Alternative Energy Portfolio Standard

Note: SB 310 of 2014 froze the multi-year renewable ramp-up schedule for 2 years, removed the in-state requirement for renewable energy procurement, and pushed back the final renewable benchmark of 12.5% from 2024 to 2026. HB 554 of 2016 would have extended the freeze for an additional two years, but was vetoed by the Governor. As of January 2017 Ohio's Alternative Energy Portfolio Standard is mandatory again.   

Background

In May 2008, Ohio enacted broad electric industry restructuring legislation (S.B. 221) containing an Alternative Energy Portfolio Standard (AEPS), featuring advanced energy and renewable energy generation and procurement requirements for the state's electric distribution utilities and electric service companies (hereafter referred to as utilities). This definition encompasses all retail electricity providers except municipal utilities and electric cooperatives. Under the old standard, utilities were presented with a multi-year schedule requiring the slow ramp of procurement from renewable energy sources. Each year, utilities were mandated to provide a growing percentage of their annual retail electricity supply from renewable and solar generation sources, with the 2025 end goal of deriving 25% of their annual retail electricity supply from alternative energy. Up to half of the standard could be met with “any new, retrofitted, refueled, or repowered generating facility located in Ohio,” including fossil fuels (advanced energy resources), making the renewables portion of the standard 12.5% renewables by 2025. SB 310 of 2014 froze the AEPS for two years, and removed the 12.5% requirement for advanced energy resources. The ramp up schedule was altered as a result.   

RPS Freeze (2015 - 2016)
In May of 2014 Ohio became the first state to freeze its multi-year alternative energy ramp-up schedule. SB 310 stipulates that the schedule mandated in the Alternative Energy Portfolio standard created in 2008 would no longer apply. Instead, renewable generation will be frozen for 2015 and 2016 at 2.5%, the 2014 level, while the solar requirement would be frozen at .12%, until resuming the original schedule in 2017. The Solar Alternative Compliance Payment schedule was similarly frozen at 2014 levels to resume in 2017. This bill also allows utilities to fully meet the requirements with out-of-state resources by removing the S.B. 221 requirement for utilities to meet half of the standards from facilities within Ohio. As of January 1, 2017, the freeze has been lifted and the 

Eligible Alternative Energy Technologies
In order to qualify under the standard, all renewable energy facilities must have a placed-in-service date of January 1, 1998, or later. The Public Utilities Commission of Ohio (PUCO) is authorized to classify any new technology as a renewable energy resource.

Renewable Energy Resources
Eligible renewable resources are defined to include the following technologies: solar photovoltaics (PV), solar thermal technologies used to produce electricity, wind, geothermal, biomass, biologically derived methane gas, landfill gas, certain non-treated waste biomass products, solid waste (as long as the process to convert it to electricity does not include combustion), fuel cells that generate electricity, certain storage facilities, and qualified hydroelectric facilities.* In 2012, S.B. 315 and S.B. 289 added certain cogeneration and waste heat recovery system technologies that meet specific requirements (Docket 12-2156-EL-ORD). A waste heat recovery or cogeneration system may qualify for either the Renewable Energy Resource Standard or the Energy Efficiency Portfolio Standard. Distributed generation systems used by customers to generate electricity using the aforementioned eligible renewable resources are also included.

S.B. 310 provided RECs for biological methane gas not converted into electricity.  Heat energy derived for biological methane gas equal 3,412,142 BTUs will now be treated the same as 1 MW of renewable energy generation (which is equivalent to 1 REC). S.B. 310 also made run-of-the-river hydroelectric systems on the Ohio River exceeding 40 MW capacities to be eligible for RECs.

In 2017, HB 49 also made small hydroelectric facility of aggregate capacity less than six megawatts an eligible renewable energy resource. 

AEPS Compliance

Annual Obligation
A utility's obligation under the Alternative Energy Portfolio Standard (AEPS) is calculated using the average of a utility's total retail sales (sold under standard service offer) during the preceding three calendar years as a baseline. The renewable benchmarks that began in 2009 are frozen by S.B. 310 at 2014 levels for 2015 and 2016. In 2017 the ramp-up schedule resumes towards an eventual target of 12.5% of retail electricity sales (kWh) by 2026 and thereafter (see table above). Utilities are required to file a compliance report by April 15 of each year. These reports must allow and consider public comments. PUCO in turn must review reports and report back to the General Assembly on a yearly basis. The 2017 PUCO report is available here and covers compliance years of 2015.

Solar Carve Out
The requirement also contains a carve-out for solar-energy resources with an ultimate solar target of 0.5% of the total electricity supply in 2026 and thereafter. The total renewable percentage requirement includes the solar specific portion (i.e., the solar requirement is not added on top of the specified renewables requirement). The detailed schedule of annual compliance benchmarks appears below. The law does not identify annual benchmarks for the overall alternative energy standard. To comply utilities can acquire Solar Renewable Energy Credits (SRECs) or pay the Solar Alternative Compliance Payment (SACP).

Renewable Energy Credits (RECs)
The annual benchmark obligations may be met through the purchase of qualified renewable energy credits (RECs), which are defined as the environmental attributes associated with one megawatt hour of electricity generated by a renewable energy resource. Under the standard, RECs have a lifetime of five years following their acquisition. The utility utilizing RECs for compliance must be a registered member with PJM’s generation attribute tracking system (GATS) and/or Midwest Independent Transmission System Operator (MISO) generation attribute tracking system, and/or other credible tracking system PUCO subsequently approves. Only RECs generated after the effective date of S.B. 221 (July 31, 2008) may be used for compliance. Seperate Solar Renewable Energy Credits (SRECs) are used to comply with the solar carve-out portion of the program.

Annual Review and Alternative Compliance Payments (ACP)
PUCO is also tasked with annually reviewing compliance with the renewable and solar energy benchmarks and imposing penalties if the benchmarks are not met.  Compliance payments are deposited into the Ohio Advanced Energy Fund, which provides financial support to renewable energy and energy efficiency projects within the state. Utilities may not pass along the cost of compliance payments to their customers, but they are required to share compliance costs on customer’s monthly bill.

The alternative compliance payment (ACP) for the renewable portion is initially set at $45/megawatt-hour (MWh) but will be adjusted annually by PUCO according to the federal Consumer Price Index with a price floor of $45/MWh. 

The separate Solar Alternative Compliance Payment (SACP) was initially set by S.B. 221 at $450/MWh in 2009, reduced to $400/MWh in 2010 and 2011, was on schedule to be reduced by $50 every two years thereafter to a minimum of $50/MWh in 2024. S.B. 310 froze the SACP to 2014 levels at $300/MWh for 2015 and 2016. In 2017 the SACP will fall to $250/MWh and will resume the schedule of being reduced every 2 years by $50/MWh until a $50/MWh SACP at 2026. To avoid Solar Alternative Compliance Payments, utilities can acquire market-based SRECs.

The law contains clauses for cost limitations and allowances for non-compliance for reasons beyond a utility's control (i.e., force majeure). Utilities are not required to comply with the annual benchmarks if it is "reasonably expected" to raise their costs by 3% or more above what they would have otherwise been.** The PUCO may require the utility to make solicitations for renewable energy resource credits before the utility may request a force majeure determination. PUCO is authorized to reduce a utility's obligation under the standard if it receives a petition for such treatment from the utility and determines that resources sufficient to meet the obligation are not reasonably available. Under these circumstances a utility may be required to make up the shortfall with additional purchases in subsequent years.

Energy Efficiency Portfolio Standards

S.B. 221 also required utilities to implement energy efficiency and peak demand reduction programs that achieve a cumulative energy savings of 22% by the end of 2025, and reduce peak demand by 1.0% in 2009 and 0.75% annually thereafter through 2018. These requirements are separate and distinct from the Alternative Energy Resource Standard and were also frozen and set back by 2 years by S.B. 310.

*In order to be considered a renewable resource for the purposes of the renewable resource standard, a hydroelectric facility must meet a series of requirements regarding its environmental impact. However, these requirements do not include a size limitation (e.g., 30 MW) of the type frequently found in state RPS laws.

**S.B. 232 made a slight amendment to this cost limitation provision.