Loading...
HomeMy WebLinkAboutStaff Report 3386 City of Palo Alto (ID # 3386) City Council Staff Report Report Type: Study Session Meeting Date: 2/11/2013 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: PaloAltoGreen Redesign Discussion Title: Study Session on PaloAltoGreen Program Redesign Options From: City Manager Lead Department: Utilities Recommendation No action is requested by the City Council at this time. This report is provided to prompt a robust discussion of options for the PaloAltoGreen program before staff spends significant time developing a recommendation. Executive Summary The City of Palo Alto Utilities (CPAU)’s program, PaloAltoGreen (PAG), provides customers an opportunity to support the renewable industry by purchasing renewable energy for 100% of their electric usage. The program is very popular and has grown significantly since it was launched in 2003. By 2008 PAG had the highest participation rate of any voluntary green rate program in the country. The program continues to have the highest participation rate of any green rate nationally and to receive awards from many organizations. Participation has remained at about 20% of customers since 2008. Since CPAU’s electric supply portfolio may be 100% carbon neutral by 2015, the purpose for PAG and the program’s goals need to be revisited. The Utilities Advisory Commission (UAC) provided input at its December 5, 2012 meeting. This report includes a summary of that discussion and of five options to prompt a discussion by the City Council on the future of PAG. Background Through the PAG program, CPAU provides customers renewable energy for 100% of their electric usage at a cost premium of 1.5 cents/kWh. The program, which started in 2003, continues to have the highest participation rate of any green rate nationally and to receive awards from many organizations. Participation has remained at about 20% of customers since City of Palo Alto Page 2 2008. Annual PAG premium revenues totaled about $1.14 million in 2011. CPAU purchases Renewable Energy Certificates (RECs) for PAG from a combination of 97.5% wind resources and 2.5% local solar energy. A Palo Alto household using 650 kilowatt-hours per month pays an additional $9.75 per month to participate in PAG. Larger businesses can purchase RECs in blocks of 1 megawatt-hour for $15. For the first eight years of implementation, costs of RECs and marketing were nearly equal to the funds received from customers for the purchase of PAG. Beginning in 2011, the cost of RECs declined significantly, resulting in much lower program costs. As CPAU‘s electric supplies include more and more renewable power and the City plans to have a 100% carbon neutral portfolio in the near-term, the purpose for PAG and the program’s goals need to be revisited. The Long-term Electric Acquisition Plan (LEAP) includes a task to redesign PAG. Discussion General concepts for the future PAG program include, but are not limited to, the following: 1. Discontinue the program 2. Continue the program similar to what it is now 3. Revise program to support local solar installations 4. Revise program to a green gas, instead of green electricity, program 5. Revise program to support transportation related reductions in greenhouse gas emissions Option 1: Discontinue PaloAltoGreen Completely This option would end PAG in 2014 when the electric supply may become carbon neutral. Cons:  The momentum, goodwill and branding for PAG built over nearly 10 years would be lost to CPAU.  CPAU would lose national recognition for this program. Benefits: City of Palo Alto Page 3  Other options to fund locally situated solar or other environmental goals may be able to be pursued by applying the staff resources currently devoted to administering and managing PAG. Option 2: Continue PaloAltoGreen in similar format to its current form PAG could continue as a program to support renewable energy in substantially its current form. Because the cost of RECs has fallen since PAG began, the price to PAG participants could decrease from the current premium of 1.5 cents/kWh to something less. The program could also be modified in a variety of ways including: 1. Account for the renewable energy purchases in the electric portfolio by having PAG customers purchase only enough RECs to cover the non-wind and solar portion of the supply portfolio. For example, if wind and solar resources accounted for 30% of the portfolio, the program would only buy RECs for 70% of a participant’s electric usage; 2. Increase the percentage of solar RECs purchased as part of PAG (for example, from 2.5% to 5%) such that the premium stays at 1.5 cents/kWh. Since solar RECs cost more than wind RECs, solar RECs could make up more of the PAG portfolio and the program may be more attractive to some by supporting solar to a greater extent; 3. Use short- or long-term renewable resources (instead of RECs) for all or a portion of the supplies. This could attract participants who prefer actual energy from renewable resources rather than RECs to support renewable energy projects; or 4. Reduce the price of the program to reflect the current lower cost of RECs and keep it as is otherwise. Cons:  As the City moves to a climate neutral electric portfolio, the environmental benefits of this program will decrease and any cost premium, even a reduced one, for residential and commercial customers may result in a drop in participation. Benefits:  This program would be easy to implement and market to customers, as it would be the same or very similar to what has already been offered for 10 years. Option 3: Revise program to support local renewable energy installations This option continues to support renewables, but with this option, funds from the PAG program would support increasing local solar photovoltaic (PV) installations. There are several ways that this goal could be achieved, including: City of Palo Alto Page 4 1. CPAU could contract with a developer to build/develop a PV system on a site that could be inside Palo Alto (such as on a nonprofit school or other similar community agency) or at a location outside the City. The solar system, and its related energy production and environmental benefits (RECs) could be owned by participants as “virtual” net metered customers. Alternately, customers could fund the installations as a donation with no direct relationship to their electric usage. 2. The solar installations could be funded through a variety of mechanisms, including utility bill adders, an enhanced Feed in Tariff (CLEAN Program) rate, or donations from the public. 3. The solar energy could be purchased through an RFP process similar to the one used for CPAU’s long-term renewable energy contracts, with the generation supplying the needs of program participants. Cons:  Solar ownership programs could be costly and time consuming to implement from a billing system and administrative perspective.  Managing solar facility construction could become staff-intensive and/or expensive from a management perspective.  It could be challenging to match funding from a voluntary program, from which participants can leave at any time, with a long-term funding commitment for a local renewable energy project. This could be addressed by requiring a term commitment (e.g. 5 or 10 years or more), but this may not be attractive to some participants.  Based on preliminary feedback from some PAG members, any local solar installations would be more popular throughout the community and thus easier to market if installed at a nonprofit or community center, as opposed to a business. Benefits:  Under this program, customers could effectively be owners of local solar systems.  Unless the program was a donation program, customers could receive payment for the electricity and for the environmental benefits of the system. Option 4: Implement a Green Gas Program When the electric portfolio becomes carbon neutral, many PAG participants may decide not to continue participating in the program, particularly if their reason for participating is to eliminate their carbon footprint from their electric usage. However, if those customers use natural gas, they may wish to reduce or eliminate their carbon footprint due to their use of natural gas. Several options for a PaloAltoGreen Gas program include: City of Palo Alto Page 5 1. Similar to the current PAG for electric supplies, a PAG Gas program could allow participants to purchase renewable gas supplies for their own usage by paying a premium for renewable gas on their monthly utility bills. The funds from these additional charges could be used by CPAU to purchase biogas from sources such as dairies, biogas facilities or landfills. 2. Alternatively, environmental offsets could be purchased to offset, or “neutralize” the GHG emissions from fossil-fuel natural gas usage. Environmental offsets are tradable credits issued for emissions reductions resulting from qualifying GHG mitigation projects. They may include forestry, urban forestry, livestock methane, and ozone depleting substances. 3. Another alternative includes increasing the incentive for solar hot water heating systems, which replace or reduce the use of natural gas for heating. These projects could be installed at schools (e.g. for heating swimming pools) or other non-profit entities. Cons:  The change in the program will require clear communication with customers, as the program will be moving from electricity to natural gas.  Biogas is currently, and may remain, fairly expensive. Thus the program may be more costly for residents, or the program may only cover a portion of consumption, which may complicate the program.  Environmental offsets may not be considered acceptable to participants. Some customers might have a negative perception of this option. In addition, environmental offsets can already be purchased from parties other than CPAU. Benefits:  This program will have the benefit of addressing climate change in a more dramatic fashion. When the electric portfolio is carbon neutral, customers will have no GHG emissions from electric usage.  This program would provide customers wishing to reduce their GHG emissions a mechanism to do so by replacing all or part of their natural gas usage with renewable gas purchases, or offsets.  Since residents in Palo Alto have expressed an interest in climate protection, this program may be popular and create greater interest than other programs above. Option 5: Support transportation-related reductions in greenhouse gas emissions For those PAG participants whose objective is to reduce GHG emissions, a major way to reduce City of Palo Alto Page 6 those emissions locally would be to reduce single occupant gasoline miles driven. This option could be pursued by using PAG revenues to promote alternative transportation options such as providing rebates for electric vehicle chargers, enhancing public transit options, or increasing/enhancing bicycle paths around town. Cons:  There is no direct relationship between CPAU and transportation. It would likely be difficult to explain and market this program to CPAU customers. Benefits:  There could be a greater impact on local GHG emissions by increasing non-gasoline powered transportation than by increasing renewable electric usage. At its December 5, 2012 meeting, the Utilities Advisory Commission provided input on the options. None of the Commissioners promoted ending the program. Three Commissioners thought some type of local solar program would be the best fit, perhaps to mitigate purchase price risk in a long term supply contract or to enhance the funding for the CLEAN program (feed-in-tariff). Another Commissioner supported the natural gas option, as he felt it would be most supportive of the goal to reduce greenhouse gas emissions. Next Steps The options sketched out provide a broad array of options for the future direction of the PAG program. Staff would like to get feedback from the UAC and Council before designing a specific program. After hearing from the UAC and Council, staff will focus its analysis and return to the UAC and Council with a recommendation for the future of the PAG program. Environmental Review The Council’s discussion of Palo Alto Green redesign options does not meet the California Environmental Quality Act’s definition of a “project” under Public Resources Code Section 21065, thus environmental review is not required. Attachments:  Attachment A: UAC Report on PAGreen Redesign Options (PDF)  Attachment B: PAG Redesign Options (PDF)  Attachment C: Excerpted Final UAC Minutes of December 5, 2012 (PDF) 5 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: DECEMBER 5, 2012 SUBJECT: Utilities Advisory Commission’s Consideration of PaloAltoGreen Program Redesign Options ______________________________________________________________________________ No action is requested by the Utilities Advisory Commission (UAC) at this time. This report is provided to prompt a robust discussion of options for the PaloAltoGreen program before staff spends significant time developing a recommendation. Executive Summary The City of Palo Alto Utilities’ (CPAU’s) program, PaloAltoGreen (PAG) provides customers an opportunity to support the renewable industry by purchasing renewable energy for 100% of their electric usage. The program is very popular and has grown significantly since it was launched in 2003. By 2008 PAG had the highest participation rate of any voluntary green rate program in the country. The program continues to have the highest participation rate of any green rate nationally and to receive awards from many organizations. Participation has remained at about 20% of customers since 2008. Since CPAU’s electric supply portfolio may have 100% carbon neutral resources by 2015, the purpose for PAG and the program’s goals need to be revisited. This report includes a summary of five options to prompt a discussion by the UAC on the future of PAG. Background Through the PAG program, CPAU provides customers renewable energy for 100% of their electric usage at a cost premium of 1.5 cents/kWh. The program, which started in 2003, continues to have the highest participation rate of any green rate nationally and to receive awards from many organizations. Participation has remained at about 20% of customers since 2008. Annual PAG premium revenues totaled about $1.14 million in 2011. CPAU purchases Renewable Energy Certificates (RECs) for PAG from a combination of 97.5% wind resources and 2.5% local solar energy. A Palo Alto household using 650 kilowatt-hours per month pays an additional $9.75 per month to participate in PAG. Larger businesses can purchase RECs in blocks of 1 megawatt-hour for $15. For the first eight years of implementation, costs of RECs and marketing were nearly equal to the funds received from customers for the purchase of PAG. Beginning in 2011, the cost of RECs declined significantly, resulting much lower program costs. As CPAU‘s electric supplies include more and more renewable power and the City plans to have a 100% carbon neutral portfolio in the near-term, the purpose for PAG and the program’s goals need to be revisited. The Long-term Electric Acquisition Plan (LEAP) includes a task to redesign PAG. Discussion General concepts for the future PAG program include, but not limited to, the following: 1. Discontinue the program 2. Continue the program similar to what it is now 3. Revise program to support local solar installations 4. Revise program to a green gas, instead of green electricity, program 5. Revise program to support transportation related reductions in greenhouse gas emissions Option 1: Discontinue PaloAltoGreen Completely This option would end PAG in 2014 when the electric supply becomes carbon neutral. Cons:  The momentum, goodwill and branding for PAG built over nearly 10 years would be lost to CPAU.  CPAU would lose national recognition for this program. Benefits:  Other options to fund locally situated solar or other environmental goals may be able to be pursued by applying the staff resources currently devoted to administering and managing PAG. Option 2: Continue PaloAltoGreen in similar format to its current form PAG could continue as a program to support renewable energy in substantially its current form. Because the cost of RECs has fallen since PAG began, the price to PAG participants could decrease from the current premium of 1.5 cents/kWh to something less. The program could also be modified in a variety of ways including: 1. Account for the renewable energy purchases in the electric portfolio by having PAG customers purchase only enough RECs to cover the non-wind and solar portion of the supply portfolio. For example, if wind and solar resources accounted for 30% of the portfolio, the program would only buy RECs for 70% of a participant’s electric usage; 2. Increase the percentage of solar RECs purchased as part of PAG (for example, from 2.5% to 5%) such that the premium stays at 1.5 cents/kWh. Since solar RECs cost more than wind RECs, solar RECs could make up more of the PAG portfolio and the program may be more attractive to some by supporting solar to a greater extent.; 3. Use short- or long-term renewable resources (instead of RECs) for all or a portion of the supplies. This could attract participants who prefer actual energy from renewable resources rather than RECs to support renewable energy projects.; or 4. Reduce the price of the program to reflect the current lower cost of RECs and keep it as is otherwise. Cons:  As the City moves to a climate neutral electric portfolio, the environmental benefits of this program will decrease and any cost premium, even a reduced one, for residential and commercial customers may result in a drop in participation. Benefits:  This program would be easy to implement and market to customers, as it would be the same or very similar to what has already been offered for 10 years. Option 3: Revise program to support local renewable energy installations This option continues to support renewables, but with this option, funds from the PAG program would support increasing local solar photovoltaic (PV) installations. There are several ways that this goal could be achieved, including: 1. CPAU could contract with a developer to build/develop a PV system on a site that could be inside Palo Alto (such as on a nonprofit school or other similar community agency) or at a location outside the City. The solar system, and its related energy production and environmental benefits (RECs) could be owned by participants as “virtual” net metered customers. Alternately, customers could fund the installations as a donation with no direct relationship to their electric usage. 2. The solar installations could be funded through a variety of mechanisms, including utility bill adders, an enhanced Feed in Tariff (CLEAN PROGRAM) rate, or donations from the public. 3. The solar energy could be purchased through an RFP process similar to the one used for CPAU’s long-term renewable energy contracts, with the generation supplying the needs of program participants. Cons:  Solar ownership programs could be costly and time consuming to implement from a billing system and administrative perspective.  Managing solar facility construction could become staff-intensive and/or expensive from a management perspective.  It could be challenging to match funding from a voluntary program, from which participants can leave at any time, with a long-term funding commitment for a local renewable energy project. This could be addressed by requiring a term commitment (e.g. 5 or 10 years or more), but this may not be attractive to some participants. Benefits:  Under this program, customers could effectively be owners of local solar systems.  Unless the program was a donation program, customers could receive payment for the electricity and for the environmental benefits of the system. Option 4: Implement a Green Gas Program When the electric portfolio becomes carbon neutral, many PAG participants may decide not to continue participating in the program, particularly if their reason for participating is to eliminate their carbon footprint from their electric usage. However, if those customers use natural gas, they may wish to reduce or eliminate their carbon footprint due to their use of natural gas. Several options for a PaloAltoGreen Gas program include: 1. Similar to the current PAG for electric supplies, a PAG Gas program could allow participants to purchase renewable gas supplies for their own usage by paying a premium for renewable gas on their monthly utility bills. The funds from these additional charges could be used by CPAU to purchase biogas from sources such as dairies, biogas facilities or landfills. 2. Alternatively, environmental offsets could be purchased to offset, or “neutralize” the GHG emissions from fossil-fuel natural gas usage. Environmental offsets are tradable credits issued for emissions reductions resulting from qualifying GHG mitigation projects. They may include forestry, urban forestry, livestock methane, and ozone depleting substances. 3. Another alternative includes increasing the incentive for solar hot water heating systems, which replace or reduce the use of natural gas for heating. These projects could be installed at schools (e.g. for heating swimming pools) or other non-profit entities. Cons:  The change in the program will require clear communication with customers, as the program will be moving from electricity to natural gas.  Biogas is currently, and may remain, fairly expensive. Thus the program may be more costly for residents, or the program may only cover a portion of consumption, which may complicate the program.  Environmental offsets may not be considered acceptable to participants. Some customers might have a negative perception of this option. In addition, environmental offsets can already be purchased from parties other than CPAU. Benefits:  This program will have the benefit of addressing climate change in a more dramatic fashion. When the electric portfolio is carbon neutral, customers will have no GHG emissions from electric usage.  This program would provide customers wishing to reduce their GHG emissions a mechanism to do so by replacing all or part of their natural gas usage with renewable gas purchases, or offsets.  Since residents in Palo Alto have expressed an interest in climate protection, this program may be popular and create greater interest than other programs above. Option 5: Support transportation-related reductions in greenhouse gas emissions For those PAG participants whose objective is to reduce GHG emissions, a major way to reduce those emissions locally would be to reduce single occupant gasoline miles driven. This option could be pursued by using PAG revenues to promote alternative transportation options such as providing rebates for electric vehicle chargers, enhancing public transit options, or increasing/enhancing bicycle paths around town. Cons:  There is no direct relationship between CPAU and transportation. It would likely be difficult to explain and market this program to CPAU customers. Benefits:  There could be a greater impact on local GHG emissions by increasing non-gasoline powered transportation than by increasing renewable electric usage. Next Steps The options sketched out provide a broad array of options for the future direction of the PAG program. Staff would like to get feedback from the UAC and Council before designing a specific program. After hearing from the UAC, staff plans to provide a study session for the Council, which will take place early in 2013. After hearing Council’s reaction to different options, staff will focus its analysis and return to the UAC with a recommendation for the future of the PAG program. Attachment A. Decision tree of options for PaloAltoGreen PREPARED BY: JOYCE KINNEAR, Manager, Utility Marketing Services REVIEWED BY: TOM AUZENNE, Assistant Director, Customer Support Services JANE RATCHYE, Assistant Director, Resource Management DEPARTMENT HEAD: _____________________________________ VALERIE O. FONG Director of Utilities End Program Continue program with modifications Change program to local solar program Change program from a green electric to a green gas program Change program to focus on reducing GHG emissions from transportation Change content of energy supplies? Biogas purchases, offsets, or solar hot water heating program incentive? Customers receive share of energy or make donation? Support EVs or other clean transportation? Yes End PAG when CPAU electric portfolio is carbon neutral? No Keep price the same, but increase fraction of solar RECs Only “cover” the nonsolar and nonwind in portfolio and lower the price. Customers receive share of solar energy produced Members donate toward construction of solar system on school or nonprofits Biogas purchases (may require out of state purchases or long- term contract) Purchase carbon offsets in a tradable market, similar to REC purchases Expand EV charger installations at public facilities Support clean transportation through building bike trails, subsidizing transit or some other mechanism More solar Lower price Energy share Donation Biogas EV ChargersOffsets Clean Transport Increase incentives for SHW systems or install SHW project at schools or nonprofits SHW EXCERPTED FINAL MINUTES OF THE DECEBER 5, 2012 UTILITIES ADVISORY COMMISSION MEETING ITEM 5: DISCUSSION: Utilities Advisory Commission’s Consideration of PaloAltoGreen Program Redesign Options Utilities Marketing Services Manager Joyce Kinnear provided an overview of the options for the future PaloAltoGreen (PAG) under a carbon neutral electric portfolio. She requested that the Commission provide comments on the many proposals to help staff develop a recommendation for City Council. Commissioner Melton said that as the electric portfolio has been moving to carbon neutral, PAG is redundant. He stated that the PAG brand is tied to electricity and would be difficult to transition to gas. He pointed out that local solar could be an option by increasing the PA CLEAN price to encourage more local solar. This would be a better selling point to a PAG customer. He advised keeping the focus on electricity. Vice Chair Foster said that ending the program is the worst choice. He supports the local solar options. He stated that he likes both the green gas and transportation options, but agrees with Melton that the focus should remain on electricity. Commissioner Chang agreed with Melton and Foster that PAG is an electric program and that the options for local solar sound good. She also suggested that staff look at a renewable energy program launched by Austin. In this program, businesses could hedge the price of electricity by purchasing blocks of renewable energy through the utility for a specific period of time at a fixed price. As the nonrenewable power increased in price, some purchasers of different batches of the power in the renewable program actually paid lower prices for electricity for a period of time, thus seeing a financial benefit for their involvement in the green program. Kinnear explained Austin customers sign up for GreenChoice by subscribing to a specific batch of renewable power from specific windmills. A subscription to GreenChoice means that the fuel charge is replaced with the GreenChoice Batch charge. Commercial customers must sign an agreement with the utility to receive power under this program for at least 10 years. Chair Cook preferred the PAG gas program as it would address the GHG issue and is structured similarly to the current program. He pointed out that it would be a natural evolution from the original purpose of PAG to reduce GHG through renewable electric purchase to reducing GHG emissions through renewable natural gas options. ITEM 6: ACTION: Selection of Potential Topics for Joint UAC/Council Meeting Chair Cook requested the commissioners to provide him ideas for the joint meeting. ACTION: None.