MARKETS in the U.S. for electric power generated from biomass and other renewable fuels are expanding at a fast pace, driven by concerns such as reducing air pollution, mitigating climate change, and reducing dependence on imported oil. But prospects vary widely among different renewable energy sources and from state to state. Cost-competitiveness is central to any energy technology's success, but other factors also play important roles. Energy marketers are developing new ways to vend green power, and many states offer diverse incentives for renewable energy development. In sum, to reap the full market value of electricity produced from renewables, suppliers need to know not just how to produce power economically, but how and where to sell it.
This article examines how biomass energy technologies are performing in evolving U.S. renewable energy markets, and some of the key policy mechanisms that are shaping their near-term prospects. Part I describes how customers buy renewable energy - either as actual electricity, or as credits for power generated from renewable fuels but used by other parties - and provides some examples of renewable energy suppliers whose offerings include electricity from biomass. Part II will examine policies that states have adopted to support renewable energy, with a focus on state renewable portfolio standards (RPSs) and renewable energy investment funds. These policy tools are important drivers of green power markets, but they do not all treat biomass equally from state to state. Some biomass fuels and technologies are considered more renewable than others, and thus are better positioned to compete for renewable energy credits and state investments.
MARKETING GREEN POWER
Renewable energy is marketed in the United States through three major channels, all of which generally cost slightly more than conventional electric power. First, in states where power markets are still served by regulated utility companies that have monopolies in their service areas and are required to serve all customers; many utilities offer green pricing options. Under these programs, customers can choose to have some or all of their power supply come from renewable energy sources, or can contribute some of their fees toward investments by the utility in renewable energy. Pricing options do not require consumers to switch power providers.
According to the National Renewable Energy Laboratory (NREL), about 100 distinct green pricing programs exist in the United States. Premiums for these options over conventional electric power range from 0.6 cents to 17.6 cents per kilowatt-hour (kWh) and average 2.62 cents/kWh. Over 265,000 buyers, including about 6,500 nonresidential customers, participated in green pricing programs at the end of 2003, about 1.2 percent of eligible customers in each utility's service territory on average.
In states that have restructured their electricity markets to require competition, consumers can purchase renewable energy through green power marketing programs, in which independent power suppliers offer electricity generated from specified fuels. Like utility green pricing programs, green power market products generally come at a premium over conventional power, ranging from about 0.1 cents to 5 cents/kWh and averaging 1-2 cents/kWh according to NREL. Green power marketing programs currently exist in Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Texas, Virginia, and the District of Columbia. NREL estimates that 150,000 consumers were buying green power marketing products at the end of 2003, mainly in Texas and the Northeast.
Buying green power in a competitive market usually requires switching power providers. However, some green power marketers are teaming up with former utility companies that are "default" service providers in restructured markets (i.e., customers are assigned to these providers if they do not opt to switch to a new competitor) to sell green power through the default provider. In these situations, a green power marketing product looks much like a green pricing option to the consumer.
FAST-GROWING OPTION IN RECS
Renewable energy certificates (RECs) offer a third and fast- growing option for buying green power. Also known as renewable energy credits, tradable renewable certificates, or green tags, RECs represent the environmental attributes of a unit (typically one megawatt-hour) of electricity generated from renewable fuels, and can be sold separately from the electricity. RECs are an important innovation in green power marketing from the perspective of both producers and consumers of renewable energy. For producers, selling RECs generates a second revenue stream in addition to the income earned from selling commodity electricity at market rates. This extra revenue helps to make renewable energy cost-competitive with conventional electric power and stimulates the development of new renewable energy projects. RECs allow producers to sell their power output where it can be easily delivered to the grid and its renewable attributes in other markets where they may bring higher value. For consumers, RECs make it possible to support renewable energy generated from many types of fuels in favorable locations (for example, solar power produced in Arizona or biomass energy generated from agricultural waste in farm states), and to separate investments in renewable energy from their electric power purchases, thus avoiding the need to switch power providers.
Each certificate carries information such as the type of fuel used to generate the credit, where generation took place, and the generation year or "vintage." In power markets that have tracking systems to monitor the attributes of each unit of electricity produced (such as the New England Power Pool's Generation Information System), renewable energy generators participate in the pools to earn certificates documenting their production of renewable energy, which they can then sell. In the absence of such systems, RECs are created by producers who certify that they have generated stated quantities of electricity from renewable fuels. A handbook for regulators produced by the California-based Center for Resource Solutions (CRS), a nonprofit that works to promote green power programs, states that RECs "should be deemed to come into existence at the moment the electrical output of the renewable energy facility is measured, either by physical metering or at the moment the energy is delivered to the grid or other load without metering. Metering is important to demonstrate the amount of renewable energy generated or the quantity of certificates that are created."
RECs are transacted in two arenas: voluntary markets and regulatory compliance markets. Voluntary purchasers - companies, government agencies, nonprofit institutions, or households - buy RECs from sources of their choice for purposes such as supporting renewable energy development, meeting corporate environmental performance pledges, or stimulating local economic development (if the credit comes from a nearby energy source). For example, homeowners who do not have access to green pricing options in their state can support renewable energy by buying RECs generated elsewhere, and companies that want to support local communities can buy RECs from nearby generators. According to NREL, some 5,000 U.S. retail customers purchased RECs in 2003. Electric power providers may also buy RECs, combine the credits with conventional electric power, and sell the bundled product as renewable energy.
Regulatory compliance markets exist in states that have adopted renewable portfolio standards (RPSs) requiring that certain percentages of the electricity delivered instate must be generated from renewable energy by specified dates. Electric power providers in these states purchase RECs from providers who meet state RPS criteria to show that they have complied with RPS requirements. Portfolio requirements vary widely from state to state. For example, some RPS requirements can be met with power generated within the regional power pool (i.e., in adjoining states that share the same electricity market), while other states mandate that the renewable energy must be generated within their own territories. States may require a certain fraction of renewable power to be generated from facilities constructed after adoption of the RPS requirement, rather than from established sources, in order to stimulate development. Some states separate renewable fuels into tiers and require a minimum amount of energy to be produced from preferred fuels and technologies. Only a few states with RPS requirements have created systems for generating and trading RECs, most notably Texas and Massachusetts, but others are considering similar action, and if a national RPS is enacted at some point, it could lead to the creation of a national REC trading program.
In most regulatory complia
ce markets, especially where states have adopted highly specific RPS requirements, a limited supply of credits exists to meet REC buyers' needs, so prices for these credits tend to be higher than in voluntary markets. In mid- October, according to data from brokerage service Evolution Markets, year 2004 compliance RECs representing one megawatt-hour were selling for about $14 in Texas and for $50 in Massachusetts (where power must come from new renewable facilities to receive credit). In contrast, voluntary RECs generated in a number of locations for years 2003 through 2010 were being offered at prices between $0.75 and $5.00, with a few wind RECs priced at about $15 and one California solar REC offering at $50.
Table 1. New Renewables Capacity Supplying Green Power Programs (2003) [see EnergyCentral link - LJ]
In addition to price differences, green power programs vary in the percentage of energy they derive from new versus existing renewable energy producers. Because green power marketers operate in competitive electricity markets, they are more likely to include power from existing resources (which is typically less expensive than electricity from new renewables) in their products. Conversely, utility green pricing programs and REC products generally contain a higher proportion of new renewable power.
To help consumers identify the most environmentally beneficial green energy products, the Center for Resource Solutions administers the Green-e renewable energy certification program, which sets voluntary environmental and consumer protection standards for RECs and other renewable electricity products (see sidebar). CRS enforces and verifies Green-e standards through annual audits of certified companies' purchases and sales. Green-e certification is widely recognized and cited as a "gold standard" for green power programs. As of July 2004, 100 marketers and utilities throughout North America offered Green-E renewable electricity products.
GREEN POWER FROM BIOMASS
Biomass represents a significant share of current and planned generating capacity in green power programs, second only to wind power (Table 1). According to the U.S. Department of Energy, biomass accounted for about 6.4 percent of net generation from renewable fuels in the electric power sector in 2002. Most electricity generated from biomass (about 92 percent) came from solid waste and landfill gas facilities, but other biomass technologies are also represented in green power programs.
For example, Alabama Power Company offers a Renewable Energy Rate under which residential customers can purchase 100-kWh blocks of renewable power for 6 cents/kWh above the standard rate. The program is currently fuelled with Alabamagrown switchgrass co-fired in a utility-owned coal-fired power plant. Central Vermont Public Service (CVPS) received approval from regulators in August 2004 for its Cow Power program, which offers customers the option to receive 25, 50, or 100 percent of their electricity as green power from anaerobic digestion of manure on farms. The program costs 4 cents/kWh more than standard power. Wisconsin-based We Energies issued a request for proposals in 2003 for up to 25 megawatts of biomass energy that explicitly ruled out landfill gas in favor of other biomass fuels such as manure, kitchen waste, energy crops and organic sludges.
These examples suggest that while green power programs continue to pursue landfill gas opportunities, they are also looking to develop less-exploited technologies such as anaerobic digester gas, co- firing, and gasification. A 2003 study by Navigant Consulting, The Changing Face of Renewable Energy, found that while the market for electricity from landfill gas was well-developed, co-firing and gasification had large growth potential (although their market sizes and timing were uncertain), and anaerobic digesters were likely to grow significantly as a niche opportunity. Navigant also identified a number of issues that pose challenges for renewable energy generators, including permitting requirements, grid interconnection standards, and effective marketing of green pricing programs. "Renewable energy generators have to produce a cost- competitive product and deliver it reliably, and they have to understand how to take advantage of relevant state incentives like RPS requirements," says Navigant Associate Director Andrew Greene. "Green power market developments such as RECs don't solve all of those issues, but they can help renewable energy generators get into the market, because they make green power a more desirable and accessible product."
Biomass energy producers can enter green power markets at several levels. Growing biomass feedstocks such as switchgrass for sale to electric power generators may be the simplest option, since it does not involve producing or marketing electricity. At the next level, producers who generate electricity on-site may be able to participate in REC markets, even if their facilities are household- sized. Many states have adopted some form of net metering, in which customers pay for electricity when they consume it from the grid, but when on-site facilities (such as digesters or photovoltaic cells) produce more power than the customer uses, their excess output is fed into the power grid and subtracted from the owner's total consumption for the billing period. These producers can qualify for RECs if their on-site renewable energy generation is metered accurately. In some areas, such as New England, small producers can earn RECs for power generation at so-called "behind the meter" facilities where all of the power is used on-site and no net energy is fed back into the grid, while other states require that producers must sell power into the grid to earn RECs.
Small power producers who generate RECs but prefer not to get involved in energy trading markets can work with brokers who aggregate and sell RECs for a fee. In addition to finding buyers for clients' RECs, aggregators may also take on responsibilities such as metering clients' energy systems and handling thirdparty audits. Some states have developed information resources for small renewable generators to help them enter REC markets. For example, the Massachusetts Renewable Energy Trust supported publication in 2003 of a handbook on certificate trading for renewable energy generators (www.mtpc.org/ renewableEnergy/handbookl2_03.pdf), and New Jersey's Board of Public Utilities has created a web page that solar energy system owners and brokers can use to generate, track, and buy and sell RECs for electricity produced from their installations (www.njcep.com/srec).
At a larger scale, renewable energy generators who sell power to utilities and independent power providers may not see the RECs associated with their electricity output, although they still derive financial benefit from them. RECs are generally assumed to be the property of whoever owns the facility that generates the renewable power, but companies that buy green electricity from many sources and resell it may require that they receive title to relevant RECs as a condition of the sale. For example, We Energies' 2003 request for proposals for biomass electricity generation stated, "Please be aware that We Energies will receive any and all current and/or future renewable energy certificates and emissions credits associated with the energy from a project, and the project pricing is required to reflect that." Put another way, green power generators are expected to factor in the value of RECs if they sell the credits along with electricity to larger power suppliers.
In contrast, Central Vermont Power Services (CVPS) will buy electricity and RECs from farms that participate in its Cow Power program, but will pass the 4 cents/kWh premium paid by customers - which represents the company's estimate of the certificates' value - through to farmers. CVPS presents Cow Power as an initiative that will deliver a number of benefits to farmers, local communities, and the state. For example, Vermont state law allows net metering of generation facilities up to 150 kilowatts on farms, but farmers can only receive credit for electricity output that offsets their own power consumption. However, participating in the Cow Power program allows farmers to sell more electricity, while installing anaerobic digesters will reduce waste and odor problems associated with manure management. "They wanted to do it because of all of the side benefits, and we wanted to fix a value for the renewable power so that farms would receive a steady price," says CVPS Senior Energy Consultant David Dunn.
For its part, the company will make a small profit on electricity purchased from farmers (CVPS will pay farm generators 95 percent of the wholesale price for electricity, plus the 4 cents/kWh surcharge collected from customers), but will retire all of the associated RECs that match demand from Cow Power customers. If farmers generate more electricity than is required to meet program demand, CVPS will sell surplus RECs in the Massachusetts and Connecticut markets. If Cow Power providers do not produce enough power to meet subscriber demand, CVPS will try to buy regional renewable energy RECs at 4 cents/kWh or less, or will deposit Cow Power payments into a fund to promote the development of renewable farm generation in Vermont.
CHALLENGES FOR BIOMASS ELECTRICITY PRODUCERS
As green power markets grow and develop, and participants gain experience with instruments such as RECs, all types of renewable energy are likely to benefit. However, each technology faces specific challenges. Emissions are a notable issue for biomass, since biomass combustion can produce significant quantities of sulfur dioxide (SO^sub 2^), nitrogen oxides (NO^sub x^), and particulate matter. While biomass combustion with modern emission controls is still environmentally preferable to oil or coal as a power source, it produces higher emissions than other
enewable technologies such as wind and solar power, and these issues represent a major permitting hurdle for biomass plants.
More broadly, stakeholders have raised concerns about whether some biomass fuels and technologies are "sustainable." While no universally accepted definition exists, advocates of pursuing only sustainable biomass generally argue that fuels should be grown and harvested through environmentally benign processes - for example, not through forest clear-cutting - and should not produce significant levels of air pollution, such as dioxins from burning contaminated municipal waste. On the positive side, as illustrated by the Wisconsin and Vermont examples discussed above, technologies such as anaerobic digestion that help to reduce waste and waste- related pollution may gain support in green power markets because of their co-benefits.
Concerns about renewable attributes and sustainability have led many states to place limitations on the incentives that they offer for development of renewable energy, so as to promote biomass technologies that are viewed as environmentally preferable. States have a range of tools for supporting renewable energy, most importantly RPSs, which set targets and timetables for producing specific shares of electricity consumed in-state from renewable fuels. Currently, 17 states have adopted RPSs or nonbinding renewable energy targets. Many states also maintain renewable energy funds (generally collected through a surcharge on electricity bills) to support direct investments in renewable energy projects.
These programs vary widely in their treatment of biomass, but generally give preference to new, low-emission technologies and to fuels that are viewed as sustainable. Some states allow landfill gas and municipal solid waste combustion to qualify as renewable energy sources, while others exclude these technologies. These divergences mean that not all biomass projects stand equal chances of winning certification as renewable and trading in green power markets or receiving support from state renewable energy programs. Part II of this article will examine variations in state treatment of biomass energy and the consequent impact on prospects for biomass electricity development in the United States.
Renewable energy certificates (RECs) allow producers to sell their power output where it can be easily delivered to the grid. For consumers, RECs make it possible to support renewable energy generated from many types of feedstocks.
TO RECEIVE Green-e certification, competitive electricity products must meet the following requirements:
* 50 percent or more of the electricity supply must come from eligible renewable resources (solar, wind, geothermal, biomass, and small or low-impact hydropower).
* Eligible biomass forms include woody waste, agricultural corps or waste, animal and other organic waste, energy crops, and landfill gas, unless a product is excluded by a regional or state standard.
* If part of the product is from nonrenewable fuels, associated emissions many not exceed the state or regional power grid average.
* Products must contain minimum amounts of new renewable energy (generally from facilities that entered operation no earlier than 1997).
* No specific purchases of nuclear power can be included.
* Power providers must disclose the types of fuels they use and submit their marketing materials to CRS for review, as well as undergoing annual audits.
Other types of green power must meet some additional requirements. RECs sold under Green-e must come from facilities that entered operation no earlier than 1999, and cannot be claimed more than once (e.g., if a generator sells renewable electricity to a large power provider, it cannot also claim the RECs). Utility green pricing programs must contain at least 15 percent eligible new renewable energy, and must be approved by local regulators.
Most electricity generated from biomass comes from solid waste and landfill gas facilities, but other biomass technologies are represented. In Wisconsin, for example, they include manure, kitchen waste, energy crops, and organics sludges.