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HomeMy WebLinkAboutStaff Report 3079 City of Palo Alto (ID # 3079) Finance Committee Staff Report Report Type: Action ItemsMeeting Date: 10/2/2012 Council Priority: Environmental Sustainability Summary Title: Definition of Carbon Neutrality for Electric Portfolio Title: Utilities Advisory Commission Recommendation that the City Council Approve the Proposed Definition of Carbon Neutrality to Use in th e Development of a Plan to Achieve a Carbon Neutral Electric Supply Portfolio by 2015 From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee recommend that the City Council approve the following definition as the basis for the City’s pursuit of a carbon neutral electric supply portfolio: Carbon Neutrality: A carbon neutral electric supply portfolio will demonstrate annual net zero greenhouse gas (GHG) emissions, measured at the Citygate1, in accordance with The Climate Registry’s Electric Power Sector protocol for GHG emissions measurement and reporting. Executive Summary In May, Council directed staff to develop a plan to achieve carbon neutrality for the City’s electric supply portfolio. Fundamental to the development of the plan is a clear definition of what carbon neutrality means for the City’s electric supply portfolio. 1 Citygate is the location of the City’s main meter where the City interconnects to the Pacific Gas and Electric transmission system. The recommended definition of carbon neutrality is achievable, credible, transparent and measurable as well as consistent with current industry standards for GHG accounting and reporting protocols. The proposed definition is also simple to explain and cost effective to implement. Adopting a definition of carbon neutrality based on sound and reputable standards will show leadership in sustainability by creating a model which can easily be followed by other publicly-owned and investor-owned utilities. Once Council establishes a definition of carbon neutrality for the City’s electric supply portfolio, staff will develop a plan to achieve a carbon neutral electric supply portfolio by January 1, 2015. Background Council approved the City’s Climate Protection Plan (CPP) in December 2007 (CMR 435:07). The CPP set a goal to reduce the City and community GHG emissions2 by 15% from 2005 levels by the year 2020. In April 2012, the City’s Sustainability Manager reported to Council that the 15% reduction goal is likely to be achieved by the end of 2012, and that the primary drivers behind the GHG emission reductions included obtaining a higher percentage of renewable electricity supplies, greater participation in the PaloAltoGreen program, and energy efficiency savings in electricity and natural gas usage by the City of Palo Alto Utilities (CPAU) cu stomers. Figure 1 illustrates these GHG emissions reductions by different sectors. 2 The six greenhouse gases are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydro-fluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Given different physical characteristics, these gases are commonly converted to their equivalent emissions of CO2 (expressed as CO2e). Figure 1: Communitywide GHG Reductions Since 2005 (Electric supply portfolio emissions shown separately) Community GHG Emissions: 2005 vs. 2012 (est.) (Total: 760,000 to 650,000 MT, reduction of 14%) 160,057 187,744 413,061 94,718 183,338 370,581 0 100,000 200,000 300,000 400,000 500,000 Direct Emissions (natural gas and landfill) Emissions from Electricity Generation Emissions from Transportation and Solid Waste GH G E m i s s i o n s ( M T / y e a r ) 2005 2012 estimated In May 2010 Council approved an updated ten-year Electric Energy Efficiency (EE) plan which set a goal to save 7.2% of the City’s electric usage needs by 2020 (CMR: 218:10). In July 2011 Council approved the Utilities Strategic Plan (Staff Report 1880), including a performance measure to reduce the carbon intensity of the electric portfolio. In April 2012 Council approved the Long-term Electric Acquisition Plan (LEAP) (Staff Report 2710), which includes: (1) a least cost resource acquisition objective and general direction for efforts to reduce the electric portfolio’s carbon intensity to achieve certain GHG reduction goals under Strategy #5, Climate Protection, consistent with the City’s CPP and requirements under California’s Global Warming Solutions Act of 2006 (AB32); and (2) a Renewable Portfolio Standard (RPS) to attain at least 33% of sales from renewable resources by 2015 within a rate impact limit of 0.5 cents per kilowatt-hour (¢/kWh). When the Finance Committee discussed these proposed changes to LEAP in March 20, 2012, it also voted to recommend that Council move forward with a “100% clean electricity” portfolio policy. This recommendation was transmitted to the Council when the Council took its action on the changes to LEAP in April 2012 (Staff Report 2710). On May 21, 2012, Council directed staff to develop a plan by December 2012 to achieve carbon neutrality for the City’s electric supply portfolio (Staff Report 2525). Council directed staff to include in the plan a recommendation for how to achieve carbon neutrality by January 1, 2015. As the next step in the process of developing a plan for carbon neutrality, staff developed a definition of carbon neutrality so that it could develop a plan in accordance with that definition. The UAC reviewed the proposed definition at its July 11, 2012, meeting and voted unanimously to recommend Council approve the proposed definition (excerpted minutes provided as Attachment E). Staff presented this recommendation to the Council at its July 16, 2012 meeting (Staff Report 2937) and the Council directed staff to discuss the proposed definition with the Finance Committee before full City Council consideration. By 2015 the City is expected to have achieved a 4% reduction in load through energy efficiency, along with an RPS level of at least 33%.3 Large hydroelectric resources, which are carbon-free, are expected to provide another 49% of the City’s electricity needs and therefore at least 80% of the City’s electricity will be supplied by low carbon4 and carbon-free resources. The remaining 20% would normally be purchased from the wholesale “brown” market. Figure 2 shows the City’s expected electric supply mix in 2015, which includes renewable resources currently under contract and new renewable resources to meet the 33% RPS goal. 3 Consistent with State law SB X1-2, the RPS level is expressed as a percentage of the City’s total retail sales volume. Thus, 33% of sales are equivalent to about 31.8% of the City’s net electric supply purchases. 4 There are small anthropogenic (man-made) GHG emissions associated with geothermal and landfill-gas-to- energy resources. Figure 2: Expected Electric Supply Portfolio by Resource in 2015 Discussion Defining carbon neutrality for the electric supply portfolio is an important step in developing the carbon neutral plan. In its efforts to develop a definition of carbon neutrality for CPAU, staff enlisted Navigant Consulting, Inc. (Navigant) to assess: 1) other municipal electric utilities’ carbon neutrality or “clean electricity” goals in order to provide reference points in developing the City’s goals; and 2) parameters around defining carbon neutrality. The first study (Attachment C) showed that a common motivator behind many other utilities’ efforts to reduce GHG emissions is to be regarded as a leader in the area of sustainability. However, the manner in which each utility goes about achieving its goals varies significantly and is often driven by regulatory requirements and community support. Most utilities with GHG emission reduction programs pursue opportunities through a hierarchical approach, first by reducing consumption of energy, then procur ing low or zero GHG emission resources, and finally by balancing any remaining GHG emissions with an equivalent amount of carbon offsets and/or renewable energy certificates (RECs). The second study (Attachment D) assisted staff in developing its recomme nded definition of carbon neutrality by focusing on key policy elements. To help ensure transparency and credibility of the City’s efforts towards achieving carbon neutrality for the electric supply portfolio, staff recommends that The Climate Registry (TCR) Electric Power Sector (EPS) protocol be adopted as the standard for accounting, reporting, and verification. A summary of the EPS protocol is provided as Attachment A. Staff proposes that the City use TCR’s established protocol, which identifies the GHG emissions to be included in the City’s inventory and defines emissions factors by resource type for determination of the carbon intensity of the City’s electric supply portfolio. Essentially, this means that to achieve carbon neutrality, the GHG em issions from the City’s owned and purchased electric supply resources must be net zero on an annual basis. This can be done by purchasing carbon-free resources and balancing GHG emissions from other resources with purchases of carbon offsets and/or renewable energy certificates (RECs). Approval of the proposed definition of carbon neutrality does not dictate a strategy for achieving carbon neutrality nor does it preclude the City Council from establishing parameters around the use of certain products and/or resources (e.g., RECs and offsets) to use in a carbon neutral plan. Alternatives Instead of adopting the TCR EPS as the standard for defining, measuring and reporting carbon neutrality for the electric supply portfolio, the City may develop its own definition of carbon neutrality with its own measurement and reporting protocols. This may include defining carbon neutrality as having the portfolio be sourced with 100% “clean electricity.” However, the definition of the term “clean” is not entirely clear and it has been used to describe resources considered to be lower carbon than conventional resources including “clean” coal, natural gas, and nuclear power. The City may choose to restrict the definition to exclude certain resources. In addition, the City can adopt a definition which allows for achieving carbon neutrality over a longer period of time, such as three years, instead of one year as in the proposed definition, to allow for annual variations in resources and/or load. Attachment B provides a summary of alternatives to the recommended definition of carbon neutrality along with possible implications. Next Steps Following Council’s approval of a definition of carbon neutrality, staff will propose a plan to achieve the carbon neutrality target by January 1, 2015. The plan will include specific portfolio recommendations, cost, identification of risks, legal considerations and the expected rate impacts. Staff anticipates the plan to be reviewed by the UAC in December 2012 and the Finance Committee in January 2013 followed by Council consideration in January or February 2013. Staff has begun the process of seeking community input on its support and willingness to pay for carbon neutrality and the impacts of a carbon neutral portfolio in achieving energy efficiency goals. The information obtained will be provided to Council for its deliberation on the plan. Staff is also in the process of updating the City’s ten-year Electric EE goals; and continues its efforts to acquire renewable resources, both locally and remotely, to meet the City’s RPS. The findings and/or results of these efforts will be included as part of the report to the UAC and Council with the recommended plan to achieve carbon neutrality. The timeline below illustrates the remaining key steps and elements involved in the development of the plan. As a result of the one-month hiatus in Council meetings, staff expects at least a one-month delay—to January or February 2013—in its submission of the carbon neutral plan to Council. Tentative Timeline Council – November Staff presents analysis and recommendation for:  Definition of carbon neutrality May – September Staff consults with community stakeholders and seeks community input through surveys and other tools to determine:  Willingness to pay for carbon neutrality  Reaction to the carbon neutral portfolio options August – November Staff refines analysis of carbon neutral portfolio options, including:  The set of carbon neutral portfolio options to evaluate in further detail  Update assessment of EE potential for the 2013 10-year Electric EE Plan and goals  Update renewable energy portfolio with new contracts, if any  Revise estimate of participants for local renewable distributed generation, including the City’s Clean Local Energy Accessible Now Program (CLEAN)  Evaluate cost and rate impacts under various scenarios (market prices, projected cost of carbon allowances, hydroelectric generation, etc.)  Evaluate options for redesigning the PaloAltoGreen Program  Evaluate risks, including regulatory risk UAC – Dec. Fin. Comm. – Jan Council – Feb 2013 Staff presents analysis and recommended Carbon Neutral Plan Commission Review and Recommendation On July 11, 2012, the UAC reviewed staff’s proposed definition of carbon neutrality for t he electric portfolio. The UAC asked if the proposed definition was the industry standard, which staff confirmed. The UAC offered advice that the proposed carbon neutral plan maximize energy efficiency and outline the costs and risks of the alternative implementation strategies. The UAC voted unanimously (by a vote of 6 to 0) to recommend that the City Council approve the proposed definition of carbon neutrality as the basis for the City’s pursuit of a carbon neutral electric supply portfolio. The excerpted draft minutes are provided in Attachment E. Resource Impact There is no direct resource impact as a result of staff’s proposed definition of carbon neutrality for the City. Staff has enlisted outside expertise to assist in the assessment of GHG acco unting protocols and to study other electric utilities’ efforts towards carbon reduction. The FY 2012 and proposed FY 2013 budgets include funding for the City’s consultant, Navigant. The plan to achieve carbon neutrality will address the cost, potential rate increase and other resource impacts. Policy Implications The proposed recommendation meets the Council-approved LEAP Objectives, Strategies and Implementation Plan; supports the Council-approved 2011 Utilities Strategic Plan’s environmental sustainability objective; is consistent with the City’s Climate Protection Plan; and supports environmental sustainability, one of the City Council’s top five priorities. Environmental Review Support of the recommendation to develop a plan to achieve a carbon n eutral electric portfolio does not constitute a project for the purposes of the California Environmental Quality Act. Attachments:  Attachment A: Summary of TCR EPS protocol (PDF)  Attachment B: Alternative Carbon Neutral Definitions (PDF)  Attachment C: Profiles of Other Utilities (PDF)  Attachment D: Definitional Issues for Carbon Neutrality (PDF)  Attachment E: Excerpted Draft Minutes from July 11 2012 UAC meeting (PDF) Prepared By: Monica Padilla, Sr. Resource Planner Department Head: Valerie Fong, Director City Manager Approval: ____________________________________ James Keene, City Manager Page 1 of 10 ATTACHMENT A Summary of Implementation of The Climate Registry’s Electric Power Sector Protocol in Pursuit of Carbon Neutrality for the City of Palo Alto’s Electric Portfolio The key policy elements discussed in the TCR EPS protocol include: 1. Measurement, Accounting, Reporting and Verification Protocol 2. Inventory Scope of GHG Emissions Covered by Definition 3. GHG Emission Factor by Resource 4. Balancing Periods and Banking 5. Role of PaloAltoGreen Program 6. Portfolio Alternatives to Achieve Carbon Neutrality 1. Measurement, Accounting, Reporting and Verification Protocol There are several GHG accounting standards in the industry, although all are based on the accounting architecture developed by The World Resources Institute (WRI). WRI is regarded as a global leader on the topic of GHG measurement and accounting standards through its development of accounting tools for governments and businesses that enable them to understand, quantify, and manage GHG emissions. WRI’s methodology divides GHG emissions into three types: Scope 1, Scope 2, and Scope 3. For a GHG reporting entity such as the City, Scope 1 includes the direct emissions the entity has control over, such as factory emissions, building emissions, emissions from utility owned generation and emissions from vehicles it owns or controls. Scope 2 includes primarily emissions associated with electricity the reporting entity consumes for its own operations but did not produce. Scope 3 emissions are all other emissions over which the reporting entity does not have control. Scope 3 emissions include sources such as electricity purchased by electric utilities for the use of its customers, commute s by employees and emissions associated with concrete purchased for construction. The WRI protocol is the accounting foundation for The Climate Registry (TCR) GHG reporting protocol. TCR is a U.S. Environmental Protection Agency (US EPA) recognized national GHG reporting public platform, and the City has been reporting to this agency (and its predecessor agency, the California Climate Action Registry) since 2005. Figure 1 is an illustration of the various emissions types and how they are accounted for under WRI’s Scope 1, Scope 2, and Scope 3 definitions. Page 2 of 10 Figure 1: Overview of Scope 1, 2, and 3 GHG Emissions Source: World Resources Institute TCR protocol directs an electric utility to report its own Scope 1 and Scope 2 emissions under the General Reporting Protocol (GRP), and allows for the utility to compute the emissions (in metric tons of CO2e) using standardized emission factors (in pounds of CO2e per unit of electricity delivered to different customers) under the Electric Power Sector (EPS ) protocol1. The portfolio or program level emission factors generated by electricity providers, calculated using the EPS protocol, may then be used by end-use customers to report the Scope 2 emissions associated with their own electricity usage. To help ensure transparency and credibility of the City’s efforts towards carbon neutrality, staff recommends that TCR’s EPS protocol be adopted as the standard for accounting, reporting, and verification. 2. Inventory Scope of GHG Emissions Covered by Definition Electric Supply Staff recommends limiting the scope of the emissions to be counted to those associated with the electric supply portfolio as measured at the City’s main meter (Citygate) plus output from City-owned generation facilities (the city-owned back-up generator, or COBUG) within City boundaries. The electric supply portfolio consists of all resources purchased and/or owned, including deliveries from its two hydroelectric resources, Western and Calaveras, all renewable resources acquired under power purchase agreements, and net market purchases (total 1 www.theclimateregistry.org/resources/protocols/electric-power-sector-protocol Page 3 of 10 purchases minus total sales in the wholesale markets) made to meet load requirements on an annual, calendar year basis. Electric Grid Reliability & Transmission Losses Given the highly variable nature of the City’s long-term electric supply resources—on a minute- to-minute, month-to-month and year-to-year level—it is inevitable that the City will rely to some extent on generation reserves connected to the California Independent System Operator (CAISO) grid. Specifically, some generation capacity is always reserved to follow loads in the event that actual load and generation resources deviate widely from forecasted levels. Consistent with the EPS protocol, the emissions associated with these load -following resources are reported by the generation owners as Scope 1 emissions. To the extent that CPAU requires these resources to meet unplanned electric load, this energy will be delivered to Citygate and thus the emissions associated with the energy will be counted as Scope 2 or 3 emissions on the City’s emissions inventory, just like all of its purchased power. In 2008 the City effected a 15-year assignment of its share in the California-Oregon Transmission Project (COTP). Since the City currently does not own or operate transmission, according to the TCR EPS protocol it does not need to include transmission line losses in its emissions calculation. Emissions associated with transmission losses may need to be considered in future inventories depending o n TCR protocols, or if the City reacquires transmission ownership rights. Distribution System In addition to the GHG emissions associated with electric supply, electric distribution operations also generate GHG emissions. The City reports to TCR on electric utility operational activities producing GHG emissions2 including fuel consumption by the CPAU vehicle fleet (Scope 1), potential SF6 emissions from substation breakers (Scope 1), and electricity used in CPAU buildings (Scope 2). However, since carbon neutrality is being defined as emissions related to electricity supply only, emissions associated with operations will not be included in the emission inventory. Electricity losses in distribution system wires, which are estimated at five percent of electric purchases, will be accounted for since the electric supply is measured at Citygate and not at customer meters. Table 1 below is a summary of the emissions to be included in the City’s electric supply portfolio inventory. 2 GHG emissions from electric operations represent less than 0.5 percent of all emissions produced by the electric utility. Page 4 of 10 Table 1: Electric Portfolio Carbon Neutral Emission Inventory Scope Categories Description 1 Stationary combustion Emissions from owned/controlled facilities. For CPAU this includes COBUG 2 Distribution system losses CPAU owned distribution line losses only Purchased power for own consumption Electricity used by all City facilities is included in the measure at the City’s meter (Citygate) 3 Purchased power for customers Electricity purchased for resale to the City’s customers measured at Citygate 3. GHG Emission Factor by Resource TCR protocols allow for project-specific emissions factors, in pounds of CO2e per megawatt- hour (MWh), to be used as the basis for calculating portfolio emissions. These emissions would be based on actual metered fossil fuel consumption or measureme nt of GHG releases. If project-specific emissions factors are not known, TCR allows the use of generic technology- based emission factors based on US EPA numbers as shown in Table 2. Table 2: Default Emissions Factors for Power Purchases from Specific Re sources Resource Emissions Factor (pounds CO2/MWh) CPAU Resources Natural Gas Combined Cycle – Two Turbines 909 N/A Combined Cycle – Single Shaft 860 N/A Combustion Turbine 1,329 N/A Steam Turbine 1,532 N/A Internal Combustion 1,226 COBUG Biogenic Fuels Anthropogenic Biogenic Landfill Gas3 38 2,677 6 Ameresco PPAs Municipal Solid Waste 1,353 2,513 N/A Geothermal (Non-binary) 200 lbs CO2/MWh 1.66 lbs CH4/MWh n/a Western GeoPower PPA Source: The Climate Registry Electric Power Sector Protocol for Voluntary Reporting Program (Annex 1 to the General Protocol) v1.0, June 2009. California Non-specific Emissions Factor The wholesale brown market power purchases that the City executes to balance its resource supply with its load are not from a specific generator, and are called “unspecified” resources. TCR protocols dictate that the emissions associated with power purchases from unspecified 3 Bio-gas and anaerobic digester plants are assumed to have roughly the same amount of anthropogenic emissions as landfill gas generation. Page 5 of 10 resources be calculated by applying a default emissions factor based on the geographic region from which the power likely originated. These geography-based non-specific emissions factors are found in the US EPA’s Emissions & Generation Resource Integrated Database (eGRID). It is assumed that all of the City’s wholesale market power purchases originate in the “WECC California” eGRID subregion, for which the current emissions factor is 661.2 pounds of CO2e per MWh. Biogenic and Anthropogenic Emissions TCR protocols require that both biogenic and anthropogenic emissions be counted – and reported separately – in an entity’s emissions inventory. Biogenic emissions of GHGs are those that would occur naturally from living organisms’ respiration and digestion. Anthropogenic GHG emissions are due to human activity, mostly from burning of fossil fuels. In the electric generation sector, examples of biogenic emissions include CO2 emissions resulting from the combustion of plant biomass, sludge digester gas or landfill gas. Since biogenic emissions are not a GHG consequence of City projects and activities, the emissions will not be included in the calculation of emissions for the city’s electric supply portfolio. Anthropogenic emissions factors are shown in Table 2 for various types of generation resources that will be counted in the City’s emission inventory along with the eGRID listed emission factors for unspecified resources. For illustrative purposes, Table 3 shows the expected 2015 GHG emissions intensity of the City’s electric supply portfolio assuming a 4.2% reduction in usage from energy efficiency; a 33% RPS; average hydroelectric conditions; and the remaining load met through unspecified market purchases. Table 3: GHG Emissions Associated with the City’s 2015 Electric Supply Resources Resource Type Generation (GWh) Emissions Coefficient (lb CO2e/MWh) Total Emissions (Metric Tons CO2e) Hydro 514 0 0 Wind 120 0 0 Landfill Gas 126 38 2,171 Geothermal 33 235 3,523 Other Renewables (for a total RPS 33% of sales) 53 0 0 COBUG 0.5 1,226 278 Market Purchases 229 661 68,567 Total 1,075 74,539 4. Balancing Periods and Banking The City’s electric load requirements and supply resources vary significantly on an hourly, daily, monthly and annual basis. Under the current plan in 2015, the City’s electric portfolio is expected to require market purchases of about 19% of the annual load; however, even in an average hydroelectric year the portfolio’s electric resources will exceed loads in months when Page 6 of 10 hydroelectric generation and wind output are highest. Figure 2 is an illustration of monthly variability in load and supply resources in 2015. The City’s hydroelectric resources cause large variations in supply resources on an annual basis. Hydroelectric supplies provide from 30% to 80% of the City’s annual electric needs depending on hydrologic conditions. Currently, under wet hydrologic conditions the City may have resources surplus to load by as much as 55% during the spring months. Adding additional carbon neutral resources to the portfolio would extend these surplus es even further, particularly if the new resources had an annual load shape like hydroelectric, California wind or solar resources. Figure 2: Expected Monthly Load and Resource Balance in 2015 0 20 40 60 80 100 120 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Mo n t h l y L o a d a n d R e s o u r c e S u p p l y ( G W h ) LOAD Geothermal Hydro Generation Wind Generation Landfill Generation Future Renewables to Achieve 33% RPS Operationally the City’s electric load must be balanced with a supply resource every 10 minutes. As the City’s scheduling coordinator, the Northern California Power Agency (NCPA) actively buys and sells electricity through the CAISO on a daily, hourly, and real-time basis. The level of granularity the City seeks to pursue through its carbon neutral effort will influence the cost of achieving carbon neutrality and, to some extent, will dictate the types of resources available. Ensuring that the City’s portfolio is carbon neutral on a month ly (or even daily) basis may prove to be costly insofar as it leads to more transaction costs incurred. For example, in the spring and some summer months, the City’s availability of carbon-free resources from wind and hydroelectric resources is highest. Since it is not possible to schedule resources in excess of Page 7 of 10 load, NCPA sells excess supply as a “system sale” (i.e., non-resource specific) and the renewable attributes associated with the resource are retained by the City. Conversely, in months where the City is deficient, NCPA makes system purchases to meet load. Assuring carbon neutrality in time increments less than on an annual basis would require that the City sell excess renewable resources in surplus months and purchase additional renewable resources in deficit months. The TCR EPS reporting protocol requires an annual report showing net emissions for the calendar year, thus allowing for the carryover of surplus renewable attributes (i.e., RECs) from some months to be used to cover deficits in other months. Further, the protocol allows for the carryover of surplus renewable attributes beyond the calendar year in which they were produced. This practice is referred to as “banking” and is commonly used to minimize transaction costs. TCR protocols allow for banking only for new renewable resources (less than 15 years old), with restrictions on how long the RECs can be banked. As such, because the City’s two hydroelectric resources are older than 15 years, RECs from these two resources may only be counted towards offsetting emissions in the calendar year in which they are produced. Figure 3 shows the City’s electric supply portfolio emissions following the recommended reporting protocol given 33% RPS and unspecified market purchases. These emissions would need to be “zeroed out” through the purchase of RECs and/or of fsets to achieve carbon neutrality for the electric supply portfolio. The wide annual variation in emissions for the period from 2005 through 2011 is primarily due to variations in generation from hydro resources. The declining amount of emissions projected after 2012 is due to additional renewable resources expected to become available. Page 8 of 10 Figure 3: Actual/Projected GHG Emissions for the City’s Electric Supply Portfolio 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Calendar Year To t a l E l e c t r i c i t y S u p p l y E m i s s i o n s ( T o n n e s C O 2 e ) CPAU Total Emissions (Actual / Projected) CPAU Total Emissions (Average Hydro) Actual Projected 5. Role of PaloAltoGreen Program PaloAltoGreen, which started in 2003, is a voluntary program where customers elect to pay a premium in order to ensure that their supply is comprised of 100% renewable resources.4 With roughly 25% of the City’s customers (8% of retail load) on PaloAlto Green, the City’s program is recognized as the top-ranked voluntary renewable program in the country by participation rate. In 2011, PaloAltoGreen accounted for approximately 28,000 metric tons of CO2e of GHG reductions for the community. At the time the PaloAltoGreen program started, the City did not have a renewable resource portfolio standard and participants received 100% renewable resources for their needs. However, as the City approaches its RPS goal, PaloAltoGreen participants may have less incentive to remain part of the program and pay extra for renewable resources. In the event that the City continues to offer PaloAltoGreen as an alternative to the City’s regular supply portfolio, the TCR EPS protocol allows for the reporting of multiple electric 4 In 2011 PaloAltoGreen was sourced through RECs purchased from wind projects in Washington and Wyoming (97.5% of supply) and solar projects in California (2.5% of supply). Page 9 of 10 supply emission tables to be used by customers in their voluntary reporting of their own Scope 2 emissions. However, the TCR EPS protocol does not allow emission reductions from PaloAltoGreen to be counted towards carbon neutrality efforts of the non -voluntary portfolio. A task to redesign the PaloAltoGreen program is part of the LEAP Implementation Plan. That redesign will be done in the context of the pursuit of carbon neutrality for the electric supply portfolio. As PaloAltoGreen has tapped into an important community resource involving a willingness to support environmental stewardship, PaloAlto Green redesign efforts will explore alternatives for continuing to provide GHG emission reduction efforts throughout the community. 6. Product Alternatives to Achieve Carbon Neutrality There are several types of resources and/or environmental products that the City could use under TCR protocols to achieve carbon neutrality for the electric portfolio. A general description of these products is provided below. The plan to achieve carbon neutrality will provide further detail regarding costs and availability of each resource along with a recommendation of whether or not to use them as part of the City’s carbon neutral efforts. RPS Eligible Resources: RPS eligible resources are those certified by the California Energy Commission (CEC) and are included in the CEC’s RPS Eligibility Guidebook. The City’s RPS requires that resources meet the CEC RPS eligibility requirements as well. The list of renewable resource technologies that meet the CEC’s RPS eligibility standards includes energy from landfill gas-to-energy, solar photovoltaic, solar thermal electric, wind, small hydroelectric, and geothermal projects. Under California’s RPS law (SB X1-2), unbundled RECs (i.e., RECs without any physical energy associated with them or Bucket 3) and renewable resources that are located out -of-state (i.e., Bucket 2) can be used for RPS compliance, with some restrictions on the degree to which these resources can be relied upon to meet the state RPS requirement. For the purpose of reporting emissions, the TCR protocol does not distinguish between RPS eligible resources and non -RPS eligible resources. REC-Only Products TCR protocols allow entities that procure unbundled RECs to adjust their emissions inventories to account for these products. Even though the physical energy is not delivered to the entity, TCR allows the use of unbundled RECs—whether RPS eligible or not—to displace an equivalent amount of power from the actual power mix. This adjustment is allowed because the RECs include all renewable and environmental attributes associated with the production of electricity from the renewable energy resource. Carbon-free, Non-RPS Eligible Renewable Resources Non-RPS eligible resources that can be reported as being carbon-free under the TCR protocols include large hydroelectric (such as from Western and Calaveras resources), nuclear and out-of- state renewable resources built before 2005. Page 10 of 10 Environmental Offsets GHG offsets5 are tradable credits issued for emissions reductions resulting from qualifying GHG mitigation projects. They can be purchased on the voluntary market (for example to achieve carbon neutral objectives) or in the compliance markets (for example to meet cap -and-trade requirements). Qualified offsets for California’s cap-and-trade system are certified and issued by the Climate Action Reserve and are typically transacted on a bilateral basis. The California Air Resources Board (CARB) currently recognizes offsets issued by the Climate Action Reserve for several types of GHG mitigation projects—including forestry, urban forestry, livestock methane, and ozone depleting substances—for use in meeting AB32 GHG reduction goals for 2020. There are other international offset markets, such as the Clean Development Mechanism which facilitates offsets from developing countries to be sold into the European Union’s Emission Trading Scheme. With the uncertainty associated with the use and eligibility of various types of offset products coupled with the lack of compliance-driven buyers, the market for offsets is currently very illiquid and there is a great deal of uncertainty around the long-term market price of these products. Table 4 is a summary of the various products including RPS specifications and how they are currently reported under California’s Power Content Label requirements. Table 4: Summary of Various Renewable Energy and Environmental Products RPS Eligible Energy RPS Eligible RECs Non-RPS RECs Non-RPS Carbon- free Energy Environmental Offsets Description Bucket 1: In- state projects, and Bucket 2: firmed and shaped products from out-of- state resources Bucket 3: REC- Only deals or other transactions, subject to compliance limits Unbundled RECs from projects not RPS certified by the CEC These could include large hydro, nuclear, or older out-of-state renewable energy projects Emissions reduction credits from qualifying GHG mitigation projects RPS Eligible? Yes Yes No No No Power Content Label Eligible Renewable Eligible Renewable Eligible Renewable Specific Resource Unspecified Market The Climate Registry Emissions reported * Emissions reported * Emissions reported * Zero emissions Emission reductions counted * Anthropogenic emissions, if applicable, reported. 5 WRI defines a carbon offset as “a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere.” Term Possible Definition Implications Wind Solar Biogas Landfill Geo Hydro Natural Gas Coal Nuclear RECs Offset TCR EPS Protocol Zeroing out all carbon emissions associated with generation and delivery of electricity to customers Limits the reduction of emissions to a manageable inventory as measured at Citygate, which is more inclusive of actual emissions associated with the electric portfolio. May include T&D losses and fugitive SF6 emissions, if applicable. Allows for the use of RECs and offsets to zero out all emissions including anthropogenic emissions associated with certain renewable resources. yes yes yes yes yes yes no no ?yes yes (A)Zeroing out all carbon emissions associated with electricity generation only. Emissions neutralized at the source of generation – not Citygate, which narrows the scope of emissions. yes yes yes yes yes yes no no ?yes yes (B)Procuring generation deemed to be carbon-free, such as hydroelectricity, wind and solar. May limits the use of renewables with anthropogenic emissions, such as landfill gas, biogas and geothermal. yes yes no no no yes no no ?yes no (C)Zeroing out all carbon emissions from cradle to grave Most inclusive of all emissions. Unclear how emissions associated with the manufacturing, installation and operations or electricity plus all up-stream and down-stream emission are to be calculated.yes yes yes yes yes yes no no ?yes yes (A) Only RPS Eligible Resources Procuring generation that meets California’s RPS eligibility requirements which includes “greening” resources with RECs. Commonly used in the industry and is easily understood. Not clear how to deal with anthropogenic emissions associated with certain renewables and distribution losses. Consistent with Power Content Label. Does not include emissions associated with transmission and distribution. yes yes yes yes yes only small no no no with limits no (B) Any Renewable Resources Procuring RPS eligible and other renewable resources such as hydroelectricity and older renewable resources. Commonly used in the industry and is easily understood. Not clear how to deal with anthropogenic emissions associated with certain renewables and distribution losses. Consistent with Power Content Label. Does not include emissions associated with transmission and distribution. Some of the resources may be stranded, if California moves to a higher RPS. yes yes yes yes yes yes no no no yes no (A) Obama Administration Procuring “low carbon” generation including renewables, natural gas, clean coal and nuclear. Use of natural gas, clean coal and nuclear is not consistent with local and state policies towards renewables and resource planning. yes yes yes yes yes yes yes yes yes ?? (B)Clean includes RPS eligible resources and hydro Use of this term may be confusing outside of Palo Alto. yes yes yes yes yes yes no no no ?no 100% Renewables: Renewable energy is defined as any naturally occurring, theoretically unexhaustible source of energy, however the term renewable energy is also used to describe eligible resources to meet individual state’s renewable portfolio standard (RPS). 100% Clean Energy: Multiple organizations use this term to describe different types of electric portfolios and/or policies. Most notably the Obama Administration definition includes non- renewable energy sources. Applicable Resources and Products 100% Carbon Free: This term is not commonly used in the industry and therefore there is no standard definition. Carbon Neutral: While this term is in widespread use, there is no standard industry definition. ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING June 4, 2012 City of Palo Alto Utility Carbon Neutrality Assessment – Utility Profiles 1 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Content of Report This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use of the City of Palo Alto and/or its affiliates or subsidiaries. No part of it may be circulated, quoted, or reproduced for distribution outside these organization(s) without prior written approval from Navigant Consulting, Inc. The work presented herein represents our best efforts and judgments based on the information available at the time this presentation was prepared. Navigant Consulting, Inc. is not responsible for the reader’s use of, or reliance upon, the presentation, nor any decisions based on the presentation. NAVIGANT CONSULTING, INC. MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED. Readers of the presentation are advised that they assume all liabilities incurred by them, or third parties, as a result of their reliance on the report, or the data, information, findings and opinions contained in the report. June 4, 2012 ©2012 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC. 2 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Austin Energy – Austin Climate Protection Plan Austin Energy does not buy unbundled RECs and has a limited amount of offsets in its portfolio. Austin Energy Stated Goal •City of Austin successfully reached its target of powering 100% of city facilities with renewable energy by 2012. The next goal for Austin is to have carbon-neutral city facilities and transportation by 2020. •Austin Energy has a goal of 35% renewable energy in their portfolio by 2020. •The broader Austin community has a goal of 20% GHG reduction (from 2005 levels) by 2020 and an Austin Climate Protection Plan through its Office of Sustainability. Motivation •City of Austin wants to be a national leader in climate protection. •Austin Energy views its program as influencing “the way electricity is made.” Implementation •Austin Energy uses The Climate Registry accounting protocols. •Austin Energy is not required by law to participate in the RPS, but their voluntary GreenChoice program follows Texas RPS rules as closely as possible. •Austin Energy does not buy unbundled RECs and does not rely heavily on offsets, although considers offset projects if they make sense. •No stated preference for local offsets, but they has a locally produced offset program. •Does not trade locally produced offsets in the open market. Communication •Recommends using a checklist approach to report progress to the public - “Reduce, Renew, Offset.” •Clearly delineates between utility goals, city goals, and community goals. Challenges / Lessons Learned •Thinking many years ahead of stated target deadlines can help mitigate unforeseen complications that arise. •The broader community needs to be committed to climate change action in order for these programs to work. •The problem with being a leading city is that there aren’t many others to share best practices with. •Third party validation is important, and “small things are worth doing.” Sources: Phone interview with Austin Energy http://www.austinenergy.com/about%20us/Environmental%20Initiatives/ http://www.austinenergy.com/Energy%20Efficiency/Programs/Green%20Choice/programdetails.pdf 3 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Seattle City Light – Resolution 31312 (Carbon Neutrality) Seattle City Light met their goal of carbon neutrality in 2005 initially using owned generation, power purchases, and offsets. Seattle City Light Stated Goal •Seattle City Light’s (City Light) goal is carbon neutrality for electricity that “serves retail load”. The utility met this goal in 2005. As far as they know, Seattle City Light was the first utility in the U.S. to reach carbon neutrality. •Stems from broader community GHG reduction goals of: 30% GHG reduction by 2020, 58% GHG reduction by 2030, and carbon neutrality by 2050. Motivation •City Light goal was set by City Council in 2000 (used term “carbon neutral”); city goals were e stablished in 2010. •Seattle has been active with environmental issues since 1977 and there are a number of activist groups in the Seattle area, such as the Seattle Green Ribbon Commission. Implementation •City Light measures carbon neutrality against its own emissions inventory protocols developed in 2003 -2004. •SF6 and line losses from the T&D system are included in the scope of carbon neutrality calculation •Seattle City Light does not use RECs in their carbon neutrality program as they consider them to be controversial and want to avoid double counting. •90% of portfolio is hydropower; LFG in their portfolio is considered carbon free. •Maintains a hierarchical approach to reaching target: 1) energy efficiency, 2) renewables and 3) offsets. •Local and affordable offset projects are preferred, but these can be difficult to find; preference for CCAR and VCS approved offsets. •Seattle City Light has an offset project with cruise ships that come into port and plug into the electric system instead of burning fuel and is looking into partnering with the Seattle composting center. •Fossil based purchases are zeroed out on a monthly bases to reach carbon neutrality, preferable due to use of wholesale market trading. Communication •City Light wants to be “a catalyst for others” pursuing GHG reduction efforts. •Encountered some concerns over offsets as taking the place of reductions on their part, emphasized energy conservation efforts and renewables in their communications with offsets as a “last resort.” Challenges / Lessons Learned •Washington state laws made it difficult for the utility to justify their ratepayer expenditures for GHG program, offsets program required passage of special legislation. •Credibility is extremely important need to “do what they said they would do”. Sources: Phone interview with Seattle City Light http://www.seattle.gov/council/issues/carbon_neutrality.htm http://www.seattle.gov/news/detail.asp?id=5656&dept=40 4 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Marin Energy Authority – Marin Energy Authority Marin Energy Authority 100% renewables goal includes all CEC- qualifying resources including biomass and biogas. Marin Energy Authority Stated Goal •Marin Energy Authority (MEA) procures renewable sources of electricity, and partners with PG&E to deliver electricity. •MEA’s goal is 100% renewables although currently have two products “Light Green” which is 50% renewables and “Deep Green” which is 100% renewable. Motivation •Marin County identified reductions in electricity associated emission in its county-level Climate Action Plan and created MEA to implement this, launching customer service in 2010. Implementation •MEA uses a mix of California RPS qualifying resources, Green-e certified RECs and WREGIS registered RECs from Washington and Oregon. •MEA hopes to incrementally increase bundled contracts over time while keeping their prices competitive. •MEA currently has biogas in their portfolio. MEA has received inquires related to emitting renewable resources and referred to a position paper published by the Sierra Club (2010) that some customers have referenced. •MEA currently serves 14,000 customers with full rollout in July 2012 to total of 95,000 customers. Communication •MEA’s programs are very customer-driven with regular public board meetings. •Local marketing on buses, in newspapers and at farmer’s markets used to communicate program benefits. •MEA indicated that communicating the value of RECs to customers can prove challenging. •Environmental issues with wind turbines have raised concerns - MEA has referenced the Audubon Society statements related to GHG emissions being worse for birds than wind turbines. Challenges / Lessons Learned •Value and benefits of RECs can be difficult to communicate to customers. •Location of the purchased power or technology can be an issue. Some customers have complained about solar panels built in Asia or the parent company of the REC developer being a multinational. Sources: Phone interview with Marin Energy Authority https://marincleanenergy.info/about-us 5 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Aspen Municipal Utility – Carbon Neutrality Goal Aspen Municipal Utility will not be using RECs or offsets to meet their 100% renewables goal. Aspen Municipal Utility Stated Goal •Aspen Municipal Utility (Aspen) is pursuing carbon neutrality for its electric generation profile only. It is on track to be carbon neutral by 2015, obtaining its power from 100% renewable sources. Currently, the utility produces about 75% of its energy from wind and hydroelectric sources. •Goal for the greater Aspen community is to reduce GHG emissions by 80%, based off 2004 baseline. •Climate Action Plan also includes reducing the city’s GHG emissions internally, strict energy codes for buildings, water conservation, park and open space maintenance, recycling, and cleaner transportation. Motivation •Aspen's carbon neutrality goal came from a collaboration with the City of Aspen’s Canary Initiative and Aspen Global Warming Alliance. •Aspen takes pride in its green reputation. Recently the Aspen Ski Chamber pulled out of the Chamber of Commerce because of its views on climate change. •Aspen views carbon neutrality as doing something for local economic benefits (i.e. ski industry). Implementation •Aspen’s original emissions inventory (2004) did not follow a standard, although now they have hired a consultant to compile an inventory using the Climate Registry protocol. •It is unclear how this “baseline adjustment “ will impact carbon neutrality efforts, although it is not likely to be an issue given the heavy reliance on hydropower. •Their current portfolio consists of purchased and owned generation. Renewables (wind and hydropower) make up 75%. The remaining 25% is mostly coal and some nuclear. •Aspen stated that it does not use RECs or offsets, as decided by the City Council, they do not believe this is in the spirit of what they are trying to do. •Currently, Aspen is in the FERC permitting process for a new hydropower plant which has experienced local environmental opposition. Communication •Aspen primarily communicates with its customers through bill inserts. Challenges / Lessons Learned •Diverting money into renewable and energy efficiency funds ahead of time was critical to funding and implementing current programs. Sources: Phone Interview with Aspen Municipal Utility http://www.aspenpitkin.com/Living-in-the-Valley/Green-Initiatives/The-Greening-of-Aspen/ Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 6 ENERGY Adam Borison Director San Francisco (415) 356-7144 adam.borison@navigant.com Fred Wellington Associate Director San Francisco, CA (415) 356-7132 fred.wellington@navigant.com Lauren Altschuh Senior Consultant Rancho Cordova, CA (916) 631-3222 lauren.altschuh@navigant.com ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING June 4, 2012 City of Palo Alto Utility Carbon Neutrality Assessment – Definitional Issues 1 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Content of Report This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use of the City of Palo Alto and/or its affiliates or subsidiaries. No part of it may be circulated, quoted, or reproduced for distribution outside these organization(s) without prior written approval from Navigant Consulting, Inc. The work presented herein represents our best efforts and judgments based on the information available at the time this presentation was prepared. Navigant Consulting, Inc. is not responsible for the reader’s use of, or reliance upon, the presentation, nor any decisions based on the presentation. NAVIGANT CONSULTING, INC. MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED. Readers of the presentation are advised that they assume all liabilities incurred by them, or third parties, as a result of their reliance on the report, or the data, information, findings and opinions contained in the report. June 4, 2012 ©2012 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC. 2 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY GHG Accounting > Accounting and Carbon Neutrality GHG accounting impacts all aspects of approaches to carbon neutrality, from baseline issues, to implementation and communication. GHG Accounting Framework •In order to define what carbon neutrality means for CPAU, it is necessary to develop a GHG inventory that will ultimately be used to underpin that definition. •“What in and What’s Out”. Implementation Options Accounting for Emission Reductions Communication •The options available to CPAU to “zero out” GHG emissions are dependent on the structure of the underlying inventory. •How CPAU accounts for emissions can influence what options are available. •CPAU should understand how its definition of carbon neutrality relates to GHG accounting principals in order to avoid misunderstanding amongst its stakeholders •Need to strike a balance between simplicity with meaningful reductions. GHG reduction options, implementation and communication are a function of the underlying accounting which in turn influences how to define carbon neutrality. •GHG accounting protocols oftentimes have prescriptive methods to account for activities that lower GHG emissions. •Some measures that ostensibly reduce emissions may in fact not “count” towards a carbon neutrality target, depending on how it is defined. 3 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of GHG Accounting Protocols GHG Accounting > GHG Accounting Protocols While there are many GHG accounting protocols, almost all are based on WRI’s GHG Protocol, including The Climate Registry. •Navigant focused our assessment on The Climate Registry (TCR) protocols. TCR and many other accounting protocols are consistent with the WRI/WBCSD GHG Protocol. •Specifically, Navigant focused on the Electric Power Sector Protocol (Annex 1 to the General Protocol). •It should be noted that a draft revision of TCR’s General Protocol was released for comment on January 2012. •Because CPAU is only concerned with carbon neutrality in its electric portfolio, Navigant limited its assessment to issues pertaining to this aspect of GHG accounting. •Navigant has not focused on issues that would impact CPAU’s utility- wide portfolio (e.g. operations, natural gas, etc.). Source: World Resources Institute EPA Climate Leaders Guidance CCAR Reporting Protocol WBCSD/WRI GHG Protocol The Climate Registry Protocol Public Sector Protocol ISO 14064 Standards 4 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Scope 1, 2 and 3 GHG Emissions GHG Accounting > GHG Accounting Architecture Carbon neutrality requires consideration of how the architecture of GHG accounting relates to GHG mitigation efforts. Graphic? •Given the complexities associated with GHG accounting, namely the classification of emissions scopes, CPAU should consider how its definition of carbon neutrality relates to generally accepted accounting protocols (i.e. TCR) as well as its own broader GHG inventory. •Since the carbon neutrality calculation only affects emission from electricity generation, it will be important to identify – and eventually communicate to stakeholders – how this relates to CPAU overall GHG Inventory. Source: World Resources Institute 5 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY GHG Accounting > Description of Emissions Sources Pertinent to Carbon Neutrality How carbon neutrality is defined can impact the “type” of emissions that need to be “zeroed out”. Categories Description CPAU’s Inventory? Carbon Neutral Calculation? Comment Sc o p e 1 Stationary Combustion Emissions from owned/controlled facilities Yes Yes CPAU-owned emitting facilities, i.e. local gas units, need to be included. Fugitive Emissions Emissions of SF6 from high voltage equipment used in transmission and distribution systems, HFCs from power generation air intake chillers and CH4 emissions from coal piles Yes (only SF6) Maybe Inclusion of fugitive emissions in carbon neutrality depends on the boundary of the calculation., only for CPAU-owned T&D facilities. Process Emissions Emissions from acid gas/SO2 scrubbers, geothermal facilities, and other sources No No Process emissions from geothermal purchases should be included in Scope 2. Sc o p e 2 T&D System Losses Emissions associated with the portion of purchased electricity that is consumed (i.e. lost) in the T&D system. Yes Maybe Inclusion depends on whether the T&D system is included in the carbon neutral calculation, and only for CPAU owned facilities.** Purchased Power for Own Consumption Emissions associated with purchased electricity/steam/heating/cooling consumed in owned equipment & facilities Yes Yes CPAU might consider differentiating between electricity that it purchases for its own organizational consumption versus that which is sold to customers. Sc o p e 3 Purchased Power for End Users Emissions associated with purchased power delivered to end users No Yes Delineation between owned/end use purchased power consumption is specific to retail electricity providers. ** T&D losses for facilities not owned by CPAU , but used for delivery of CPAU purchased power, are Scope 2 for entity which owns facility. 6 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY GHG Accounting > Carbon Neutrality Calculation Boundary CPAU will need to describe how the boundaries of the carbon neutral calculation relate to broader organizational and community emissions. Emissions from CPAU’s Organizational Activities Emissions from Electricity Generation and Delivery to Customers Emissions from Electricity Generation •CPAU will need to determine the boundary of emissions for their calculation. •This is important because emissions that will be zeroed- out will be a subset of CPAU’s overall GHG inventory reported to TCR. •It will be important to identify – and eventually communicate to stakeholders – how the carbon neutrality effort relates to CPAU’s overall GHG inventory, as well as the broader community inventory. •Importantly, CPAU will need to determine if emissions associated with electricity delivery are within the boundaries of the carbon neutrality calculation. Palo Alto Community Emissions 7 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY GHG Accounting > Key GHG Accounting Issues Relative for Carbon Neutrality There are three primary GHG accounting issues that need to be considered in the definition of carbon neutrality. Main Accounting Issues Affecting CPAU’s Carbon Neutrality Definition T&D System Emissions REC Purchases Emitting Renewable Energy Resources 1 3 2 Decreasing order of importance 8 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY GHG Accounting > Renewable Resources Relevant technology-specific emissions factors for emitting resources. Default CO2 Emission Factors For Power Purchases From Specific Resources Technology / Fuel Source Emission Factor (pounds CO2 / MWh) Natural Gas Combined Cycle – Dual Turbine 909 Combined Cycle – Single Turbine 860 Combustion Turbine 1,329 Steam Turbine 1,532 Internal Combustion 1,226 Biogenic Fuels Anthropogenic Biogenic Wood Derived Solids 44 2,492 Black Liquor 136 1,670 Landfill Gas 38 2,677 Municipal Solid Waste 1,353 2,513 Geothermal (non-binary) 200 lbs CO2 / MWh 1.66 lbs CH4 / MWh n/a Source: Electric Power Sector Protocol for the Voluntary Reporting Program (Annex 1 to the General Protocol). V1.0. June 2009. The Climate Registry. Table 14.3 9 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Implementation > Carbon Neutrality Definitional Options CPAU should consider many options in defining carbon neutrality. Options Pros Cons Bo u n d a r i e s All generation at point of consumption •More inclusive of actual emissions associated with the portfolio. •Includes T&D losses which increases quantity (and associated cost) of mitigation required. •May ‘trigger’ inclusion of fugitive SF6 emissions . All generation at point of generation •Excludes T&D system emissions (both line losses and SF6) which lowers quantity (and associated cost) of mitigation required. •Likely communication issues and differences from CPAU’s overall inventory and in Scope 2 and 3 emissions. Non-renewable generation only •Excludes emitting renewables and avoids associated communication issues. •Avoids SF6 emissions. •Includes T&D losses which increases quantity (and associated cost) of mitigation required. Carbon neutral for all Scopes 1, 2 and/or 3 •Consistent with TCR accounting and CPAU inventory. •Difficult to implement for Scope 3 (i.e. would this capture other Scope 3 emission sources including T&D and operations) Ti m i n g Average across years •Enables “banking” of zero-carbon hydro in wet years. •Difficult to communicate value of approach to stakeholders. Target by certain year •Greater visibility and allows CPAU to plan. •Could be expensive if target year is low hydro year. Staggered approach •Enables CPAU to achieve “easier” definition first and then incrementally improve (e.g. start by excluding T&D system and then offset those emissions at later date). •Could prove difficult to communicate to stakeholders. M i t i g a t i o n Only direct power purchases •Enables purchasing power to influence market. •Difficult to implement given reliance of hydro (i.e. variability leads to reliance on spot purchases). Only offsets •Less expensive than direct power purchases •Simple from accounting standpoint. •Difficult to communicate value of approach to stakeholders. Only RECs •Less expensive than direct power purchases. •Difficult to communicate value of approach to stakeholders. •Issues with GHG accounting. “Loading order” •“Reduce, renew, offset”. •Could allow CPAU to prioritize and limit potential criticism around RECs and offsets. •Requires integration of energy efficiency and renewable energy measures. 10 ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Implementation > Carbon Neutrality Definitional Options Because there are no standard definitions for low-carbon energy goals, CPAU should clearly articulate its definitions and terminology. Term Possible Definition Comments Carbon Neutral Zeroing out all carbon emissions associated with generation and delivery of electricity to customers. •While this term is in widespread use, there is no standard industry definition. 100% Carbon Free Zeroing out all carbon emissions associated with electricity generation only. •This term is not commonly used in the industry and therefore there is no standard definition. 100% Renewables Procuring generation that is either renewable or “greened” with RECs. •This term (or some derivation in terms of percentage) is commonly used in the industry and is easily understood. 100% Clean Energy Procuring “low carbon” generation including natural gas, clean coal and nuclear. •This term is not commonly used in the industry and would require a definition of “clean”, which may or may not include other emissions such as criteria pollutants or waste disposal. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 11 ENERGY Adam Borison Director San Francisco (415) 356-7144 adam.borison@navigant.com Fred Wellington Associate Director San Francisco, CA (415) 356-7132 fred.wellington@navigant.com Lauren Altschuh Senior Consultant Rancho Cordova, CA (916) 631-3222 lauren.altschuh@navigant.com Excerpted Draft Minutes of the July 11, 2012 UAC Meeting ITEM 4: ACTION: UAC Recommendation that Council Approve a Definition of Carbon Neutrality in Anticipation of Achieving a Carbon Neutral Electric Supply Portfolio by 2015 Senior Resource Planner Monica Padilla provided a presentation summarizing the written report, which recommended consideration of a definition of carbon neutrality for the electric supply portfolio. She described the recommendation to use an industry standard protocol and e xplained the major aspects of the proposed protocol, including what is included, how emissions are counted, what emission factors to use for resource types, banking of renewable energy credits (RECs), treatment of the PaloAlto Green program, and resources available to achieve carbon neutrality. Padilla requested feedback from the UAC to help in the development of the carbon neutral plan, which will be presented to the UAC in October to meet the deadline for Council consideration of the plan by December 2012. Commissioner Melton commented that the plan to get to carbon neutrality will be essentially the same as PaloAltoGreen, but for the entire portfolio thus eliminating the need for PaloAltoGreen in its current form. Staff agreed with Commissioner Melton’s observation and reminded the UAC, that as directed by Council, staff is in the process of looking at modifications to the PaloAlto Green program. Public Comment: Bruce Hodge urged the UAC to support staff's recommendation and stated that he was happy to see that the emissions of the internal generation (City-owned back-up generator, or COBUG, unit) is included in the carbon footprint and that staff is proposing to neutralize carbon emissions on an annual basis as opposed to an average over three-years or some other period. Commissioner Hall asked if the definition proposed is as simple as stating that the carbon emissions associated with all generation and delivery to customers will be neutralized, which staff confirmed. Commissioner Chang recommended that the City’s counting and reporting of greenhouse gas emissions be consistent with what the California Air Resources Board (CARB) uses for accounting for emissions reductions in accordance with AB32 goals. She added that staff consider energy efficienc y and reductions in load as resources to achieve reductions in greenhouse gas emissions. Assistant Director Jane Ratchye replied that staff is updating the ten -year energy efficiency goals earlier than required so that the updated goals can be incorporated into the carbon neutral plan. She stated that the updated goals are scheduled to be reviewed by the UAC in September and that a report describing the framework for evaluating the potential for energy efficiency was provided to the UAC for its June 2012 meeting. Commissioner Waldfogel asked if there was a different definition that could be used and what the consequences might be for different potential definitions. He asked if the proposed protocol accounts for all emissions associated with landfill-gas-to-energy generation. Staff explained that the definition follows a national standard and the protocol accounts for the emissions associated with burning the landfill gas in the generator and that such emissions will be counted. Commissioner Eglash said that while this discussion is on the definition of carbon neutrality for the electric portfolio, there are other issues that will be discussed later. One of those is the cost of achieving carbon neutrality and that it is important to understand that carbon neutrality should not be pursued at any cost. He also noted that the City needs to consider the cost impacts on non-residential customers. ACTION: Commissioner Hall moved that the Utilities Advisory Commission (UAC) recommend that the City Council approve the following definition of carbon neutrality as the basis for the City’s pursuit of a carbon neutral electric supply portfolio: Carbon Neutrality: A carbon neutral electric supply portfolio will demonstrate annual net zero greenhouse gas (GHG) emissions, measured at the Citygate, in accordance with The Climate Registry’s Electric Power Sector protocol for GHG emissions measurement and reporting. Commissioner Eglash seconded the motion. The motion carried unanimously (6 -0).