Everyone thinks they know that electric vehicles are green. EVs reduce our reliance on petroleum gas and wean the United States from dependence on foreign oil. But a nagging question lurks not far below the surface. If the electricity used to charge EVs comes from coal plants spewing greenhouse gases into the air, does plugging in EVs make the environment greener or browner?

A new study suggests the answer is unequivocally “greener,” but for an unexpected reason. EVs can increase the use of renewable energy, like wind and solar, in ways that few people anticipated. To understand why, we need to become familiar with one of the main challenges for renewable energy: its variability.

The power grid must constantly balance the amount of energy generated against the amount of energy consumed. In other words, the amount of energy produced and consumed must be equal at all times. Traditional power plants are a great grid resource because at the drop of a switch they can ramp up and down to match load changes throughout the day and as seasons change. But renewable energy sources can’t compete.

Based on all data collected since the dawn of time, Mother Nature is completely insensitive to our energy use patterns. The wind is just as likely to blow in the middle of the night, when electricity use is low, as it is in the early evening, when electricity use is high.

This variability places significant strains on the power grid. To ensure that enough energy is available when we need it, storage or reserve energy generation is often required. But that is expensive and only addresses undersupply of energy. This past summer, the Pacific Northwest experienced the other side of the problem – too much electricity was generated without the consumption to match it.

This is where electric vehicles ride to the rescue. Most people think of EVs as electricity consumers, but a recent study by the Pacific Northwest National Laboratory shows that a partially charged EV represents a potential asset for grid operators. Charging an EV while at work or at home is flexible use. The owner cares only that the car is fully charged when he or she wants to use it.

Advanced battery technologies can recognize grid conditions and constantly vary the rate at which the battery is charged, based on how much electricity is being generated and used. With electric vehicles’ charging cycles able to start and stop, new reserve power plants would not need to be constructed and renewable generation would not need to be cut off. The most advanced battery technologies would not only vary the charging rate but would release energy stored in the battery onto the grid as needed.

The PNNL study reviewed the likely increase in renewable energy over the next decade and electric vehicles’ ability to provide the shock absorption (or balancing services, to use the technical term) needed to support new renewables. The rise of renewable portfolio standards and other factors are expected to add another 10 gigawatts of wind power – enough energy to serve about 3 million households – to our regional grid over the next decade.

The PNNL study found that the balancing services needed could be met if 13 percent, or about 2.1 million, of the vehicles in the seven Northwest states were EVs and equipped with advanced battery technologies that could vary the charging rates based on supply and demand on the grid.  With grid-friendly technology permitting the release of energy from the battery to the grid, the EVs’ penetration could be reduced to 8 percent, or 1.4 million vehicles. The study identified importance for charging stations to be available at work and in public places in order to take advantage of EVs balancing capacity.

Presently, there are only a small number of EVs on the roads, but significantly more are expected. Grid operators will not be betting on EVs entirely. Other potential balancing approaches include: 1, better forecasting for wind generation; 2, switching from coal to natural gas plants; 3, improving storage technologies for renewables; and 4, demanding response resources – think electricity rates that vary to reflect the supply.

Even if we don’t have 2.1 million electric vehicles on the road by the end of the decade, the PNNL study shows that they can play a critical role in the support of renewable energy. Until we reach the 2.1 million mark, drive like the wind!

David White, a partner at Tonkon Torp LLP, is co-chairman of the firm’s energy practice group. Contact him at 503-802-2168 or david.white@tonkon.com.

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Renewable energy makes almost everyone feel good. It suggests a future where oil spill disasters and coal mining accidents could be avoided. For Oregon, it paints a picture of a new green economy fueled by wind projects, solar panels and the companies that manufacture parts for these systems. For the country, it offers reduced dependence on fossil fuels – especially from foreign oil. For the world, it promises less greenhouse emissions.

However, beneath that feel-good picture are some inconvenient truths about this country’s energy policy, particularly in regard to reliability and cost.

Approximately 84 percent of the energy used by Americans comes from fossil fuels – petroleum, natural gas and coal. In 2009, 45 percent of the country’s electricity came from coal plants, 23 percent came from natural gas and about 20 percent came from nuclear power plants. Hydroelectric power (mostly dams) accounted for about 7 percent.

What about the poster children for the renewable energy industry: wind and solar? Nationwide, wind accounts for about 1 percent and solar accounts for no more than about 1/10th of 1 percent.

In Oregon, hydroelectric power dominates at about 57 percent. Natural gas follows at slightly less than 30 percent, coal is at less than 7 percent and wind is at about 4 percent. Solar is significantly less than 1 percent.

Now, it is true that renewable energy is growing. Tax credits, government subsidies, feed-in-tariffs (required premium prices for renewable energy) and state renewable portfolio standards are making impacts. The Energy Information Administration projects that the strongest growth in fuel use over the next 25 years will be in renewables. Nevertheless, even with current public policies supporting renewable energy, projections suggest that by 2035 the U.S. will consume three-quarters of its electricity from fossil fuels.

As of 2009, 65 percent of the electricity used in this country came from coal and nuclear plants. Anyone who thinks we can quickly wean ourselves from these sources is casting about in the dark.

The relative cost of renewable energy versus fossil fuels is a thorny topic. One big question is the cost of producing coal-fired electricity. The answer depends upon one’s perspective. Coal companies look at capital investment, maintenance and fuel costs. Based on those measures alone, coal-fired energy is cheap; only hydroelectric power, with its free fuel source, is cheaper.

But environmentalists argue that one must also look at the indirect costs of coal-fired energy: strip mining, carbon emissions and coal ash spills. Once these indirect costs are captured – through either direct carbon taxes or cap-and-trade regulation – the relative cost advantages of fossil fuels over renewables shrinks.

Some people claim that the cost of wind-generated power is cheaper than gas-fired generation; others claim wind is as much as 50 percent more costly than power generated from fossil fuels. One of the reasons for this discrepancy is the need for utilities that rely on wind power to build backup plants fired by natural gas to meet electricity needs when winds aren’t blowing. This is known as the cost to “integrate” wind into the resource mix. It is an arcane area, with experts in the wind industry and fossil fuel proponents reaching very different positions.

Another complicating factor is that prices for coal and natural gas experience cyclical market swings. Forecasting becomes tricky for coal and natural gas prices for the life of a power plant (20 to 30 years). Presently, forecasts for natural gas prices are declining, a sign that the relative cost of renewables is rising.

Whatever the relative cost of renewables, the impact of regulating carbon output and introducing more renewable energy will be the same: higher electricity prices for consumers. That pain is not shared equally. The poor spend a higher portion of their income on electricity than the rich. Studies show that low-income consumers spend 20 percent or more of their after-tax incomes on energy costs. Many of these low-income consumers are elderly people, and adjusting the thermostat in extreme (hot or cold) weather is not a safe option for them.

The problem with renewable energy is that no one has been willing to face the tough questions. How will we manage a long, slow transition to renewable energy? What costs are we willing to pay, and by whom, to increase the use of renewable energy? Until we answer those questions we will not be on a secure path to a green energy future.

David White, a partner at Tonkon Torp LLP, is co-chairman of the firm’s energy practice group. Contact him at 503-802-2168 or david.white@tonkon.com.

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Attorneys with clients interested in building projects that generate solar energy will want to pay close attention to a new pilot program that takes effect July 1. The Oregon Public Utility Commission (OPUC) recently issued final rules for the program that offers a promising alternative to more-traditional financing of solar projects.

Past solar projects have been financed with a combination of state business energy tax credits (BETCs), incentives from the Energy Trust of Oregon (ETO), federal tax credits and credits from the utility based on the energy produced by the solar facility but not used by the customer.  (The utility credits are calculated using retail utility rates, about 10 cents/kW for PGE residential customers.)  The government’s inability to accurately predict BETC participation and the worsening fiscal climate has put the BETC program under close scrutiny. With the 2012 sunset date for renewable-energy BETCs fast approaching, the new pilot program is an opportunity to test another incentive approach.

Under the pilot program, solar owners will be able to sell the energy they produce back to the utility at rates more than five times retail electricity rates. They also will be eligible for federal tax credits, but not BETCs or ETO incentives. The program is geared primarily to small (less than 10 kilowatt) and medium-sized (10 kilowatt to 100 kilowatt) solar producers, but systems of up to 500 kilowatts will qualify. That’s pretty big when you think of two acres covered with solar panels.

Systems of 100 kilowatts or less will have a “net metering” option, whereby solar owners earn a monthly credit equal to the electricity they generate, multiplied by the volumetric incentive rate (VIR) established by the OPUC.  We’ll take a closer look at that later.

To make financial sense, customers should use on average at least as much energy as their solar system generates because the amount of electricity eligible for the VIR is capped at the amount used. A customer who generates more energy than it uses will literally be giving money away, as any excess energy will be donated to charity.

As a side note, there is an option to sell the excess energy back to the utility at market rates. Doing so, however, will require obtaining authority from the Federal Energy and Regulatory Commission in Washington D.C., an option few participants in this category will want to pursue.

Attractive sell back rates

For solar generating systems less than 10 kilowatts, the VIR ranges from 55 cents per kilowatt-hour to 65 cents per kilowatt-hour, depending on the location of the system. Multnomah, Washington and Clackamas county owners, for example, will receive the high end of that scale. For systems between 10 kilowatts and 100 kilowatts, the VIR is 55 cents per kilowatt-hour everywhere. Projects between 100 kilowatts and 500 kilowatts will be selected by a bid process based on price alone, with VIR rates capped at 55 cents per kilowatt-hour. Details about the bid process are expected by June 22, when the OPUC meets to consider proposals from the utilities.

Customers who sign up in the first six months of the pilot will lock in their rates for 15 years. Otherwise, after six months rates may change for new projects depending upon the level of participation. For example, if after five months only 50 percent or less of the available capacity is reserved, then the VIR incentive rate will increase by 10 percent for the next period. If the available capacity is filled sooner, then the VIR incentive rate may decrease by as much as 10 percent, depending on how quickly the capacity is absorbed.

Limited capacity available

Wanting to balance incentives for solar energy production against controlling the cost of the program, the Oregon Legislature and the OPUC capped the pilot program at 25 megawatts – (about enough to serve roughly 2500 homes – to be made available over a four-year period at 6.25 megawatts per year. Most of the capacity — 20 megawatts, or 80 percent – will be allocated to small and medium-sized projects.

Opportunity to examine solar incentive alternatives

Opinion about the pilot program varies from wild optimism to outright dismissal. Optimists focus on the revenue opportunity for solar generators, with rates almost 10 times what utilities pay for wholesale electricity. They cheer that similar rates made the sunshine-challenged nation of Germany the world’s largest solar energy producer.

Pessimists point to the program’s limited capacity, particularly for larger projects, and the uncertain bidding process that larger bidders face.

While there is some truth to both perspectives, each ignores what is really important about this pilot: It provides financial incentive options for solar owners in the short-term and for Oregon’s solar industry in the long-term. Owners who cannot use tax credits may find the new pilot program attractive. Anyone looking at a small or medium-sized project will appreciate that the pilot offers a simple option that doesn’t require a graduate degree in tax law to access the state and federal tax credits and incentives that historically have supported solar development.

The pilot program reflects a new public policy perspective. Rather than having solar development hinge on the inherently unstable BETC approach, which is funded by the general public, this pilot program is paid for by utility customers through higher retail rates.

Businesses and homeowners should sharpen their pencils and compare the options based on their individual needs. The pilot program kicks off July 1, and the limited capacity will be allocated on a first-come, first-served basis.

David White, partner at Tonkon Torp LLP, co-chairs the firm’s Energy Practice Group  He can be reached at 503-802-2168 or at david.white@tonkon.com.

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