John Hanger, president & CEO, before the House Environmental resources and Energy Committee re: House Bill 2250, April 13, 2004

Testimony before the House Environmental Resources and Energy Committee re: House Bill 2250 by John Hanger, April 13, 2004

 

 

We believe that the combustion of municipal solid waste, and industrial or hazardous waste to generate electricity should be excluded from the definition.

 

The cleanest, least expensive, and most reliable watt of electric power in Pennsylvania is the one that is never used. Negawatts, or energy savings from efficiency and conservation measures, which are not included in HB 2250 as drafted but which are included in S.B. 1030, sponsored by Senator Ted Erickson, and in Governor Rendell?s proposed Advanced Energy Standard, are worthy of consideration as a qualifying RPS resource. The Committee may also wish to consider the benefits of distributed generation by allowing as an RPS-eligible technology small-scale electricity generators like fuel cells that operate in what are termed micro-grids associated with small geographic areas or specific facilities.

 

An RPS requires no additional incentives beyond the 10% in 10 year rule of the marketplace. It requires no state appropriations or incentive funding. Pennsylvania?s experience with electric restructuring shows that allowing the market to pick technological winners will deliver renewable electricity at the lowest possible cost. Indeed, this Committee has heard testimony about the New Mexico RPS experience. Utilities had initially projected a $300 million cost increase as a result of an RPS. But fossil fuel prices rose and renewable energy costs came down, and when bids were opened bids for renewable energy, the utilities discovered that the state?s consumers would in fact save $15 million because of the RPS.

 

Wind power and methane recovery are becoming increasingly competitive, and when natural gas prices are above $5.80 per MMBtu ? a price threshold that was reached in 2003 in this region - it is actually cheaper to generate electricity from wind than by burning natural gas. Thus, apart from reenactment of the Federal Production Tax Credit, no additional incentives for wind power are required beyond the boost that the RPS would provide. None of the other suggested qualifying renewable technologies require additional incentives beyond the RPS, with one exception. Without additional measures that are beyond the provisions of H.B. 2250 as drafted, solar photovoltaics will not be competitive in the near term. In response, some states like New Jersey have required a small percentage of the renewable energy called for in their RPS statutes to come from solar. This set aside ? which New Jersey significantly increased last month - has proven to be effective in stimulating the solar photovoltaic market. PennFuture would support a reasonable, cost-effective solar set-aside for Pennsylvania of initially 0.05% of the RPS, or about 1.8 MW of solar.

 

None of us here today can predict what technologies will be most competitive 5 or 10 years from now. For this reason, allowing market forces to work, with the exception of a small set aside for solar power, is in our view the least expensive, most efficient, and most effective approach for a Pennsylvania RPS.

Let me spend a moment on the issue of waste coal in the context of an RPS. PennFuture supports measures to remove waste coal piles that cause acid mine drainage and hamper local economic development in many areas of Pennsylvania . Waste coal, however, is not a renewable resource, and the emissions from coal waste combustion cannot be reduced to the very low level of true renewable energy technologies. We believe that the issue of coal waste is best dealt with separately, outside of an RPS statute. If it is the judgment of the Committee that waste coal is to be made eligible for an RPS, the Committee should take into account that in Pennsylvania today there are already about 1,500 MW of waste coal power plants operating. Unless the legislation is carefully drafted, that 1,500 MW could consume most of the RPS requirement, even without any new waste coal plants being built. Any new plants that may qualify must meet best available standards for air pollution control, with stringent limits for nitrogen oxide, sulfur dioxide, mercury, and particulate emissions. In addition, if waste coal facilities are to be deemed eligible, we would urge the Committee to increase the RPS to a percentage greater than the 10% proposed.

 

An RPS presents Pennsylvania with opportunities to enhance our energy security and reliability, hold down electricity prices, and stimulate tremendous economic investment, while protecting public health and conserving our environment. It is a policy whose benefits are too good to pass up. In closing, we commend Representative Ross and his co-sponsors for their willingness to propose such critically important and forward-looking legislation, and thank the Committee for the opportunity to testify this morning.

 

Good morning. My name is John Hanger. I am the President and CEO of PennFuture, a statewide public interest membership organization working to enhance Pennsylvania?s environment and economy, with offices in Harrisburg , Philadelphia and Pittsburgh .

 

Thank you for the opportunity to appear this morning to highlight some key issues surrounding the adoption of a Renewable Portfolio Standard (RPS) for Pennsylvania . A sensibly designed RPS will increase fuel diversity, limit volatile natural gas prices, and increase our energy security, while enhancing the economy, public health and conservation efforts. We applaud Rep. Ross, his cosponsors, and the members of this Committee for working to bring these benefits to the Commonwealth.

 

The Committee?s consideration of an RPS comes at a critical time. Fossil fuel markets are tightening, and prices are rising. In the last two years, natural gas prices have nearly tripled. But we face not just high natural gas prices. Oil and coal prices too have roughly doubled. Higher oil prices have pushed gasoline prices to over $2 per gallon in some places. Both the much higher coal and natural gas prices could eventually force higher electricity prices, even in Pennsylvania where the Electricity Customer Choice and Competition Act has produced declining real electricity prices.

 

Higher fossil fuel prices are being driven by a variety of factors. Demand is increasing from and . Plus, the lowest cost sources of these fuels are being exhausted, and high-cost extraction methods will drive prices up further. These market forces are unlikely to go away, leaving Pennsylvania and the nation vulnerable to much higher prices for fossil fuels.

 

We are close to using too much natural gas to make electricity, and the will soon begin importing natural gas as a result. During 2002, for example, 3,150 MW of new capacity was added in the PJM region serving the Mid-Atlantic states , almost all of it fired by natural gas. Too many eggs are being placed in too few baskets. Pennsylvania?s energy portfolio must be diversified. Using clean, non-polluting and indigenous renewable electricity makes sense both economically and from the standpoint of energy security.

 

Increasing the renewable energy portion of Pennsylvania?s electric generation portfolio from its current approximately 2 percent will serve as an economically important hedge against volatile natural gas prices. Virtually all of the new electric power generation facilities being built today are fired by natural gas. More renewable generation decreases the demand for new natural gas generation, moderating both the price and supply risks of relying on natural gas for new generation. Since natural gas is the marginal fuel that establishes the clearing price for all electricity, a substantial increase in new renewables that decreases reliance on natural gas provides downward pressure on all electricity prices. An RPS will also reduce cost pressures on those industries ? such as the chemical and fertilizer industries ? that use natural gas as a feedstock. And it will help moderate the price of natural gas for home heating use.

 

The economic development benefits of increasing use of renewable energy are just as compelling. An RPS will economically benefit rural and agricultural areas, providing a shot in the arm to farmers and rural communities. A wind farm is usually built on leased land, with payment to the landowner ? often a family farmer ? of $2000?$4000 annually for each tower, without interfering with other agricultural activities on 95 percent of the land. Biomass technologies using new crops and agricultural and other organic wastes to generate electricity create new industries and turn materials that would otherwise be liabilities into assets.

 

An RPS also helps jump-start new high-tech, high growth industries, attracting huge amounts of investment, jobs and tax revenue. A typical wind turbine at a wind farm takes about $1 million of investment. The Texas Clean Energy Standard has already generated about 2,500 jobs in the wind industry and is projected to provide about $150 million in local taxes. A 10% RPS could attract between three and four billion dollars of private investment to Pennsylvania over 10 years, and create thousands of jobs that cannot be outsourced or moved offshore.

 

Now is the ideal time for Pennsylvania to become a center of these new industries ? and the manufacturing operations that will develop to service this growing market. With high transportation costs, manufacturers of wind turbines, towers and blades, for example, need to locate close to market. States with an RPS ? with built-in markets for these products - will be poised to compete for these high-tech, high wage manufacturing jobs. Our neighbors already have a lead on us in the race to attract these companies, as they adopt RPS standards of their own or strengthen those already on the books.

 

Twelve states have already adopted an RPS and several others are seriously considering it. The best are out west: California requires 20 percent renewable by 2017; Nevada requires 15 percent by 2013; and Texas requires 2,000 MW of new renewable generation by 2009 (a law signed by then-Governor George Bush).

 

In the Mid-Atlantic, New York Governor Pataki has announced a goal of requiring 25 percent renewable energy in 10 years. New Jersey?s Governor has proposed tripling their RPS to 20% by 2020. The Maryland and Rhode Island legislatures are each considering bills that would require 20% by 2020. Pennsylvania , already strategically situated geographically within the PJM power pool, can win the race to attract renewable energy jobs by enacting an RPS this year.

 

Perhaps the most critical issue facing this Committee in considering an RPS is the definition of renewables, and deciding what resources will qualify for an RPS. There can and should be a full discussion about these technologies, and we would welcome the opportunity to review the matter in depth with the Committee. The RPS should, however, encourage the development of new renewables to the greatest extent possible, while recognizing existing investments that meet a tight definition of qualifying renewable resources. Indeed, if the Committee?s definition of qualifying renewables is tight enough, it will not need to wrestle with qualifying in-service dates or determining what resources are new or old.

 

For present purposes, a useful guideline for Pennsylvania is found in the Green-e Renewable Electricity Certification Program, established in 1997 and administered by the non-profit Center for Resource Solutions of San Francisco, California. The Green-e Standard is used in 38 states.

 

Using the Green-E Standard as our guideline, we believe the following resources should qualify in Pennsylvania?s RPS: