March 13, 2008

Power to the people
New Hampshire can make electricity from renewable resources like water, wood and wind, but can it get that power to market?
By Heidi Masek hmasek@hippopress.com

The feds might be dragging their feet on measures to slow down global warming and encourage use of non-fossil fuels, but states are stepping up to the plate, particularly in the Northeast. New Hampshire has adopted renewable portfolio standards (RPS), which take effect this year. The standards will mean that utility companies must get certain percentages of their power from renewable sources or pay a fee.

The state’s Public Utilities Commission is still ironing out the RPS rules. Meanwhile, state legislators and stakeholders are working on a bill that would allow New Hampshire to join the Regional Greenhouse Gas Initiative (RGGI), which would cap emissions from power plants.

Fear not. This article is not just for tree-huggers. There’s plenty of economic reasoning behind these measures.

What’s RPS?
Currently about 28 states plus the District of Columbia have renewable portfolio standards or goals, according to the U.S. Department of Energy. RPS allows states to require “electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date,” according to DOE. New Hampshire adopted a version tailored to the state’s natural resources and economic needs in May 2007 to take effect Jan. 1, 2008.

Governor Lynch has also set a goal of ensuring 25 percent of New Hampshire’s energy comes from renewable sources by 2025.

“A New Hampshire RPS will encourage investment in energy production in New Hampshire that will deliver economic and environmental benefits to the state and the region. Steady demand for wood chips will help to support our logging communities, and greater fuel diversity will strengthen our energy independence,” Lynch said in a release at that time.

Reasons for RPS listed in the bill include lowering and stabilizing future energy costs “by reducing exposure to rising and volatile fossil fuel prices,” keeping energy and renewable technology investment money in the state, improving air quality and public health, and reducing the risks of climate change.

“New England is overly dependent on natural gas to generate electricity. This dependence has led to the extreme volatility in electric and gas prices we have seen over the last few years. We also don’t have any appreciable indigenous fuel alternatives except wood and a limited amount of hydro power. Renewable resources would allow us to diversify our energy mix over time, hopefully leading to lower prices. It also would ultimately provide an extra measure of energy security as our energy assets become less geographically concentrated,” Robert G. Schoenberger, chairman of the board and CEO of Unitil, wrote in his statement, “A Tipping Point.”

The RPS law requires New Hampshire electric utilities to get 23.8 percent of their power from renewable resources by 2025. Utilities that can’t meet specified percentages can purchase renewable energy certificates (RECs) from renewable companies that generate them because they generate renewable power. Their other option is to pay an Alternate Compliance Penalty (ACP) to the NH Public Utilities Commission, which will use the funding for related initiatives.

PSNH already produces RECs from its wood-fired power plant in Portsmouth and sells them to states with RPS in place, mainly Massachusetts. Public Service of New Hampshire serves close to half a million people in New Hampshire.

What this means for your wallet
Not much, according to a UNH study. Their modeled RPS cost would increase your monthly household bill by 33 cents in 2008, $1.17 in 2015, and 65 cents in 2025. The maximum RPS cost could raise the monthly charge by $0.61, $2.94 and $5.53 for those same years according to the February 2007 “Economic Impact of a New Hampshire Renewable Portfolio Standard,” from Ross Gittell and Matt Magnusson of UNH.

In fact, the UNH study shows possible annual state revenue of $1 million by 2025 due to RPS. New jobs from renewable development could reach 457 by 2010, and 1,094 in 2025, according to the UNH report.

Regardless, whatever new costs the utility companies face would most likely be passed on to the consumer.

Unitil’s Tim Noonis said that ratepayers might see higher rates in the short term, but the idea is that spurring development of renewable energy can offset future cost increases of fossil fuel. If fossil fuel costs continue to go up, renewables look even better. For example, once you recoup the installment costs of wind or solar, the fuel is free.

The power of wood
In 2006, Public Service Company of New Hampshire replaced one of its three 50-megawatt coal-fired boilers at Schiller Station in Portsmouth with a biomass system. The fluidized-bed boiler can burn whole-tree wood chips and other low-grade wood product. Sale of RECs from the plant, known as Northern Wood Power, was meant to help PSNH recover the $75 million in capital costs for conversion. But that model assumed PSNH was selling RECs to other states, before New Hampshire adopted RPS. The 50-megawatt plant won’t produce enough renewable energy to satisfy the new state requirements, said Martin Murray, PSNH senior corporate news representative.

PSNH, like other providers, will have to pay an alternative compliance payment or purchase RECs to meet its RPS quotas. PSNH expects about $9.4 million in costs related to RPS in 2008, Murray said, but, spread throughout ratepayer bills of close to half a million customers, the PSNH cost actually is not a significant increase. The estimate is based on the alternative compliance payment price. Murray said there won’t be a lot of RECs available, so those holding them will probably sell them for the same cost or just slightly less than ACP.

PSNH estimates cumulative costs for meeting RPS will reach about $1.5 billion by 2025, Murray said.

The Schiller biomass conversion was financed with a 15-year loan and it’s still unclear how New Hampshire’s RPS adoption will affect how PSNH pays for that loan, Murray said. PSNH will decide whether to use RECs it generates or sell them dependent on the “best economic interest of our customers,” he said. So if a Massachusetts utility will pay more for a REC than New Hampshire charges for alternative compliance, PSNH will likely sell the REC out of state and pay the in-state penalty.

In the pipeline
While PSNH used an existing facility in Portsmouth for a biomass plant, a sensible place to put such power plants is where the logging industry is.

With the closure of pulp mills in the north, that area has enough wood supply to support proposed biomass plants, said Joseph Fontaine, Emission Reduction Trading Programs Manager for New Hampshire’s Dept. of Environmental Services.

Empty mill sites are also logical locations for biomass plants, and New York-based Laidlaw Energy is developing a 65-MW biomass plant in Berlin at the former Fraser Paper Mill. It is expected to take about two years to build and use about 700,000 tons of biomass chips per year.

Michael Bartoszek founded Laidlaw Energy in 1999 (www.nyenrg.com). As CEO and president he was originally involved in natural gas-fired plants, but in 2003 he started focusing exclusively on renewable energy development.

The biomass plant in Berlin will require approval from New Hampshire’s siting evaluation committee. Finishing the permitting process and closing on financial investments for the project are Laidlaw’s immediate concerns, Bartoszek said.

Although the plant will involve about 40 positions, Laidlaw estimates it will affect more than 500 workers in fuel procurement such as loggers, chippers and truck drivers and the people who supply services to them. Laidlaw will probably spend more than $20 million on fuel purchases per year, which would be going directly into the regional economy, Bartoszek said.

“New Hampshire took a giant step forward by passing RPS,” Bartoszek said. The law was an incentive for his company to seek a project in the state. Renewable developers are heading to the states where there are incentives, he said. Laidlaw is actively looking at several projects in the Northeast now, including one in New Hampshire, another in Vermont and one in Massachusetts. The company is also developing in New York.

Although wood-fired plants produce carbon, biomass generation is considered carbon-neutral because trees sequester carbon as they grow. Also, the plants use chipped low-grade wood, such as branches. The Society for the Protection of New Hampshire Forests has found 60 percent of its 43,000 acres is low-grade. Forest covers 84 percent of New Hampshire.

The state’s Division of Forests and Lands held a Coos County Wood Availability conference March 7.

Laidlaw filed an application to connect to the power grid with ISO-New England Feb. 19. But things don’t look good right now for Tamarack. Owned by Haley & Aldrich of Boston, Tamarack has spent about $1 million on a project to build a 75-MW biomass plant in Berlin’s neighbor, Groveton. A few weeks ago they released their option agreements with landowners.

“Our real concern is you don’t want to slow down other economic development,” said Seth Shortlidge, general counsel to Tamarack. Shortlidge believes the initial estimate for the project’s total capitalized cost was about $200 million, but more than a quarter was related to upgrading transmission so they could connect to the grid. That cost, coupled with the five- to six-year time frame PSNH estimated to get transmission infrastructure ready, is why Tamarack released the options, Shortlidge said. Tamarack’s studies show limited transmission capacity throughout the North Country. Noble Environmental Power was the first to file an interconnection request, and locked in their position to take available transmission, Shortlidge said.

But there’s plenty of land up there, and Tamarack isn’t ruling out a future biomass project if the transmission problem gets solved. “Tamarack’s very interested in the North Country ... we really enjoyed interaction with the people of Groveton,” Shortlidge said. He noted that the town has highly trained workers and is “just a very good place to do business.”

Tamarack started talks with Wausau Paper Mill in the spring 2006, Shortlidge said. Closure of that mill meant a loss of 300 jobs, according to Forbes.com.

Right now, Tamarack has facilities under development in Pittsfield, Mass., at a Crane paper facility with help of the Mass. Technology Council grant program, and Watertown Renewable Power in Watertown, Conn. Shortlidge said the company is always looking for opportunities.

Another 167 mill workers in the north are being laid off in mid-April because Fraser Paper is shutting down some Gorham operations, citing rising costs of oil and market pulp. In February, Rep. Paul Hodes announced that he had requested a federal grant to help convert the oil-fueled boiler at the mill to biomass fuel. At the time, Hodes was also working on legislation to allocate low-interest loans to companies undergoing conversion from an oil-based energy system to a renewable one.

The best wind
Coming soon to, well, um, somewhere south of Claremont, is a new a wind farm. Peak generation from the Lempster Wind Project will be 24 MW, or 2 MW per tower from 12 towers that stand about 260 feet tall. Each has three 130-foot-long blades. (If you were wondering: a wind mill is used for milling something, like grain. Wind turbines are used for electricity.) They can potentially power about 10,000 homes.

The Lempster project (www.lempsterwind.com) is expected to involve a construction workforce ranging at times between 25 and 150 people. Four or five permanent employees will probably be hired to maintain and operate it once the wind farm is up and running. Iberdola’s Community Energy (www.newwindenergy.com) company has signed an agreement to sell power to PSNH when it’s operational, said Paul Copleman of Community Energy. “We expect that it will be online producing clean energy later this year,” he said.

Copleman explained that the process always takes a few years, starting with securing permits and studying site wind consistency for at least a year.

“Most wind developers will tell you first and foremost they are looking for a community that wants the project,” Copleman said. In the east, typically the best wind resources are due to elevation, Copleman said. The other major need is enough wind and ability to transmit the electricity to a power grid.

From looking at the aggregate effect of RPS in states with those quotas, RPS seems like a major driver of future renewable project development, Copleman said. He pointed out related economic benefits. Pennsylvania has attracted wind turbine manufacturing, and a Spanish company has located two facilities there which employ more than 500 people. The U.S. wind industry has installed 5,244 MW in 2007, a 45 percent capacity increase and $9 billion investment according to the American Wind Energy Association.

Noble Environmental Power has set up shop in Lancaster while they assess Coos County land for a potential 99 MW wind farm. Granite Reliable Power, LLC, is a subsidiary of Noble. The construction process is usually quick for wind towers, between six and nine months, said Pip Decker, park development manager. The project will be submitted to the state’s site evaluation committee in late spring, and once approvals are in place, construction could start in 2009, Decker said. Noble has used local contractors and businesses including civil engineers, wetland scientists, surveyors and field crews.

The wind park project site spans unincorporated townships across northern Coos including Millsfield, Dixville and Odell.

Noble has looked at more than 25,000 acres, although collectively the wind park will use between 150 and 200 acres, Decker said. Site research includes cultural and historical factors, archaeology, noise and visual issues and bird migration. That can take a year and a half to two years. Researchers use data collected from local weather stations and on-site meteorological towers to assess wind. Commercial timber logging land lends itself to wind parks because there are existing access roads, Decker said.

Decker expects the project to involve 180 to 220 construction jobs lasting between six and 18 months. About 15 to 17 permanent operations jobs would be created. But the economic benefits to the county and state could be $63.1 million over 20 years collectively of all services used to keep wind park running, he said.

It could power 35,000 homes and the cost could be about $200 million, Decker said. Wind parks aren’t cheap but benefits include cleaner air because of the lack of emissions, he said.

About $14 or $15 million of project costs go toward upgrading transmission lines, Decker said.

The new RPS law is “definitely an incentive” to Noble in New Hampshire. It “gives a clear signal [to] people in the wind power business and renewables in general that the state is supportive of new technologies and the associated benefits,” Decker said.

Decker said that Noble is “actively looking” at a second project in Coos County, and that they are trying to figure out how to bring the power to market because of the transmission constraints beyond their first project. They are taking guidance from other developers and the PUC on resolving that. “It’s just a very high hurdle,” Decker said. But Coos County is just one area of the country facing transmission challenges, he said.

Moving the product
It’s kind of ironic that the best renewable power sources in the state might be wood and wind, of which the best resources are in the North Country, Murray said. Transmission in that area was built to transfer enough power north to serve customers there, rather than transfer lots of power out of the area.

“The conundrum is who pays for the transmission upgrade,” said Rep. Naida Kaen of Lee, who chairs the Science, Technology and Energy Committee. If a huge nuclear or coal plant were coming online, it would pay for the transmission fix.

But renewables are smaller “50 MW this, 30 MW, that,” generators, she said. “We need a new model.”

PUC commissioner Clifton Below said while large fossil fuel generators are more flexible and can usually be located wherever transmission is available, renewable generation usually needs to be located at or near the energy source, which in New Hampshire is usually in the north or at the coast for wind, or in the north for wood since it’s a bulky fuel source. The transmission question has to be solved with the neighboring states, rather than just by New Hampshire, Below said.

A few states, including California, are coming up with ways to spread the costs around, but generation can be built much faster than a line, according to USA Today.

One of the ideas for use of RPS alternative compliance payment revenue is to use some for transmission system costs.

“It’s something of a chicken and egg,” scenario, Below said. Renewable generation can’t be built without transmission, but it doesn’t make sense to build more transmission capacity without new generation to use it. Regional processes are under way, and stakeholders such as Coos County people, transmission owners, legislators and others are on the case, Below said.

There is room for about 100 MW of new energy on transmission lines in the north, Murray said. PSNH is responsible for one major line, and National Grid takes care of the other, plus there’s the Coos County Loop, which is the system that faces challenges. Murray said PSNH is confident the transmission problem will be solved, but feels that it doesn’t make sense to enforce something on the utilities and not allow them to work on the solution.

Fixing the transmission problem will involve “multi-year” construction, and a lot of political questions need to be answered not just locally but federally, Murray said.

Federal regulations put the responsibility of transmission on the company that wants to connect new generation, Murray said, but ISO-New England said it’s a little more complicated.

Not-for-profit ISO-New England operates the bulk power grid for six states, administers a wholesale power market and plans, under the jurisdiction of the Federal Energy Regulatory Commission (FERC). ISO-New England was created in 1997 to oversee restructuring of the electricity industry, and took over planning from utility companies in 2000. PSNH owns physical lines in the state that ISO-New England administers. However, some lines below a certain kilovoltage are regulated by the state, instead, explained Ellen Foley, spokesperson for ISO-New England.

Investment in transmission infrastructure stagnated across the country over the past few decades. In the mid 1990s, restructuring was introduced, competition for wholesale power increased and consumer demand increased so the “need for a reliable, flexible transmission system grew,” Foley said.

Developing transmission doesn’t happen overnight, but that’s true for any state, Foley said. There’s a long lead time to identify transmission needs, propose solutions, choose the best ones, go through a siting process and construction. Plus, renewable sources are probably far away from the larger consumer demand, such as in Greater Boston. Also, energy is lost along transmission lines as it travels.

Annually, they meet with stakeholders and the state and use input for a blueprint for what needs to be accomplished for a reliable system, said ISO-New England spokesperson Erin O’Brien. They noted in their fall 2007 report that SB140, adopted in July, seeks an overhaul of northern transmission infrastructure to promote renewable energy development. That law, from the ISO-New England perspective, could influence transmission needs of the state, O’Brien said. Existing transmission in the north would need to be upgraded or replaced.

ISO-New England has upgraded transmission in Vermont, Boston and Connecticut and built a connection to New Brunswick. There’s also a project under way to reinforce transmission in a region including southwest New Hampshire and adjacent areas of Vermont and Massachusetts.

And how do those utility companies feel?
“One thing I want to make clear is we did support this law,” Murray said of RPS. But PSNH is frustrated that it can’t help meet those renewable goals by producing energy from new power plants themselves. While the idea is for more renewable generation to be developed in New Hampshire, utility companies are kind of at the mercy of whoever can find the investment capital and get the permitting to create new generation.

Murray said the short answer is that there are not enough sources of renewable energy in New Hampshire or New England to satisfy requirements of New Hampshire’s RPS law, plus that of other states.

“The demand for renewable energy will be greater than the supply now and in years to come,” Murray said.

Unitil serves more than 70,000 New Hampshire customers and has a prominent banner on its Web site about why it “support[s] the green energy revolution.” Unitil provides a breakdown of where its energy comes from for Massachusetts customers.

After deregulation, utilities aren’t supposed to get involved in the generation side of things, just delivery — although PSNH is still in possession of plants that can generate up to 1,100 MW. Three run on fossil fuel: a coal plant in Bow, oil or natural gas plant in Newington, and the remaining coal boilers in Portsmouth. They also have nine hydroelectric plants. PSNH is now prohibited by law from building or operating a new power plant.

PSNH feels it would be in customers’ best interest to build small renewable energy, Murray said.

“We could do it effectively and we think more economically than [individual developers],” Murray said, because as a regulated industry, PSNH can secure fairly low-cost financing, and it would be cheaper for customers in the long term, if the utility can meet the RPS quotas rather than pay for RECs or ACPs.

Unitil has a bill this year seeking permission to invest in renewable resources, not generate electricity. State Sen. Martha Fuller Clark agreed to sponsor the legislation, which deals with utilities’ ability to invest in renewable generation under 5 MW including customer-sited sources (SB451). Unitil thinks part of the reason renewables haven’t taken off is that the investment is too onerous for some groups, said Stephanie Skylar of Unitil.

Below said the PUC has indicated general support for the idea, minus the call for enhanced return on equity.

Kaen points out that the parent company of PSNH is Connecticut-based Northeast Utilities and if Northeast Utilities wanted to, it could create a separate subsidiary to build generation. But PSNH wants generation to be underwritten by the state, Kaen said. The question is whether or not that’s appropriate, she said.

“That would send a signal to merchants ... ‘OK, we will underwrite [utilities], and you have to compete with a regulated industry,’” Kaen said. Independent companies might be scared off if competition looks unfair, she said.

Murray said Northeast Utilities doesn’t have a power generation arm, but if it did, it would not benefit PSNH customers. If Northeast Utilities operated power stations as a subsidiary in New Hampshire, it would sell the energy on the open market.

“It’s just not the right time to change our regularity framework,” Kaen said. Yet the state is stuck in “limbo.” Electric utilities were only partially deregulated, and left one company with generation, but not the others. Non-PSNH customers have to buy electricity on the open market. “As much as [PSNH] likes to position themselves as being advocates of New Hampshire ratepayers there are other New Hampshire ratepayers not serviced by them.... We’re trying very hard to find a solution that works for everyone,” Kaen said.

PSNH did support legislation three sessions ago seeking permission to build a 50 MW biomass plant in the north. But some legislators, both then and now, felt generation was best left to the private market, Murray said. “But what’s frustrating is nothing has happened,” Murray said. In those three years, PSNH could have had the biomass plant up and running, since it would have been able to grab the available transmission capacity before Noble got in line, he said. Noble has tabled a second 146 MW wind park in the north.

RGGI
The RGGI legislation “would make it possible for New Hampshire to reduce carbon emissions in the state” and create greater energy efficiency by authorizing a cap-and-trade program to control emissions (www.rggi.org), Clark said.

PSNH also supports RGGI, but Murray said they were concerned about the lack of cap on prices for allowances, and the fact that anyone can buy them. There’s no alternative payment, just an auction system, he said.

The state’s House is expected to take up the HB1434 RGGI legislation at some point this month, Kaen said.

“I think we have largely come to a compromise,” Kaen said. She doesn’t expect serious opposition, although she knows some might try to tweak it or make statements. If the bill is passed, it heads to the Senate. “I truly believe that it makes no sense at all for it not to pass,” Kaen said. Nine states around New Hampshire are participating in RGGI. “We would suffer a negative economic impact if we don’t move forward and pass it, as well,” Kaen said. The state would be affected by increased costs anyway since the state is connected to the same grid as those participating in RGGI. New Hampshire might as well benefit from such things as new energy efficiency funds and job creation opportunities that will come with RGGI, she said.

“We have a lot of faith in the UNH study,” said Patrick Arnold, executive director of the Campaign for Ratepayers Rights. If the state joins RGGI, at least that will mean revenue for the state, and if revenue is invested in energy-efficiency, that can help ratepayers, Arnold said. CRR has emphasized promoting renewable energy because it’s in the long-term best interest of ratepayers and energy consumers to depend less on foreign oil and fossil fuels, he said.

Still questions
As folks move away from fossil fuels in the Northeast — which in addition to being costly these days can, in theory, run out — new models and new technology, and more complex, or at least different, systems, will need to be developed to keep our computers and lights and heating systems running. Those needs need to be balanced with how local communities feel about power plants and transmission lines moving in. And more thought needs to go into the life cycles of products and fuel. Recall the laws of thermodynamics energy and mass can neither be created nor destroyed. These things just change form. So forests might be absorbing emissions from a wood-fueled power plant, but are the trucks and chipping equipment powered with renewable fuel?