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EPACleanEnergy-EnvironmentGuidetoAction

5.2 Public Benefits Funds forState Clean Energy SupplyPrograms

Policy Description and Objective

Summar

Public benefits funds (PBFs), also known as systembenefits charges (SBCs) and clean energy funds, aretypically created by levying a small fee or surcharge onelectricity rates paid by customers (i.e., for renewableenergy, this fee is approximately 0.01 to 0.1 mills

perkilowatt-hour [kWh]) (DSIRE 2005). To date, PBFs haveprimarily been used to fund energy efficiency and low-income programs (see Section 4.2,

Public Benefits Funds for Energy Efficiency

). More recently, however,they have also been used to support clean energy supply (i.e., renewable energy and combined heat andpower [CHP]).PBFs were initially established during the 1990s instates undergoing electricity market restructuring.The goal was to assure continued support for renewable energy and energy efficiency programs in competitive markets and ensure that low-income populations had access to quality electrical service.

Withrespect to renewable energy, the concern was that ina competitive market, lower-cost generation wouldbe favored over renewable energy. In response to thisconcern, PBFs were seen as a mechanism for continuing support for renewable energy and the benefitsit provides in a competitive market situation.CHP projects have been included in PBF-funded programs more recently due to their very high efficiencyand environmental benefits. Although typically notconsidered a renewable energy technology, CHP canbe characterized as a clean energy technology, asuper-efficient generating technology, or an energyefficiency technology. As such, it has been addressedthrough both renewable and energy efficiency PBF-funded programs. States that have included CHP asan energy efficiency measure include New York and

Public benefit funds (PBFs) can increaseclean energy supply and enhance state eco-nomic development and environmentalimprovement. A clean energy fund can bedesigned to address key market barriersincluding the upfront cost of equipment andto provide consumer and education outreach.

New Jersey (see

State Examples

section on page 5-26for results of these CHP programs). This flexibilityallows states to include CHP in PBF-funded programswhere it makes most sense for that state, as a cleanenergy technology, an energy efficiency technology,or a super-efficient generating technology.In 2005, 16 state renewable energy programs wereexpected to provide more than $300 million in support of clean energy supply. PBFs (i.e., clean energyfunds) provided much of this funding (see Figure5.2.1), and according to one estimate, PBFs will generate more than $4 billion for clean energy by 2017(UCS 2004). In comparison, PBFs were expected toprovide over $1 billion in funding for energy efficiency programs in 2005. (For more information on PBFsfor energy efficiency, see Section 4.2,

Public Benefits Funds for Energy Efficiency.

)Because state clean energy funds for energy supplyare a relatively recent policy innovation, it is tooearly to measure their success. While some statestrack clean energy fund metrics (e.g., the number of dollars invested, number of kilowatts [kW] installed,and number of installers trained), larger issues suchas the impact of clean energy funds on the renewable energy market have not yet been systematicallyevaluated.

Object

ive

The key objective of creating state clean energyfunds with PBFs is to accelerate the development of renewable energy and CHP within a state. The objectives underlying a push for more renewable energyinclude state economic development, environmental

1 mill = one-tenth of a cent.

In California, these were initially called “stranded benefits” charges.

Section5.2.PublicBenefitsFundsforStateCleanEnergySupplyPrograms

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EPACleanEnergy-EnvironmentGuidetoAction

Figure5.2.1:Estimated2005FundingLevelsforStateRenewableEnergyPrograms

Est. 2005 Funding($ millions)Additional Information

$8.5

To be determined in 2005

$140 Through 2011

$20 Through 2012

$1.5

Undeﬁned end date

$5 $50 million over 10 years

$24 Undeﬁned end date

Voluntary

$16Undeﬁned end date; tied to XcelNuclear Prairie Island plant operation

$2 2005

$682005–2008, 37% of SBC funding

$9$67 million over 5 years from 2002 to 2006

$1.25 Through 2011

$11 Through 2009

$5.5 Through 2006

$3.0 Through 2012

$1.3 4.5% of SBC funding

Note: Values shown are annual amounts for renewable energy only anddo not represent total SBCs.

In 2005 Arizona was estimated to generate $8.5 million from PBFs andan additional $11–11.5 million from a utility bill surcharge for renewable energy. Funds are given to utilities to comply with theEnvironmental Portfolio Standard (EPS) through green power purchases, development of renewable generation assets, and customerphotovoltaic (PV) rebates. Arizona is currently modifying EPS rules,which could result in the elimination of PBFs for renewable energy,and instead create a utility bill surcharge to generate ~$50 million peryear.

Amount represents both renewable energy and energy efficiencyprograms.

Sour

ces:DSIRE2

05,Navigant2005.

improvement, and response to public demand. Theseobjectives can be advanced, in part, by creating aclean energy fund that incorporates a variety of strategies, including lowering equipment costs,addressing market barriers, and providing consumereducation and outreach.

Benefit

PBF-based clean energy funds offer the followingbenefits:•

Provide a Cohesive Strategy “Under One Roof.”

Combining a range of clean energy programs andfunding within one organization allows for acohesive strategy for addressing the range of cleanenergy market issues.•

Tailored to a State’s Needs.

State clean energyfunds provide flexibility in the types of incentivesand programs that states can offer and can becustomized to the state’s goals, natural resources,and industry presence (e.g., industries that are wellestablished in a state, such as wind or biomass).•

Support LongTerm Goals.

While policies such asrenewable portfolio standards (RPS) are generallyaimed at jump-starting markets for commerciallyready technologies, clean energy funds have beendesigned to fund options with benefits that accrueover the long term. These longer-term programs,such as technology research, development, anddemonstration programs, require a longer timeframe (10 or more years) than is typically allowedby other approaches. In addition, these funds canbe designed to improve the state economy byaccelerating the development and deployment of technologies focused by in-state businesses. (See,for example, Section 5.1,

Renewable PortfolioStandards.)

•

Complement Other Policies.

Because of their flexibility, state clean energy funds complement otherstate and federal policies, making those policiesmore effective. For example, PBFs are used bystate energy programs to lower clean energyequipment costs by helping to ramp up volume,address key market barriers, and provide consumereducation and outreach to increase the effectiveness and use of federal tax incentives, state RPS,and improved interconnection and net meteringstandards. In addition, PBFs can be used to support the successful implementation of other cleanenergy policies. For example, in California PBFs areused to pay the incremental cost for utility RPScompliance.

atesThatUsePBFsforCleanEner

gySupply

As of early 2005, 16 states had established cleanenergy funds to promote renewable energy: Arizona,California, Connecticut, Delaware, Illinois,Massachusetts, Maine (voluntary), Minnesota,

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Chapter5.EnergySupplyActions

EPACleanEnergy-EnvironmentGuidetoAction

Figure5.2.2:MapofStateRenewableEnergyFunds

PBF for renewable energyVoluntary PBF for newable energy

Sour

ces:DSIRE2

05,Nav

igan

005.

Montana, New Jersey, New York, Ohio, Oregon,Pennsylvania, Rhode Island, and Wisconsin (UCS2004, DSIRE 2005). (See Figures 5.2.1 and 5.2.2.)

Designing and Implementing anEffective Clean Energy Fund

States consider a variety of key issues when designingPBFs directed at expanding the clean energy supplymarket. These issues include selecting an organizational structure to administer PBFs, protecting funding from being diverted for other uses, consideringthe importance of technology stages when designingPBF programs, and assessing the interaction of cleanenergy funds with state and federal policies.

Par

icipant

Many states encourage the participation of a varietyof stakeholders, including trade associations, equipment manufacturers, utilities, project developers, andleading environmental groups. For example, the consensus between stakeholders in Massachusetts over aclean energy fund resulting from electric utilityrestructuring is described in the MassachusettsRenewable Energy Collaborative (1997).

Administr

ation

PBFs are typically established by state legislatures,and the bill(s) may provide varying levels of specificityfor selecting an administrator for the PBF. Selectingthe appropriate administrative organization for aclean energy fund is an important step. The role of the fund administrator is essential for the review of fund dispersal to ensure that each investment is valuable and represents the public interest. States haveemployed several organizational models for administering clean energy funds, including state energyoffices, quasi-public agencies, public regulatory agencies, nonprofit organizations, and utilities. Manyexperts feel that no one model has proven more successful or effective than another.States have chosen different models based on theirgoals and situations. Although utilities often managePBFs used to support energy efficiency programs,utilities typically do not administer PBFs for renewable energy (a notable exception occurs in Arizona,where state renewable energy funds are managed byutilities). States have found that ensuring that a fundadministrator has access to adequate staffing withappropriate expertise is more important than theadministrative structure.Examples of different administrative approachesinclude:•

Massachusetts

chose the MassachusettsTechnology Collaborative (MTC) to administer itsclean energy funds. One of the main goals of thefund is to create a clean energy industry, andthese goals are consistent with the MTC’s charter,which is to foster high-tech industry “clusters” inMassachusetts (Commonwealth of Massachusetts1997).•

Connecticut

chose to administer its Clean EnergyFund through Connecticut InnovationsIncorporated (CII), a quasi-public state agencycharged with expanding Connecticut’s entrepreneurial and technology economy. CII’s experiencein building a vibrant technology community inConnecticut fit well with the challenges of developing a clean energy industry and market.

Section5.2.PublicBenefitsFundsforStateCleanEnergySupplyPrograms

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