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Mar 11, 2016 at 05:38 PM

Oregon's 50 percent renewables goal: The side effect for IOUs

By Ares North America

By Barbara Vergetis Lundin

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A new law, SB 1547, doubles Oregon's access to renewable energy -- raising the state renewable energy law to 50 percent renewables by 2040.

The new state renewable portfolio standard (RPS) target puts Oregon on track to meet its greenhouse gas reduction goals, which calls for reducing carbon emissions 75 percent below 1990 levels by 2050.

Portland General Electric and Pacific Power, serving approximately 70 percent of Oregon customers' electricity needs, will now generate 50 percent of their power from renewables by 2040 -- up from the 25 percent by 2025 target, a move that will help spur significant growth in local wind and solar energy investments.

Under the bill, electricity allocated to PacifiCorp and PGE customers would not include any coal-fired generation by January 1, 2030, except for a small amount associated with PGE's minority ownership of Colstrip, which will be excluded no later than 2035, noted Jennifer Martin, partner at Stoel Rives in Portland.

"With this new law in place, Oregon joins the exclusive 50 percent renewable energy club," said Mike Garland, CEO of Pattern Energy and current chair of the American Wind Energy Association (AWEA) board. "The U.S. wind energy industry applauds these commonsense, 'no-regrets' state laws spurring added economic investment, job creation, and consumer savings. These states are well ahead of the curve as new market drivers and state-federal policies point in the direction of a cleaner electric grid."

States with renewable energy policies of 50 percent or higher include Oregon, Hawaii, California, and Vermont. Legislation under consideration in New York could soon make them the fifth state with a 50 percent or more RPS. Non-utility purchasers, including big name brands like Procter & Gamble, Microsoft, and Google, have created a new market for renewable energy by investing in renewables as a way to cut costs and lower their carbon footprints.

SB 1547 is one of the most aggressive RPS standards in the nation, according to Martin, matched only by California and New York, which have a 50 percent target by 2030, Vermont, which has a 75 percent target by 2032, and Hawaii, which has a 100 percent target by 2045.

Martin notes that while the existing ratepayer protections relating to RPS compliance were retained, capping the incremental costs of compliance at 4 percent of the utilities annual revenue requirement for a compliance year, a new provision was added to permit the Oregon PUC to temporarily suspend RPS compliance if the utility determines that grid reliability is seriously compromised.

The state's treatment of renewable energy credits (REC), including what types of facilities can generate them and how long they can be "banked," will change substantially.  On the generation side, SB 1547 lifts the existing ban on using RECs generated by biomass and municipal solid waste facilities that became operational before 1995, Martin explained, adding that before now, RECs generated by such facilities could not be used for compliance prior to 2026.

REC "banking" was hotly debated during the negotiations. The pre-existing state RPS allowed investor-owned utilities (IOUs) to bank and carry forward RECs indefinitely. SB 1547 will end that practice, Martin said. While consumer-owned utilities will be able to bank RECs indefinitely, the state's IOUs will have different rules.

"The distinction between contracts of less-than and more-than 20 years will have an unfortunate side-effect. RECs from qualifying facilities in the state that come online between now and the end of 2022 will be less valuable to the IOUs purchasing the energy," said Martin. "The reason is this: qualifying facility contracts are limited to an initial term of 15 years. Thus, RECs issued for electricity from those facilities during the first five years of their operation can only be banked for five years while RECs issued for electricity procured under contracts of 20 years or more may be banked indefinitely during those first five years."

She added, "Notwithstanding this side effect, there is also an upside for developers:  unlimited banking for RECs issued in the first five years of new 20+ year contracts should incentivize IOUs to enter into those long-term contracts.  This could provide a particular short-term spur to the market for larger projects that will not pursue QF contracts."

SB 1547 also establishes a community solar program in Oregon, which allows residential and small commercial customers to credit electricity received from off-site solar projects to their utility bills.  In contrast to other states with community solar programs, SB 1547 requires that community solar projects be located within the state, which is another opportunity for increased solar development in the state of Oregon.

Posted in ARES News.