Meeting renewable energy targets turns out to be inexpensive

Source: By Mark Jaffe, The Denver Post • Posted: Monday, June 9, 2014

It turns out that adding renewable energy to the electricity generation mix doesn’t end up costing all that much, in at least one case it has even saved money. In  the cost came to less than a penny per kilowatt-hour in 2012.

Among the 24 states with renewable portfolio standards that were analyzed, the cost of complying between 2010 and 2012 was equal on average, roughly 1 percent of retail electricity rates, according to study by two national laboratories.

The average additional cost in 2012 for renewable energy came to about 2 cents for each kilowatt-hour.  saw and slight decrease in costs as renewables replaced more expensive generation. Wisconsin had the biggest incremental cost, about 4.4 cents per kilowatt-hour.

The study was done by the National Renewable Energy Laboratory in Golden and the Lawrence Berkeley National Laboratory in Berkeley, Calif.

“The cost is fairly modest, though not insignificant,” said Galen Barbose, one of the study’s co-authors and a Lawrence Berkeley researcher.

There has been upward pressure on the cost of compliance as renewable-energy targets are raised and more renewable sources are added, Barbose said. In Colorado that compliance cost roughly doubled between 2010 and 2012.

But since most states, including Colorado, cap the rate impacts of renewable energy the pressure likely will not translate to higher bills.

In Colorado, the cost to customers is capped at 2 percent of a residential bill. This Renewable Energy Standard Adjustment raises money to cover the above market cost of renewable-energy sources. Most of the money has gone into the Solar Rewards program for residential and small business rooftop solar installations.

Since 2006,  has offered incentives for residential and small commercial solar installations under the Solar Rewards program. The program has provided more than $276 million in incentives to Colorado customers and installed nearly 17,800 photovoltaic systems, the company said.

Solar Rewards has, however, run up a $42 million deficit that the Colorado Public Utilities Commission has pressed Xcel to reduce. The utility did away with rebates and trimmed the incentives for solar systems. It now offers a credit for of 3 cents for each kilowatt-hour generated by home solar panels, down from 9 cents in 2012 and the utility anticipates soon erasing the deficit.

At the same time, the cost of solar installations has dropped from $9 a kilowatt to less than $4 a kilowatt — with Colorado having just about the lowest installation cost in the country, according toanother Lawrence Berkeley National Laboratory study.

As a result of the deficit, Colorado actually spent 3 percent of sales on Solar Rewards, in effect surpassing the cap, even though it did not appear on customers’ bills.

There were two drivers in Colorado’s higher renewable-energy costs, the study said. First are the higher renewable-energy targets the state set. Colorado’s investor-owned utilities must get 30 percent of their electricity from renewable sources by 2020. Only California, with a 33 percent standard, is higher.

“The state’s largest utility, Xcel Energy, attained renewable procurement levels equal to 15 percent to 22 percent of retail sales over the 2010-2012 period compared to renewables procurement levels of 5-10 percent in most of the other states,” the study said.

The second driver is a requirement that portion of the target be met with roof-top solar, or distributed generation, which is more expensive than some other renewable sources, such as .

“Part of that it is an accounting issue,” Barbose said. “The cost for distributed generation has been heavily front-loaded with rebates and incentives, but once the system are up, there is less cost.”

Even with all that, Colorado costs for meeting the renewable standard were relatively modest.

Twenty-four utilities in eight states put a surcharge on customers’ bills, which in 2012 averaged $1.99, according to the study. The Xcel charge on a Colorado customer’s bill was $1.44, putting it in 16th place.

The highest surcharge was by Citizens Electric & Gas in  at $4.50. The lowest was Indiana Michigan Power at 7 cents.

“The takeaways from the study that the costs for meeting the standards have been pretty modest,” Barbose said. “But going forward meeting the targets will put pressure on compliance costs, but most state’s have some kind of cost containment that will blunt that upward pressure.”