From Silicon Valley to Wall Street To Foggy BottomFrom Silicon Valley to Wall Street To Foggy Bottom

FERC MARKET PULL MECHANISMS FOR MHK

AND OTHER SMALL RENEWABLES

Presented by Carolyn ElefantPresented by Carolyn ElefantLaw Offices of Carolyn Elefant, Law Offices of Carolyn Elefant,

Washington DCWashington DCSponsored by The Ocean Renewable Energy Coalition October 23, 2012:

FACT: FERC Order 679 resulted in proposed

$23 billion

of transmission investment

between 2008 and 2012

What is the potential impact of

FERC policies on

investment in

renewables markets?

OVERVIEW

•Market push v. market pull

•FERC’s role in “market pull”

•Specific FERC policies

PUSH V. PULL

Credit: Mirko Previsic, ReVision Consulting LLC*

*GMREC Presentation 2009, 0online at http://www.globalmarinerenewable.com/images/stories/2009Presentations/MirkoPrevisic-2009GMRE.pdf

FERC Federal Power Act Part I:

MARKET PUSH

Licensing & siting for MHK and other water-powered technologies

FERC Federal Power Act Part II:

MARKET PULL

Jurisdiction over wholesale power sales & transmission in interstate commerce

FEDERAL POWER ACT PART II•Jurisdiction over rates and contracts for wholesale

power sales in interstate commerce

•Jurisdiction over rates and contracts for transmission (and ancillary services), including interconnection to transmission or distribution facilities serving transmission functions and QF interconnection where QFs serve 3rd parties

•Jurisdiction over enforcement of PURPA and parameters for avoided cost rates

•Jurisdiction over demand response in wholesale markets

•Generally, NO jurisdiction over net-metering or distributed generation sales; limited jurisdiction in Alaska and Hawaii due to lack of interstate grid

RELATIONSHIP OF MHK TO FPA PART II•MHK (and other small renewables) eligible for QF

certification under PURPA and FERC rules

•MHK sale of power to utility = wholesale transaction (unless QF sale)

•Some MHK interconnection may be to distribution qua transmission

•MHK providers potentially provide storage or ancillary services that support transmission

•Merger policy (investment in renewables = potential hedge on market power)

•Transmission policy - Order No. 1000 to allow transmission for “public policy” - Atlantic Grid Connection

SPECIFIC FERC POLICIES

•PURPA and QF avoided cost rates/mandatory purchase obligations

•VERS (integration of variable energy resources into the grid)

•FERC ruling on net metering

•Order No. 1000 and transmission for “public policy,” Order No. 679 (green transmission incentives)

•NOPR Re: ancillary services and storage

PURPA

•Public Utilities Regulatory Policies Act of 1978

•Creates category of QF (qualifying facility) - small power (CHP, renewables) and cogen

•Mandatory purchase of renewables

•Avoided cost rates (I.e., cost of power from alternatives avoided by QF purchase)

From Silicon Valley to Wall Street To Foggy BottomFrom Silicon Valley to Wall Street To Foggy Bottom

FERC MARKET PULL MECHANIMS FOR MHK

AND OTHER SMALL RENEWABLES

Presented by Carolyn ElefantPresented by Carolyn ElefantLaw Offices of Carolyn Elefant, Law Offices of Carolyn Elefant,

Washington DCWashington DCSponsored by The Ocean Renewable Energy Coalition October 23, 2012:

PURPA

•What is a QF?

•FERC Rules Part 292

•Small renewable 80 MW or less(or cogen at certain efficiency ratings)

•QF can only sell wholesale not retail (to end user)

•Can self-certify upon meeting requirements

•Entitled to avoided cost rates (set by states pursuant to parameters established by FERC)

PURPA

•EPAct 2005 amendments to PURPA

•Allow utilities to terminate mandatory purchase

•To terminate, must be in competitive markets

•Requests for termination of >20 MW generally granted

PURPA

•What is avoided cost?

•Up until 2010, avoided cost viewed as costs avoided by purchase of all power sources (which are potentially inexpensive)(Southern California Edison ruling)

•2010 CPUC ruling

•No FIT but

•Sole source rates for renewables allowed by PURPA

•Can account for verifiable avoided costs (e.g., CAA compliance)

PURPA

•Other recent PURPA decisions

•West Virginia - FERC affirms that giving QFs RECs (renewable energy credits) does NOT violate avoided cost caps

•Idaho Power - cannot curtail wind power under QF contract even where it will pay more for purchase than if it didn’t buy power. Prices under long term PPAs calculated at time of purchase reflect all capacity and energy charges under Ks.

PURPA

•Summary: Impact of PURPA for MHK and small renewables

•Potential avenue for FIT-type rates; opportunities with CAA compliance costs rising

•Long term Ks with renewables under PURPA can hedge against volatile gas prices

•Mandatory purchases still available for small renewables

•Negotiating REC ownership for QFs increases value of rates

NET METERING•What is net metering?

•Power sales back to the grid by retail owners

•FERC Ruling July 2010 - net metering not subject to PURPA

•Impact: states can set any charges to encourage net-metering and are not bound by avoided cost caps

•Net metering/DG incentives are driving small solar. Potential opportunities for MHK (irrigation and other)

INTEGRATION OF VERS•Problem: intermittent nature of variable energy resources (VERS) can potentially complicate grid integration

•Solution: FERC rOrder 764 ule on VERS (July 2012)

•15 minute intra-hour scheduling

•Generators interconnecting under LGIA (large generator interconnection rule) must provide meteorologic and forced outage data to transmission provider if necessary to support forecasting

•More modest than initial proposal but creates certainty re: interconnection. Lays the foundation for when MHK grows up

SMALL INTERCONNECTION RULES•FERC small interconnection rules

•Applicable to

•Up to 20 MWgenerators connected to transmission or distribution facilities that support tmission functions (FERC has 7-part test) [*note - not applicable to non-juris muni utilities or AL/Hawaii]

•QFs selling excess power to third party (I.e., nonhost) utilities)

•More simplified process for 10 kw-2 MW (fast track, no system impact studies) and special process for10 kw inverter systems

•FERC to consider new small interconnect rules following series of technical conferences - should further facilitate interconnection

ANCILLARY SERVICES AND STORAGE•FERC RM11-24 Ancillary services and storage

rulemaking

•Anciallary services support transmission (regulation and frequency, imbalance, etc…)

•Proposed rule would allow market rates for frequency and regulation services (correct for variation w/additonal tmission)

•Possible market for MHK since it doesn’t require ramping.

ANCILLARY SERVICES AND STORAGE•Rulemaking also proposes methodology for

classifying storage functions so that utilities can recover investment

•Storage has transmission and generation components - should be accounted for based on function provided and be transparent

•MHK and other small facilities can provide storage (battery power, etc…) Depending upon function can qualify for cost of service, market rates or even trmission incentive

Transmission Policy•Transmission incentives (Order 679) - incentive for investment for certain tmission including “green” trmission functions (some battery technologies qualify for incentives)

•Order No. 1000

•Tmission providers must consider “public policy” in making tmission decisions

•Atlantic Grid connection is potential beneficiary

•Other innovative tmission to support MHK?

www.oceanrenewable.com

@oceanrenewable

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carolyn@carolynelefant.com

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