Ill. still in search of solution for ‘broken’ renewable standard

Source: Jeffrey Tomich, E&E reporter • Posted: Thursday, April 24, 2014

A conflict between state laws continues to stifle renewable energy development in Illinois, a state with one of the most ambitious green power mandates that’s already among the nation’s largest wind energy producers.Illinois passed a measure in 2007 requiring investor-owned utilities Commonwealth Edison and Ameren Illinois to gradually step up use of renewable energy to 25 percent in 2025. Wind development flourished in the state in subsequent years, driven partly by the law.

Today, Illinois ranks fourth nationally, with more than 3,500 megawatts of wind generation capacity from 46 different wind farms dotting the northern half of the state, according to data from the American Wind Energy Association.

But a subsequent bill meant to jump-start competition among electricity suppliers has inadvertently pulled the plug on new development.

As a result, Illinois is falling behind on self-imposed goals to supply an increasingly greater share of its energy with cleaner, renewable generation, and tens of millions of dollars set aside for just for that purpose sits untapped.

Renewable energy advocates in the state continue to lobby for a solution. But whether it gets fixed before legislators break later this spring remains to be seen.

Competition exposes law’s flaws

The problem slowing Illinois renewable energy development is complex and intersects with the most fundamental change to utility regulation in the state over the past quarter-century — electric deregulation.

The Illinois General Assembly passed a bill in 1997 to open the state’s retail electricity markets. While competition for industrial and large commercial customers flourished starting in 2000, residential customers remained tethered to incumbent utilities until the law was amended a decade later and the Illinois Commerce Commission implemented some rule changes to encourage alternative suppliers to enter the market.

The key fix that helped millions of utility customers to shop for power suppliers was a measure that let cities, townships and counties aggregate, or pool, their electricity purchases. Much like a large company can extract better prices for office supplies, the law enabled municipalities to leverage their buying power to extract lower prices.

It was effective. Since 2011, about 70 percent of Illinois’ 4.4 million residential utility customers have cut ties with Ameren and ComEd and entered into contracts with alternative power suppliers. Utilities continue to bill the customers and deliver power through the same network of poles and wires.

While the law enabled electric competition to work for residential and small-business utility customers, the mass shift of customers from ComEd and Ameren to alternative suppliers over the past three years has exposed structural flaws in the renewable law.

First is the short-term nature of agreements between alternative energy suppliers and cities under municipal aggregation and the fact that Illinois law allows utilities and energy suppliers to comply with the law by purchasing either renewable energy itself or cheaper renewable energy certificates (RECs).

Alternative electricity suppliers such as Constellation NewEnergy, an Exelon affiliate, and Integrys are subject to the renewable standard. Under an arrangement they negotiated several years ago, the companies have the option to self-supply up to half of their renewable commitment by purchasing RECs.

For the rest of their requirement, the companies must make compliance payments to the Illinois Power Agency, which can use the funds to buy RECs or renewable energy.

“But the IPA doesn’t know how much funding will be there each year and can’t make long-term commitments,” said Mark Pruitt, an Illinois energy consultant and former executive director of the state agency.

In the end, he said, “there is really no mechanism to guarantee a long-term stream of payments, renewable or otherwise, in Illinois.”

Also complicating the situation is the fact that renewable energy funds collected from consumers served by utilities and alternative energy suppliers are maintained in separate “buckets.” And the power agency can’t spend funds from alternative suppliers unless it is simultaneously acquiring renewable energy for customers who still buy energy at the default rate from utilities.

Because the utilities have seen most of their customers turn to competing suppliers, they have no need to procure additional renewable energy because they have more than enough from a 2010 wind energy procurement.

That binds the hands of the power agency, which didn’t conduct a renewable energy procurement last year. In fact, the agency had to curtail some of the wind energy procured on behalf of utilities in 2010.

“Seventy percent of the residential customer base has left the utilities,” said Anthony Star, the agency’s executive director. “That kind of blows a hole in the budget.”

Unspent funds and flat growth

The result of everything is a growing pool of money for renewable energy procurement that can’t be spent and a renewable energy mandate that isn’t being met.

As of the end of last year, customers served by alternative energy suppliers had paid $53 million into a fund for renewable energy procurement — money that remains untapped.

The cash-strapped Illinois government borrowed almost $7 million from the fund a few years ago. It quickly repaid the loan, but there is growing concern among clean energy advocates that the Legislature could look to “sweep” the account once again.

Meanwhile, Illinois is falling behind on meeting its renewable energy targets. The statute requires utilities and alternative suppliers to obtain 8 percent of their generation from renewable resources for the year ending June 30. While there are no official data available, all parties agree that the state is falling short of the mandate.

An analysis by the Environmental Policy and Law Center published by the Chicago Tribune last year suggested 5 percent of eligible Illinois electricity demand was being met with renewable resources — well short of the 8 percent mandate for the 12-month compliance period that ends on June 30.

“Clearly, by some level of magnitude, the RPS is not being met,” Star said.

While renewable energy funds go unspent, clean energy development in Illinois has ground to a halt.

While 820 MW of new wind generation was added in 2012, the numbers last year were zero wind and only a couple of megawatts of solar, said Barry Matchett, co-legislative director and policy advocate for the Environmental Law and Policy Center, a Chicago-based clean energy advocacy group that’s helping negotiate a fix for the renewable standard.

A big reason for that, Matchett and other renewable advocates said, is the inability of the state to enter into long-term power purchase contracts that provide financial certainty to developers.

“Right now, banks are not lending to energy projects that are operating on a merchant basis,” said Kevin Borgia, manager of membership and public policy for Wind on the Wires, a wind energy advocacy group.

Borgia said developers representing eight prospective wind farms cumulatively worth 1,300 MW are currently holding county-level permits — a sign that they are serious about moving forward with the projects. And more than 1,000 MW of wind development saw local permits expire last year, with no guarantee that they’ll go through the process again.

Searching for a solution

There’s little disagreement about the nature of the problems with implementing the renewable energy law in Illinois, even given all of the disparate interests of utilities, alternative energy suppliers, renewable energy developers, consumer interests and legislators.

But general agreement about the nature of the problem doesn’t make it any easier to implement a solution.

The proposed fix wouldn’t change what consumers pay. Instead, it would solve the problem by allowing funds set aside for renewable energy to flow between accounts depending on whether customers take energy supply from a utility or an alternative supplier. That would guarantee the Illinois Power Agency a certain minimum level of funds to enter into long-term agreements with renewable developers.

A proposal to free up existing funds for clean energy procurement has been agreed to in principle by major players. And bills filed in 2013 that stalled in the Legislature could ultimately be revived.

While several interested parties reportedly reached an agreement last fall on a solution, the General Assembly has yet to formally take up the issue this spring. Among those that signed off on the bill were Chicago-based Exelon Corp., according to a story in Crain’s Chicago Business.

In a statement, however, the company said that while it supported the 2007 renewable standard and remains a proponent of clean energy, it is premature for the company to comment on any proposed changes in the law.

One important player that did not sign off on the fix negotiated by clean energy advocates is the Illinois Competitive Energy Association, an association of alternative energy suppliers.

Kevin Wright, the group’s executive director and a former ICC chairman, said the proposal would increase costs for his members by restricting their ability to self-procure renewable energy resources and forcing them to write bigger checks to the Illinois Power Agency.

Specifically, the proposed solution would allow alternative suppliers to self-supply one-fourth of their renewable requirement and buy the rest through the power agency. Currently, they can meet half of the requirement on their own and find it more cost-competitive to do so.

“It increases compliance costs,” Wright said. “That reduction from 50 percent to 25 percent really hurts.”

More recently, rumors of some type of comprehensive energy legislation next year to address the competitiveness of Exelon’s Illinois nuclear fleet could further complicate discussions about a fix for the renewable standard.

Matchett, however, remains optimistic that a measure will be adopted before the current session ends at the end of May.

“The existing statute isn’t getting it done,” he said. “But what’s great is that it’s easily remedied.”