Promoting Green Power in Canada - Centre for Human Settlements

Promoting Green Power in Canada Pollution ProbeConsumer response to buy-downprograms in order to increaseconsumer-sited distributed generationhas been disappointing throughoutthe United States.This development was enhanced through billAB 970, passed in August 2000, whichrequired the California Public UtilitiesCommission to develop and administer aprogram to encourage distributed generation.The program provides rebates of (US) $4.50per watt for renewable distributed generationsystems. However, distributed generation stillmakes up for less than one percent of theelectricity generated in California [CEC 2002a,p. III-4-6].Another important use of the SBC inCalifornia is the Customer Credit, whichreduces the price of green power purchases by1¢/kWh. Two other states (Oregon and NewJersey) have considered introducing customercredits for renewable power purchases, butso far California is the only state where thisapproach is used. A critique of the customercredit is that it creates an artificial market thatcannot survive without the subsidy and willcollapse when the subsidy is taken away. AnOctober 2000 evaluation of this part of theprogram revealed that nearly half of therespondents to a survey indicated they wouldhave reduced their output or shut downcompletely in the absence of the program[BOLIN 2001, p. 54]. The effectiveness ofconsumer credits or rebates has also beenquestioned as many consumers will not takethe time to seek out the cheaper offers madepossible by such schemes (see also lastparagraph of chapter 4.5.1). SBC-fundedincentives for existing plants in Californiahelped reactivate mothballed facilities and havekept them on-line since the introduction ofthe SBC (see also chapter 3.2.2).Pennsylvania adopted a slightly different wayto disburse funds to renewable powerprojects (see Box 4.6). Connecticut uses itsSBC funds to support the commercializationof technologies, very much like a venturecapital fund. Private co-financing is soughtwith each investment, and returns from theinvestments are meant to make the fund selfsustainingover time [BOLIN 2001, p. 58].Box 4.6 — Production Credit or Lump-Sum Payment?One important benefit of up-front incentives is that, given the time value of money, a fixedamount of money may be able to stimulate additional renewables development if a frontloadedpayment stream is used. This latter finding led the Pennsylvania SustainableDevelopment Fund to develop an innovative approach to distributing its production incentive.Initially planned to be a 5-year production incentive, the Sustainable Development Fundultimately awarded a lump sum payment to winning bidders, which was available uponcommercial operation of the project. Projects are assumed to “earn” this grant over timethrough a 1.5 cent/kWh incentive up to the aggregate grant level. Project performance issecured by a letter of credit. If projects do not “earn” their grant due to systematic underperformance,the Sustainable Development Fund has the ability — through the letter ofcredit — to take funds back from the project. If it is assumed that the wind developer’scost of capital exceeds the SDF’s opportunity cost of capital by 10%, it can easily beshown that this up-front lump sum approach boosts the incentive’s leverage by 22%compared to a production incentive distributed over five years. If the cost of capitaldifferential is 5%, an 11% leverage boost could be expected. [BOLIN 2001, p. 34]80