Promoting Green Power in Canada - Centre for Human Settlements

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Promoting Green Power in Canada Pollution ProbeTable 4.3 — Minimum Capacity Requirements to Obtain NOx AllowancesTechnology Capacity Factor Minimum Plant Capacity Required to Offset1 Short Ton of NOx Emissions (1,333 MWh)over 5 months (3,600 hours)Wind 30% 1.22 MWSolar PV 14% 2.61 MWGeothermal 95% 0.38 MWWave Energy 30% 1.22 MWBiomass Combustion 85% May become budget sourceimportant amount, it is by itself not enoughto make up for the price difference betweenmost renewable resources and fossil fuels. Dueto NOx emissions arising from electricityproduction from biomass it is possible thatthis resource will not even benefit from theNOx set-aside, although it is treated thesame as other renewable power sources undersome US programs, such as the one in NewJersey. Although advanced biomassgasification combined-cycle systems areexpected to emit relatively small amounts ofNOx (0.0005 t/MWh) 17 [NREL 1997], this isstill too close to the NOx allocation of0.0007 t/MWh to generate income from NOxallowance trading.The impacts of set-asides on renewablepower development also depend on localcircumstances. New Hampshire takes part inNOx trading, and has set aide 445 NOxallowances a year for energy efficiency andrenewable power projects. However, very fewfacilities have made use of this provision sofar. Only one small hydro facility and onelandfill gas project 18 have benefited from theset-aside, and very little over all: the landfillgas project only qualified for two allowancesper control period, and the hydro facilitygained 9 allowances in 1999, 7 in 2000 and5 in 2001 [NHDES 2002]. This is partly dueto the provision that projects must havestarted in or after 1990 to be eligible, andpartly to the fact that renewable powerprojects have to prove how much NOx theiractivities displace based on the existingbackground mix (with 10% discounted foruncertainty). Due to improvements in theemissions performance of the fossil fuelbasedfacilities over the past decade, less andless benefits can be derived from renewablepower production, hence the decrease inallowances allocated to them [RYP 2002].This procedure makes it complicated andcostly to apply for allowances and, becausethere is high volatility and unpredictabilityBox 4.4 — Input-Based vs. Output-Based Allocation of AllowancesOriginally, the EPA’s NOx tradingprogram was based on an input-basedallocation process. The NOx set-asideprogram is output-based. Thisencourages efficiency and avoidsgiving the wrong incentives, i.e., themost polluting units had a “free pass”to keep on working like before underthe old system because an inputbasedapproach allocates the sameamount of allowances to less efficientplants as to others that may producemore electricity with the same amountof fuel. In addition, an output-basedallocation process that assignsallowances based on MWh ofelectricity production facilitates theinclusion of renewable energy plants,some of which do not use any fuelinput, but rely on natural resources,such as wind, solar energy, and water.72
Promoting Green Power in Canada Pollution Probein NOx allowance market prices (pricesvaried from up to $4,000 a ton to as little as$300 a ton, when a high polluting unit wastaken off-line), this seems to be a deterrentto many renewable power producers. Finally,opportunities for renewable power projectsin a small state, such as New Hampshire, arescarce, and additional incentives may beneeded to increase the renewables share.In New Jersey, the conditions have been morefavourable towards renewable power. Setasidesare allocated based on the 1.5 lb perMWh-rule and no measurements orcalculations are therefore required to provethe exact amount of NOx displacement.Application forms are provided, and about75 allowances annually have been claimedover the past three years by three landfill gasprojects and one energy efficiency project.Officially, the New Jersey set-aside will provide410 tons of allowances to EE/RE projects asof 2003, about 18% of which are alreadybeing claimed by the above-mentionedprojects. The program administrator believeshigher participation in the program is notyet taking place because many renewablepower providers are not aware of the program[NJ 2002]. A New Jersey landfill gas projectadministrator also highlighted the fact thatrevenues from NOx trading are fairly smallas compared to the Renewable Energy TaxCredit, which amounts to currently (US)1.7¢/kWh (CDN 2.7¢/kWh). He indicatedrevenues of only (US) 0.28¢/kWh (fivemonths’ income averaged over twelve months)in 2001, which would again be reduced by USincome tax rates (about 38%) [NRG 2002].If brokering services were used to trade theallowances, a further reduction would takeplace due to brokerage fees. These numbersshow that there may be little incentive forrenewable power generators to engage inNOx trading at current rates.New York State has had a set-aside pilotprogram running since 1999. It currently onlyprovides 115 allowances for energy efficiencyprojects, but will include renewable powerNOx trading alone will not be enoughto make renewable energy competitive.by 2003, with an increased budget (1,241allowances). Although some 60 tons worthof allowances have been certified for energyefficiency projects, no allowances have beenallocated yet as authorities have had fewresources to dedicate to the administrativeprocess creating allowances from demandreductions. However, increased activity isanticipated for 2003 as several renewablepower companies (including some windenergy providers) are interested in theprogram, since they hear about it when theirfacilities are going through the permittingprocess. Plants will probably be eligible ifthey were built within the last five years, andallocations will be available for up to fiveyears. The overall set-aside is not planned togrow and new projects can benefit fromallowances as existing plants lose eligibility[NYSERDA 2002].Generation Performance StandardsThe initial allocation process for set-asidesproposed by the EPA is really a GenerationPerformance Standard (GPS). A GPS(sometimes referred to as an EmissionPerformance Standard, or EPS) regulatesemissions in terms of an allowable quantityof emissions per quantity of electricitygenerated. This emission rate per MWh ofelectricity (or steam) produced is assessedbased on the overall production of electricityin the previous year, or the average of severalpreceding years. Then the total allowableNOx budget is distributed to all sources,based on their production. This effectivelycreates a need for extra allowances for unitsthat emit more than the average, which is theGPS (1.5 lb/MWh for the example of NOxallowances discussed above), and gives creditsto low-emission sources. The special featureof the US NOx allowance programs is that73
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