Report Title:

Renewables Portfolio Standards

 

Description:

Requires qualified electric utilities to implement renewables portfolio standards, which requires these utilities to possess a minimum percentage of renewable energy resources within their overall resource portfolio. Provides for the issuance of renewable energy credits to renewable energy generators. (HD1)

 

HOUSE OF REPRESENTATIVES

H.B. NO.

173

TWENTY-FIRST LEGISLATURE, 2001

H.D. 1

STATE OF HAWAII

  

 

A BILL FOR AN ACT

 

RELATING TO RENEWABLE ENERGY RESOURCES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

PART I. RENEWABLES PORTFOLIO STANDARDS

SECTION 1. It is the intent of the legislature to recognize the economic, environmental, and fuel diversity benefits of renewable energy resources and to establish a market for renewable energy in Hawaii using the State's significant renewable energy resources and to drive down the cost of renewable energy to consumers. The legislature finds that the benefit of electricity from renewable energy resources accrues to the public at large, thus consumers and electric utilities share an obligation to develop a minimum level of these resources in the State's electric supply portfolio.

The legislature finds that one way to achieve this objective is through the implementation of "renewables portfolio standards" -- a flexible, market-driven policy that seeks to ensure that the public benefits of wind, solar, biomass, geothermal energy, and other renewable energies continue to be recognized as electricity markets become more competitive. The policy ensures that a minimum amount of renewable energy is included in the portfolio of electricity resources serving the State. By increasing the required amount over time, the standard seeks to increase the sustainability of the electricity industry. Because it is a market standard, renewables portfolio standards rely almost entirely on the private market for its implementation. Market implementation will result in competition, efficiency, and innovation that seeks to deliver renewable energy at the lowest possible cost.

Renewables portfolio standards work through the establishment of renewable energy credits, which are tradable certificates of proof that one kilowatt-hour of electricity has been generated by a renewable-fueled source. Credits are denominated in kilowatt-hours (kWh) and are a separate commodity from the power itself. Renewables portfolio standards require all qualified electric utility companies to demonstrate, through ownership of credits, that they have supported an amount of renewable energy generation equivalent to some percentage of their total annual kilowatt-hour sales. For example, if renewables portfolio standards are set at five per cent, and a generator sells one hundred thousand kilowatt-hours in a given year, the generator would need to possess five thousand credits at the end of that year.

Investors and generators make all decisions about how to comply with this requirement, including the type of renewable energy to acquire, which technologies to use, what renewable developers to do business with, what price to pay, and which contract terms to agree to. Generators decide for themselves whether to invest in renewable energy projects and generate their own credits, enter into long-term contracts to purchase credits or renewable power along with credits, or simply to purchase credits on the spot market. The credit system provides compliance flexibility and avoids the need to "track electrons". Because renewables portfolio standards apply equally to all generators, it is competitively neutral.

The legislature finds that the renewables portfolio standards approach has several efficiency advantages, including the following:

(1) Renewables portfolio standards avoid the administrative dissemination of funds by government agencies, which can be bureaucratic and inefficient. In addition, government-administered programs almost always impose artificial constraints of various types, which increases costs;

(2) Under renewables portfolio standards, no renewable energy project is guaranteed a place in the market. Unlike a one-time competition for funds, each project must continually compete to keep its place in the market created by the standard;

(3) The certainty and stability of the renewables market created by properly-designed renewables portfolio standards will enable long-term contracts and financing for the renewable power industry, which will, in turn, lower renewable power costs;

(4) Least-cost compliance is encouraged through the flexibility provided to generators who are subject to the standard; they can compare the cost of owning a renewables facility to the cost of a credit and renewable power purchase package and to secondary-market credits. Those who are most efficient at generating renewable power will end up producing it, and those who cannot efficiently produce it will purchase credits on the competitive market; and

(5) Since large generation companies will be looking to improve their competitive position in the market, they will have an interest in driving down the cost of renewables to reduce their renewables portfolio standards compliance costs. They may do this by lending their own financial resources to a renewables project, by seeking out least-cost renewables applications, or by entering into long-term purchasing commitments. This fosters a "competitive dynamic" that is not achieved with policies that involve direct subsidies to renewable generators without involving the rest of the electric industry.

The purpose of this Act is therefore to require qualified electric utility companies to implement renewables portfolio standards, thereby requiring these utilities to possess a minimum percentage of renewable energy resources within their overall resource portfolios, and require the public utilities commission to establish a program to issue renewable credits to renewable energy generators.

SECTION 2. For the purposes of this Act:

"Biomass" means organic residues or crops that are grown for energy production.

"Qualified electric utility company" means a distributor, including all subsidiaries of that distributor, of electricity to customers in the State that has sales of more than 350,000 kilowatt-hours of electricity per year.

"Renewable energy" means energy from wind, solar energy systems, biomass, landfill gas, geothermal resources, ocean thermal energy conversion, hydropower, and organic wastes, including refuse-derived fuel.

"Renewable energy credit" means a tradable certification of proof that one kilowatt-hour of electricity from renewable energy was either:

(1) Generated by a qualified electric utility company and sold to Hawaii consumers;

(2) Purchased by a qualified electric utility company from a renewable energy generator in Hawaii and sold to Hawaii consumers; or

(3) Purchased by a qualified electric utility company from one or more Hawaii renewable energy generators.

"Renewable energy generator" means a person owning a facility that produces electricity from renewable energy.

"Renewables portfolio standard" means the percentage of electric power consumed in Hawaii that must be derived from renewable energy.

SECTION 3. Each qualified electric utility company which sells electricity for consumption in the State shall implement renewables portfolio standards with the following percentages by the following dates:

(1) 7.0 per cent by January 1, 2003;

(2) 8.0 per cent by January 1, 2005;

(3) 9.0 per cent by January 1, 2007; and

(4) 10.5 per cent by January 1, 2010.

Any utility company which is not included in the term "qualified electric utility company" may participate voluntarily.

PART II. SOLAR RENEWABLES PORTFOLIO STANDARDS

SECTION 4. The legislature finds that electricity production by the direct use of solar energy will be an important component of a diversified Hawaii electricity portfolio, but at present prices it cannot compete with other renewables within a renewables portfolio standard. The legislature finds, however, that it is clearly in the best interest of Hawaii's economy, economic development, and security to encourage a robust market of on-grid solar electric applications. These can be utility scale solar thermal-electric energy production facilities, utility scale solar photovoltaic energy production facilities, and distributed, on-site, or building-integrated applications of solar photovoltaic electric energy production.

The legislature further finds that the particular advantages of on-site and on-grid solar electric production are not reflected in their price, and yet have important value to Hawaii's economy. In addition to the environmental and oil-reduction benefits of the use of indigenous energy resources, the unquantified benefits of solar electric energy production can include enhancing facility reliability, security of important telecommunications, financial data and public health and safety functions, and job creation and economic development from potential in-state manufacturing or assembly facilities. From the utility standpoint, these unquantified benefits can also include reduction of load on urban distribution and substation components, reduction of urban peak demand, enhanced reliability of feeder systems, voltage support, and an overall general gain in network reliability. Off-grid applications of solar electric energy production are already economically viable in the Hawaii energy economy, and therefore do not need to be part of an incentive package.

The legislature therefore finds that it is in the interest of the State to capture the unquantified benefits of on-grid solar electric energy production, and not have this emerging technology be subject to market competition against other renewable electric energy production facilities that have already achieved lower production costs.

SECTION 5. As used in this part:

"Solar photovoltaic electric energy production" means the making of electricity by means of photovoltaic cells, panels, or collectors in various configurations, arrays, or building components.

"Solar thermal electric energy production" means the making of electricity by concentrating solar energy onto devices that convert the concentrated heat to electricity through either steam-electric energy production or heat-engine electric energy production.

SECTION 6. (a) Each qualified electric utility company which sells electricity for consumption in the State shall be responsible for ensuring that solar electricity production capacity in the utility's service territory is equivalent to, at a minimum, 0.25 per cent of gross Hawaii utility generating capacity by January 1, 2011. Any utility company which is not included in the term "qualified electric utility company" may participate voluntarily.

(b) As an economic inducement to diversify the energy resource portfolio for the State, induce additional technology applications within the State, and improve the economics for utility acquisition and application of in-state produced solar electricity equipment:

(1) Any renewable energy generator that develops utility-scale solar electric energy production shall be entitled to receive twice the kilowatt-hours of electricity in renewable energy credits toward fulfilling the renewables portfolio standard requirements specified in section 3. As used in this paragraph, "utility-scale solar electric energy production" means the generation of one megawatt of electricity or higher by a renewable energy generator, including the use of either solar photovoltaic electric energy production, solar thermal electric energy production, or both; and

(2) Any manufacturer that agrees to build a solar electricity equipment assembly or production plant in the State, where the solar electricity equipment is produced and sold for use in the State, shall be considered to be a renewable energy producer under section 2 of this Act and shall be entitled to receive twice the kilowatt-hours of electricity in renewable energy credits toward fulfilling the renewables portfolio standard requirements specified in section 3.

PART III. IMPLEMENTATION AND ENFORCEMENT

SECTION 7. The public utilities commission shall establish a program to issue renewable energy credits to renewable energy generators by January 1, 2002. The commission, or its duly authorized agent, shall:

(1) Inspect, certify, and audit renewable energy credits;

(2) Impose and collect a fee on renewable energy credit applicants to cover the administrative cost of issuing, recording, certifying, auditing, and monitoring the sale or exchange and tracking of renewable energy credits;

(3) Enforce this Act, including the imposition of administrative penalties; and

(4) Adopt rules pursuant to chapter 91 to carry out the purposes of this Act.

SECTION 8. Before March 31, beginning in 2003 and each year thereafter, each qualified electric utility company shall submit an application to the public utilities commission which contains evidence of ownership of sufficient renewable energy credits to satisfy the renewables portfolio standard for the previous year. An application fee shall be submitted at the time of filing the application in an amount established by rule to be sufficient to cover the cost to process, monitor, and review the application and subsequent filings. Evidence of sufficient renewable energy credits shall be equal to the product of its total electricity sales to Hawaii electricity customers in the previous calendar year, denominated in kilowatt-hours, and the renewables portfolio standard for the same year. Renewable energy credits may only be granted for renewable energy generators located within the State.

SECTION 9. Renewable energy credits may be accumulated, sold, or exchanged by the person to whom the credits are issued or by any other person who acquires the credits. A sale or exchange of credit shall not be valid unless recorded with the public utilities commission within ninety days after the conclusion of the transaction.

SECTION 10. The public utilities commission may impose an administrative penalty against a qualified electric utility company for violating sections 3 to 6 of this Act.

SECTION 11. The public utilities commission shall annually provide a report to the legislature that includes the activities of the commission under sections 7 to 10 of this Act, program results, data, and any recommendations to achieve increased use and availability of renewable energy in the State.

PART IV. MISCELLANEOUS

SECTION 12. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 13. This Act shall take effect upon its approval.