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November, 2008
On the Right Track
Renewable energy on the right track in Pennslvania.
The Pennsylvania Alternative Energy Portfolio Standards Act (AEPS), signed into law in 2004, requires electric distribution companies and electric generation suppliers in Pennsylvania to supply 18 percent of their electricity using alternative energy resources by 2020.
The requirement is classified into two energy tiers. Tier 1 requires 7.5 percent to come from wind power, low impact hydropower, geothermal energy, biologically derived methane gas, fuel cells, biomass energy, and coal mine methane. Tier 1 also states that at least 0.5 percent must come from solar energy. Tier II requires 10 percent of the electricity generated to come from waste coal, distributed generation systems, demand side management, large scale hydropower, municipal solid waste, wood pulp byproducts, and integrated combined coal gasification technology.
Pennsylvania utilities and other power suppliers could easily meet the Tier II requirement with existing resources from the day the legislation was signed. But there is a long way to go before the Tier 1 renew-able requirement and the solar share can be met. If there is not enough renewable energy available to fulfill the Tier 1 requirements, the AEPS force majeure provision will allow electric utilities and power sup-pliers off the hook.
Will we make it? Will there be enough wind and solar power available to meet the AEPS requirements? Thanks to good resources, good policies and incentives from both the state and federal governments, and the geographic scope of the AEPS, the answer is a clear yes.
According to Industrial Info Resources, Pennsylvania currently has more than 47,450 megawatts (MW) of operational generation capacity, but only 4.5 percent of that is made from renewable sources. But Penn-sylvania could meet 41 percent of its electricity supply with wind energy and 18 percent from solar en-ergy, according to a recent analysis by the Institute for Local Self-Reliance. These projections are promis-ing, and there are projects in the pipeline that will help meet the near term AEPS compliance require-ments.
The Resources
Wind Energy
Wind energy has had an impressive couple of years in the U.S. and in Pennsylvania. According to 2008 Wind Power Outlook from the American Wind Energy Association (AWEA), wind energy in the U.S. grew by a record 45 percent over the last year, with over 5,200 MW installed. Wind power is now one of the largest sources of new electricity generation of any kind. The Lawrence Berkeley National Laboratory also reported that in 2007, wind power contributed to 35 percent of all new generating capacity in the U.S. in 2007, the second largest energy resource added for the third straight year in a row.
Pennsylvania has followed the national trend. Pennsylvania currently has 10 operating wind farms with a total installed capacity of 323 MW, producing approximately 848,318 MWh of clean electricity each year. By early next year it is expected that four more wind projects will come online, increasing the state’s total installed wind energy capacity to 595 MW, generating roughly 1,563,922 MWh of electricity each year. That is enough power to meet the needs of 173,769 homes each year. There are another 13 proposed projects at various stages of development in the state. These projects represent a total of 858 MW, equal-ing 2,256,401 MWh of electricity generation.
All told, the existing, under construction, and proposed wind projects in Pennsylvania will equal total in-stalled capacity of 1,453 MW, which is expected to generate approximately 3,820,323 MWh of electricity each year. That would meet roughly 1.5 percent of Pennsylvania’s total electricity demand.
So how do the existing wind projects and projected future development stack up against what is required by the AEPS? By 2013, utilities will be required to purchase 2,441 MW from Tier I resources and by 2018, the requirement ramps up to 4,134 MW. Conservative estimates indicate that 70 percent of Tier I will be met by wind. Using this assumption, there is the need for 1,708 MW of wind by 2013 and 2,893 MW by 2018 to meet these near term requirements. That means that existing and projected wind energy devel-opment is on track to meet approximately 85 percent of the 2013 requirements, and the rest can be met by new solar, landfill methane, manure digester, biomass, and low impact power projects.
Recent projections indicate that Pennsylvania should also be able to meet the longer term requirements. According to the Public Utility Commission’s AEPS annual report, “Between 2008 and 2013, renewable resources could represent approximately 34 percent of the planned capacity additions within the Com-monwealth. Of the total additions, wind will be responsible for about 27 percent of the additions. At this point, AWEA estimates that wind capacity could provide more than 5,657 megawatts (MWs) between 2008 and 2013.” Additionally, AWEA estimates that the wind energy potential in Pennsylvania is 5,120 MW, giving the state a rank of 22nd in wind development potential nationwide.
Clearly, Pennsylvania has the wind resources in the state to meet its AEPS Tier I goals. Pennsylvania has a healthy wind energy market with at least six separate companies owning wind projects across the state, and five energy companies purchasing the power from projects. Capacity factors are improving here and wind energy prices remain competitive with wholesale power prices.
Solar Energy
Solar energy has had a much slower start than wind energy. Currently there is less than 1 MW of installed solar capacity in Pennsylvania. In order to meet the near term goals of the AEPS solar share by 2013, we will need to build 74 MW within five years, and 549 MW within 10 years.
Fortunately, the cost of solar energy is coming down. According to the Department of Energy, established solar manufacturers are realizing cost reductions across the value chain, and installed solar system costs will be reduced by approximately 50 percent by 2015; the cost difference between solar energy and the price of grid electricity in Pennsylvania is projected to be less than 5 cents per kilowatt-hour by 2015.
Commercial scale solar projects are on the rise in Pennsylvania. The 3 MW Exelon-Epuron Solar Energy Center is scheduled to be operational in the third quarter of 2008, and will be able to produce about 3,700 MWh of electricity per year. Additionally, Exelon and Epuron are teaming up for a 1.4 MW solar project at the Philadelphia Naval Yard that is expected to produce about 1,400 MWh of power each year. And there are plans to build a 10 MW at the Green Acres Industrial Park in Nesquehoning, Carbon County.
Policies and Incentives
Last July, the Pennsylvania General Assembly passed landmark legislation that created a $650 million Alternative Energy Investment Fund. Understanding the need to further jumpstart the solar market in Pennsylvania and to provide homeowners and small businesses with the opportunity to invest in solar energy, the General Assembly allocated $100 million that will pay up to 35 percent of the cost of installing small solar systems at homes and businesses.
These funds will play an important role in achieving the AEPS solar share goals. Assuming the average 3 KW system costs roughly $24,000, there will be enough funding to install approximately 11,900 solar PV systems of 3 KW each. This could create 35 MW of new installed solar capacity by 2012, which would produce roughly 33,726 MWh of electricity annually.
The new smaller solar projects combined with the proposed commercial scale projects will meet approxi-mately 70 percent of the 2013 solar share requirement or 49 MW.
There are also federal incentives that can help fill the gap. The Emergency Economic Stabilization Act of 2008 (the $700 billion bailout bill) includes several financial incentives to help the development of solar energy. These include:
Extending the 30 percent solar investment tax credit for eight years for both residential and com-mercial solar installations;
Eliminating the $2,000 cap for residential solar electric installations which creates a true 30 per-cent tax credit (effective for systems placed in service after December 31, 2008);
Eliminating the prohibition on utilities from benefiting from the credit;
Allowing Alternative Minimum Tax (AMT) filers to take the credit; and
Authorizing $800 million for clean energy bonds for renewable energy generating facilities, includ-ing solar.
This package of federal incentives combined with state funding will put solar energy projects within the financial reach of many homeowners and small businesses. In addition, some solar companies are struc-turing financing plans that may allow homes and businesses to install solar without footing the upfront costs of installation.
The expiration of Pennsylvania’s electricity rate caps by January 2011 will make solar energy an increas-ingly attractive energy option. Residential and commercial customers may see an increase in electric rates from 20 to 50 percent when rate caps expire. Rate caps have protected consumers from paying for the increased costs of the fossil fuels used to generate most of our electricity. These costs will be passed on to the customer when rate caps end. These electricity prices, which fully reflect the costs of genera-tion, make investments in solar more attractive and cost-effective.
Geographic Scope of the AEPS
The final AEPS rulemaking allows utilities to meet their renewable energy requirements by purchasing wind, solar, biomass, and other renewable energy anywhere within the PJM regional transmission terri-tory, which encompasses 13 states and the District of Columbia. According the AWEA, the wind energy potential alone across PJM equals approximately 14,340 MW. And PPL Renewable Energy announced plans to build a 5 MW solar project in Warren County (NJ) that could expand to a 50 MW facility.
Our abundant resources coupled with good policies and incentives will ensure that there will be plenty of clean, renewable electricity to power our future and more than meet the requirements of the AEPS. Pennsylvania is clearly on the right track.
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