Fossil Energy Reduction Standard: A better RPS
Previously, I described difficulties with RPS policy, whereby layers of patches designed to address political problems create a convoluted overall structure that yields lousy policy. Today, I outline a better approach.
First a caveat: Too much of our energy policy is developed based on politics. There is a point in the political process where political compromise is necessary — but that shouldn’t precede an articulation of what good policy is. With that in mind, this framework sets out first and foremost to get the policy right.
As noted in the earlier post, this requires first that we clearly state the goals of an RPS. When you peel the onion all the way back, the ultimate goal of an RPS is to reduce fossil energy use. That suggests that a good RPS would provide an equivalent reward to anyone who lowers fossil energy use, pro rata with their reduction, regardless of what technology they used. That’s good policy, even if it’s politically difficult.
Principle 1: All clean energy credits are equal
Too many RPS discussions start from the idea that some clean energy is better than others. To be sure, some is — but only to the degree that it is cleaner, not because it happened to use a favored clean technology.
This is easy to fix:
- Create a single standard, and allow all eligible resources to participate.
- Set eligibility not based on technology, but on the goal — fossil energy reduction.
Principle 2: The target should be hard, but not impossible
The biggest objection to Principle 1 is that if you let all clean energy sources compete for the same credit, the expensive stuff (read: solar PV) will be priced out of the market. This objection implicitly presumes that the percentage requirement set in the RPS is lower than the available supply of clean energy sources. That suggests that the policy goal wasn’t particularly ambitious. Fix that by being more ambitious, not by constraining the supply of clean energy on the market.
Principle 3: Apply the FERS only to new generation
The current U.S. electric grid converts fossil fuel into useful, delivered electricity at about 33 percent efficiency. On the margin, it’s even lower (closer to 30 percent). That means that any fossil-fired plant that exceeds 30 percent efficiency is displacing our use of less efficient resources, and therefore eligible for FERS credits. (To be clear, as the FERS encourages more efficient generation, the bar would raise above 30 percent, so the credit to a marginally-efficient generator is not perpetual.) However, any portfolio standard only works to the degree it encourages the construction of new resources — so make sure only new resources are eligible.
French literature majors may stop reading here. For those who want to see the math, read on.
The total FERS credits (C) available to any generator in a calendar year are equal to the total annual electricity generation (E) multiplied by an adjustment factor (AF):
C = E x AF
The adjustment factor is a proportionality, from 0.0-1.0 that quantifies the fossil energy reduction created by the generator, or:
AF = 1 – GFE / FE, where
GFE = the fossil-fuel efficiency of the marginal generator on the U.S. grid (more on that later), and;
FE = the fossil-fuel efficiency of the eligible generator.
It’s worth stopping for a moment here to see how this math works. A solar panel consumes zero fossil fuel, and therefore has a fossil efficiency (power out per fossil fuel in) of infinity. The adjustment factor is therefore 1-0, or 1.0, and the solar panel can sell 100 percent of its annual MWh into FERS markets. Now compare this to a 60 percent efficient, fossil-fuel fired combined heat and power plant. We’ll assume for now that the fossil-efficiency of the marginal generator on the U.S. grid is 30 percent. The adjustment factor for this unit is therefore 1-0.3/0.6, so that generator can only sell 50 percent of it’s annual MWh into FERS markets.
But here’s the key: in both cases, eligible credits are solely a function of the fossil energy reduction. The credits sold by the CHP plant are no less pristine than the credits sold by the solar plant — but they do have fewer available to sell, reflecting the fossil fuel they use in their plant. Since the credits are identical, they can both be sold into the same market (per Principle 1). But since they scale with fossil energy reduction, the CHP plant has a continuing incentive to reduce their fossil energy use. How they choose to do that is up to them. Maybe they blend their fuel with a bit of biogas, maybe they increase their efficiency, maybe they tap a local geothermal well to pre-heat their boiler feedwater. But they make that decision based on the most cost-effective way to lower fossil energy, not based on a preference for whatever technologies happened to be defined as eligible.
Back to the math. Calculating the fossil-efficiency of the generator is fairly straightforward:
FE = E / (FF-T/TE)
E, as you recall, is the annual electricity output of the generator.
FF is the fossil fuel consumed by the generator. As noted in the solar example, this may be zero.
T is the thermal energy recovered by the plant, if it is operating in CHP mode
TE is the efficiency of the fossil-fuel fired thermal generator that would have been used but for the CHP plant.
The T/TE factor captures the fact that if you recover hot water from your power plant, the fossil energy you displace is not just the energy content of that hot water, but the energy that would have otherwise been burned — at less than 100 percent efficiency — in a hot water boiler. That’s mathematically precise, but also creates a neat trick, whereby the total FERS credits can, in some cases, exceed the MWh output of the plant.
Suppose, for example, that you tapped into the gas from your local landfill to make power, then used the exhaust heat keep your office warm, shutting down a natural gas-fired furnace in the process. Clearly, that’s better for the environment than simply throwing the heat away and continuing your use of that heater. This math gives you an appropriate credit, a credit which — to the best of my knowledge — is ignored in every existing RPS.
This leaves one final detail: how to calculate the fossil-fuel efficiency of the marginal generator on the grid? This turns out to be a really complicated question. While the average fuel efficiency of the whole U.S. power system is 33 percent, this includes everything on the system, much of which is not affected by your incremental decision to bring a cleaner unit of generation online. For example, no matter what you build, you are never going to provide an incentive for the local hydro plant to shut down … and yet the operation of that hydro plant is factored into the total system efficiency. So how do you figure out which mix of generation is affected by your power plant?
Fortunately, EPA has done the work for us. Their eGrid database calculates the CO2 emissions from the average U.S. power plant and the “non-baseload” power plant, for the purposes of calculating the CO2 impact of load reduction. As they put it:
Annual output emission rates for greenhouse gases (GHGs) can be used as default factors for estimating GHG emissions from electricity use when developing a carbon footprint or emission inventory Annual non-baseload output emission rates should not be used for those purposes, but can be used to estimate GHG emissions reductions from reductions in electricity use
By taking these factors and dividing the non-baseload lb/MWh factor by the lbs/MMBtu of the average “basket” of fuel used on the grid (about 133 lbs/MMBtu for the U.S. as a whole), you can readily calculate the implied fuel efficiency of that marginal generator. Depending on what region of the country you’re in, that turns out to be somewhere between 20-35 percent. The important thing is not to overspecify that number here, but simply to recognize that the EPA already tracks all the data necessary to calculate the fossil efficiency of a marginal generator on the grid — which in turn means that it is very straightforward for them to provide this number every year, and provide FERS credits accordingly based on actual fossil fuel displaced.
Reconciling with carbon markets
The astute reader may now be saying, “wait a minute, if we’re just rewarding fossil reduction, isn’t this redundant with CO2 regulation?” There’s a grain of truth to that criticism, but note two things:
- Such is the nature of an RPS. After all, this isn’t changing the goals of an RPS, it’s simply forcing us to articulate them more clearly.
- There’s a key distinction between RPS and CO2 regs that is sadly universal. RPS standards universally exist to provide incentives to clean generators, but don’t penalize the dirty ones. CO2 regulations, by contrast, exist solely to provide penalties to dirty sources, with no incentive for clean ones. A better CO2 regulatory regime would include a balance of sticks and carrots — but all the political pressure to date seems to be on sticks only.
In the ideal world, we simply do CO2 right, and don’t worry about an RPS. So long as that world remains out of reach, a carrot-only FERS provides a perfect balance, and therefore ought to be a part of an integrated CO2 plan.