Renewable energy and clean air compliance: green convergence.

• Author: Knutson, Kent Siguart
• Position: Environmental Protection Agency Clean Air Interstate Rules

The electric utility industry has recently witnessed an extraordinary amount of regulatory activity focused on renewed clean air initiatives and new generating technology. "Green convergence", a term recently applied to a combination of state and federal regulatory events, has utility industry executives more closely scrutinizing their generation investment decisions and power supply alternatives.

Electric generation and distribution companies alike currently face the long term impact of compliance with the recently enacted EPA Clean Air Interstate Rules (CAIR) and existing mandates to meet state renewable portfolio standards (RPS).

The convergence of these two similar but independent sets of regulations and mandates has utilities in affected states scrambling to develop new strategies to meet both air quality and renewable energy standards simultaneously. The complexity of each set of standards and the difficulty in monitoring results may well lead policy makers toward a national policy addressing not only emissions but renewable energy as well. This article takes a broad look at some of the federal clean air compliance requirements, the nature of state renewable portfolio standards, and some of the investment initiatives planned or underway by electric utilities.

The investment in emission controls necessary to meet federal CAIR standards have been estimated by a number of industry observers at more than $50 billion between now and 2020. In addition to those investments in clean air technology required of generators, a recent study by Global Energy Decisions, "Renewable Energy: The Bottom Line", projects that the investment necessary to meet state renewable portfolio standards (RPS) by 2020 will reach $53.4 billion--$17.6 billion alone in those states also affected by the new EPA CAIR rules by 2015. When fully implemented, Global Energy Decisions forecasts both RPS and CAIR will require more than $100 billion in investment by utilities over a 15-year window.

At the same time that funds are dedicated to emissions controls, companies are investing heavily in renewable energy. Wind development is at an all time high. These renewable energy project initiatives are driven in part by yet a third element in "green convergence", the federal production tax credit (PTC). This tax credit awards generators 1.8 cents/kWh for electricity generated by qualifying renewable energy sources that is sold to end users or the market.

IMPORTANT REGULATORY TERMS

Clean Air Interstate Rules (CAIR)

Promulgated Adopted by the Environmental Protection Agency in early 2005, these regulations impose limitations on S[O.sub.2] and N[O.sub.x] emissions produced by generators of electric power in 28 eastern states.

Production Tax Credit (PTC)

This federal initiative, set to expire in December 2005, provides generators with a tax credit of 1.8 cents for each kWh generated by renewable energy sources. The credit was developed to spur the production and sale of electricity generated by wind, solar, geothermal and other qualifying renewable energy projects.

Renewable Portfolio Standards (RPS)

Adopted on a state-by-state basis, these standards mandate that distributors of electricity meet a specific percentage of their load with power generated from renewable energy sources. The standards vary considerably in incentives and compliance levels.

The PTC is currently set to expire in December of this year and has spurred significant investment in renewable technologies. Wind capacity alone is forecast to more than quadruple during the next five years. In addition, according to Global Energy Decision's NewEntrant project tracking system, there are more than 37 GW of new coal projects planned to be operational before 2010--more than 15 GW are clean burning coal gasification and fluidized bed technologies.

Adding to the myriad of complex compliance decisions facing utility executives, the prices for S[O.sub.2] and N[O.sub.x] allowances have increased dramatically...