a long way toward rebuilding the confidence that the renewable energy community once had in Focus on Energy.
In the meantime, we at RENEW would be happy to provide assistance to the program administrator in evaluating the cost-effectiveness of future renewable energy investments in Wisconsin.
Program and Policy Director