Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Mr. V. John White

Executive Director, Center for Energy Efficiency and Renewable Technologies

July 11, 2006

Honorable Pete V. Domenici

United States Senate

Chairman, Senate Committee on Energy and Natural Resources

Washington, DC 20510-6150

 

RE: Implementation of the Energy Policy Act of 2005 as it pertains to geothermal and other renewable resources on Federal lands in the Western US

 

Dear Senator Domenici;

 

Center for Energy Efficiency and Renewable Technologies (CEERT) greatly appreciates the opportunity to offer testimony to the Senate Energy Committee on the implementation of the Energy Policy Act of 2005 (EPAct) act as it pertains to the growth of geothermal and other renewable resources in the Western US. While we believe that the legislation provides an excellent opportunity to enhance the growth of these sustainable resources, the Committee is right to realize that the implementation of such policies must be done correctly to achieve the maximum benefit.

 

CEERT is a non-profit public benefit organization composed of national environmental groups including Natural Resources Defense Council, Environmental Defense and Union of Concerned Scientists as well as technology and energy producers working to increase the use of renewable energy and energy efficiency. Our organization has become an important forum and a vehicle for these various groups to come together and generate positive action on common issues like global warming, air pollution and environmental and economic sustainability.

 

Over CEERT’s 15 years of existence we have seen renewables grow from a boutique industry to an increasingly significant energy resource. Internationally, the renewable industry has one of the world’s fastest growing markets with new capital flowing in all the time. Our home state of California is in many ways the birthplace of this industry, yet as in the rest of the US, the growth of renewables has lagged behind many other leading economies. While there are a number of reasons for this, the EPAct affords an excellent opportunity to improve the process for the development of renewable energy in the West and around the US.

 

 

 

Resource Planning

 

CEERT has had extensive recent experience in facilitating stakeholder groups for the development of transmission around renewable energy resource areas. Through these processes we have learned a number of valuable lessons which can be readily applied to the implementation of the energy bill. First and perhaps most evident is that areas that are sensitive must always be treated as such. Whether the concerns are environmental sensitivity, proximity to population centers or any one of the other myriad issues that must be addressed when developing energy infrastructure, concerned stakeholders can greatly affect the development of any project if they see sufficient need. Any streamlining of project impact review processes must not come at the expense of a thorough investigation of all potential effects from a project. It has been our experience that any steps skipped or missed early in the process will only lead to delays later on. From the perspective of many of our affiliates, those developing geothermal as well as other renewables, these delays at later stages can be far more costly as those involved will have more to lose. This is very clearly illustrated in a report recently released by the Geothermal Energy Association (GEA) which shows a curve of project cost growing ever steeper with each year of delay.[1]

 

Despite the clear economic value to an efficient permitting and development process, the Bureau of Land Management (BLM) has seen a massive backlog of geothermal energy lease applications accumulate. In fact California’s BLM office has not issued a geothermal permit for 20 years despite the fact that there are substantial known developable geothermal resources in the state.

 

Agency Coordination

 

One major reason for these delays is the insufficient staffing for federal agencies such as the US Forest Service (USFS) and BLM for review of National Environmental Protection Act (NEPA) documents. A great deal of money and hard work is put into the development of these documents by the project developer and a similarly thorough review process by the requisite agency should be expected in compliance with federal laws. A renewed commitment from the Department of the Interior and its sub-agencies should be made to eliminate these inefficiencies and thoroughly evaluate all NEPA documents. Ideally the BLM and other federal agencies should have staffing to take part in the actual studies of these projects as well as assessing their impacts. In our experience this path for permitting, in which the agencies are engaged early in the study process, has resulted in better projects and a more thorough assessment of the impacts.

 

Related to this inefficiency by the federal agencies are the often overlapping and seemingly cumbersome procedures of various state permitting processes. In California the California Environmental Quality Act (CEQA) demands an extremely rigorous environmental investigation. A higher level of coordination between the various state and federal agencies responsible for evaluating these project proposals could be very helpful in speeding the process along. As the BLM enters into a rulemaking for regulations to address the changes in the Federal Geothermal Program as mandated by the EPAct, careful considerations should be made to ensure that any new rules can work together with existing state permitting processes without slowing down the approval process.

 

Under CEERT’s leadership, the Tehachapi Collaborative Working Group worked to find innovative ways to address these inefficiencies through an open stakeholder process. The study group was organized with the mission of developing a transmission plan to access the considerable known resources in the Tehachapi Wind Resource Area. The stakeholders included utilities such as Southern California Edison and Pacific Gas & Electric, wind developers such as PPM Energy, and EnXco Inc., state and federal land use agencies including USFS, private land owners and other important stakeholders. Though this can appear unwieldy, the early involvement of these numerous stakeholders ensures that potential problems are addressed early and more costly delays are avoided later in the development process. After a year of work by TCSG, all stakeholders are nearing agreement on a comprehensive, multiphase transmission project that will provide access to over 4000MW of wind energy in the Tehachapi region. Given the scale and complexity of the project this is an important step forward for all of those involved in its development.

 

This process also highlights an important aspect of most large scale renewable development including geothermal, wind and utility scale solar. All of these resources are tied directly to the location where the energy is generated. The wind blows where the wind blows, the sun shines where the sun shines and there is no way to change those characteristics. The mobile nature of gas, oil and coal through trains pipelines and tankers give those types of power plants and added flexibility in their siting and development process and offer those resources easier access to the existing electricity grid. As the West’s transmission system has begun to approach the outer limits of its capacity, renewables have begun to run into a chicken and the egg problem. Without transmission, developers cannot secure financing to build their projects; and without committed projects, regulators cannot approve the transmission to connect them. By following the study group process used in Tehachapi there is now a plan in place to develop the transmission in concert with the procurement of the electricity on a phased, as needed basis. Additional help could also be provided if the FERC process allowed for the public benefits of clean renewable energy to also be considered in the evaluation of new transmission projects.

 

CEERT is also currently following a similar route in developing transmission plans to access geothermal in Southern California’s Imperial Valley as well as a project in the early stages to develop a plan for accessing solar energy from the Mohave Desert. To sufficiently develop the West’s renewable energy including the still substantial untapped geothermal, it is important that the planning of transmission run parallel to the development and procurement of renewable resources. These resources are of increasing competitiveness in an open market and offer substantial societal benefits from their increased use. Their growth should not be hindered by public policies that put these resources at a disadvantage while making it easier for utilities and developers to permit and construct fossil fueled plants.

 

Though the technology has not been at the forefront of renewable energy growth, CEERT would like to draw the committee’s attention to the continuing development of the Concentrating Solar Power industry. This technology, which was initially developed in California, has matured considerably with modern installations in Europe producing reliable utility-scale power on demand with exceptionally low environmental impact. CEERT sees this as the next generation of renewable development in the Western US which has considerable solar resources in the desert Southwest. The recent report of the Western Governors’ Association (WGA) Solar Task Force estimated that if 4,000 MW of new CSP capacity were to be built the cost of electricity would be competitive with conventional sources.[2] Though the technology currently represents only a small piece of the renewable pie, it is important that it is not forgotten in the resource assessments and transmission planning that will be conducted. This largely untapped resource has huge potential to serve the ever growing electricity needs of the desert Southwest with out having to transmit the energy through massive interstate transmission projects.

 

Western Governors’ Association

 

Looking at these problems in the bigger picture of the entire American West, the Western Governor’s Association (WGA) offers an excellent venue to address these issues of coordination. The organization’s approach to problems that affect the entire Western Region are clearly reflective of the nature of the electricity grid. The development of geothermal in Idaho will ideally be deliverable in California helping to meet renewable needs there and the WGA will undoubtedly be critical in making that happen.

 

The WGA recently adopted the recommendations from the Clean and Diversified Energy Advisory Committee (CDEAC) for a current, systematic and thorough examination of the development potential for clean resources in the West. Building on the model used in the California working groups, the federal government’s policies should support stakeholder processes being setup by the WGA to develop transmission plans for expansion across the west, ensuring that access to new renewable resources is an important piece of the planning process. In considering the location of known renewable resources in the transmission planning, development of these resources can occur more rapidly. Large transmission projects designed to access renewable resources will make development of those resources more realistic. It will provide access to better project financing by decreasing the risk of the investment and lessening the possibility of delays in the future.

 

In the interim, close attention should also be paid to the WGA’s recommendations regarding the use of the existing transmission in the West. The committee should encourage FERC to implement policies that offer better access for renewables to the existing grid including: short term transmission services and products, and urging utilities to assess available transmission capacity and opportunities to make better use of the existing transmission systems.

 

CEERT has worked with the WGA to offer input on the various recommendations made by the CDEAC and feel that the situation of California, already a net importer of electricity, is very closely tied to the energy systems of the other Western states. Many of the other recommendations made by the CDEAC echo our concerns and experiences in California. This includes timely permitting and environmental reviews for renewable projects particularly geothermal whose value can suffer greatly due to delays in this process. Additionally the recommendations call for increased coordination among the various states, local and federal agencies in the permitting process. These are all positions that should be supported by the Committee.

 

Production Tax Credits

 

Another disadvantage faced by developers of geothermal and other renewable resources is the short time horizon in which they can receive a Production Tax Credit (PTC) for their project. The nature of renewable energy is such that the primary cost of the resource is paid in upfront financing for the development and construction of a project. Once in operation a renewable energy project demands only the operation and maintenance costs - there is no fuel cost. This is vastly different from a fossil fuel plant, which is cheaper to construct and thus able to turn a profit in a shorter amount of time, making an investment a lower risk and therefore more appealing to investors. It makes little difference that the renewable technology, over its lifecycle, will offer stable electricity rates compared to the gamble over thirty years on a natural gas plant. Moreover, once the initial capital investment has been repaid, these renewable projects can offer wholesale electricity rates below most fossil fuel generation facilities.

 

To help resolve this situation, production tax credits offered by the federal government have made initial investments in renewable energy much more financially appealing for a broader range of institutional investors. However, with longer lead times for construction of geothermal and other renewable energy facilities, an extension of the PTC would provide a more stable, long-term capital flow to allow projects to be constructed more efficiently. In the end better projects will be built because developers will have the flexibility to address any problems and build the most effective plant for its purpose.

 

This extension of the PTC will also allow renewable energy developers to create more effective business plans and make more effective business decisions based on long-term market strategy. As the PTC is currently designed, it must be reauthorized every few years leaving these companies in limbo each time the credits reauthorization is in question. Leaving the PTC in place for a longer period of time will allow these companies to develop strategically into more effective players in the larger energy market.

 

 

Conclusion

 

CEERT believes that within the next 10 years the renewable energy industry is poised for an unprecedented boom in the US. Indeed, this current situation is already due to many innovative and forward looking public policies that have pointed our nation to a sustainable future. However, to ensure that these policies are effective they must be carefully and prudently implemented.

 

CEERT greatly appreciates the interest of the Senate Energy Committee on these important issues for geothermal and other renewable energy resources. We are prepared to offer any help to the committee in achieving the enormous potential of these vast resources.

 

Thank you,

 

 

 

V. John White


Appendix 1

 

Delay (years)

0

1

2

3

4

5

6

7

8

9

10

Exploration Costs

100

117

137

160

187

219

257

300

351

411

481

150

176

205

240

281

329

385

450

527

616

721

Delay (years)

11

12

13

14

15

16

17

18

19

20

Exploration Costs

562

658

770

901

1054

1233

1443

1688

1975

2311

844

987

1155

1351

1581

1850

2164

2532

2962

3466

 



[1] See Appendix 1 for graphic illustration. From: Factors Affecting Costs of Geothermal Power Development, by Cédric Nathanaël Hance, Geothermal Energy Association, August, 2005. Available for download at http://www.geo-energy.org/publications/reports/Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-%20August%202005.pdf

[2] Clean Energy, a Strong Economy and a Healthy Environment, a Report of the Clean and Diversified Energy Advisory Committee to the WGA, June 2006, This document can be found online at: http://www.westgov.org/wga/meetings/am2006/CDEAC06.pdf