Energy Choice Should Not Stop AB 206

Nevada gains nothing by waiting for Energy Choice to increase the RPS.

June 12, 2017

Assembly Bill 206 sits on the desk of Nevada Governor Brian Sandoval. The bill would raise Nevada's renewable portfolio standard (RPS)—the minimum amount of clean, renewable energy that power companies are required to get on behalf of their customers, to 40 percent by 2030. I published two blogs last week on the bill: one arguing that signing the bill would secure Governor Sandoval’s clean energy legacy, another with policy specifics.

When arguing against Assembly Bill 206, skeptics say that signing it now would be ill-timed, given uncertainty about the State’s future electricity market with passage of Question Three, the Energy Choice Initiative, on the November 2016 ballot.

When they make this argument, these skeptics forget several important things.

Even with Energy Choice, Nevada will want a RPS

Energy Choice would not obliterate all electricity-related laws and regulations on the books. The RPS would stay. The Energy Choice Initiative text says "Nothing herein shall be construed to invalidate Nevada’s public policies on renewable energy, energy efficiency and environmental protection or limit the Legislature’s ability to impose such policies on participants in a competitive electricity market.” The Energy Choice campaign signed onto a "Statement of Principles" that included an "80 percent by 2040" RPS. Moreover, literally all states with retail choice have a minimum renewable energy standard.

There should be no argument: going forward into Energy Choice, if it passes again, Nevada will want a RPS to guarantee electricity providers get a minimum amount of clean, renewable energy. So, what is the harm of raising the RPS now?

The RPS requires a modest amount of new renewables between now and when Energy Choice is implemented in 2023

Nevada would see approximately 600 megawatts of new solar development between now and 2023, because of the raised RPS in AB 206. That’s about the amount that NV Energy has under development right now.

This 600 megawatts of new solar will be contracted at prices around 3 cents per-kilowatt hour. They will be the lowest-cost resources in NV Energy's resource mix, and will continue to provide cheap electricity a couple of decades after Energy Choice is implemented.

If Nevada waits until Energy Choice is implemented to build new solar, it will lose the benefit of the federal solar Investment Tax Credit, one of the reasons solar is so inexpensive right now. The tax credit is only available for projects that begin construction before December 31, 2021, and knocks about a cent off the per-kilowatt-hour price of solar.

There won’t be enough new solar by 2023 to change the value of NV Energy’s existing natural gas fired power plants

Some have expressed concern that all this new solar would impact the value of NV Energy’s existing gas plants, which may need to be sold off post-Energy Choice. But the output of the 600 megawatts of new solar would equal just one-tenth of the electricity demand in Nevada at noon on a hot day. It is unlikely that this small amount of new development would have a big impact on the value of natural gas plants.

Nevada’s gas plants are valuable, in good measure, because they are close to Arizona and California

NV Energy's power plants in Southern Nevada have value because they can serve Nevada load, but also because they are well-connected to bigger markets in California and Arizona. Conditions in this large market will have a bigger impact on the value of NV Energy's gas plants than modest development of new solar in Nevada. Nevada makes up only 9 percent of total yearly energy demand in the 3-state Arizona, California, and Nevada region.

Stopping new solar is the wrong way to ensure a market for Nevada’s natural gas plants post-Energy Choice

One silver lining of Nevada's reliance on natural gas it that it has a lot of newer, flexible combined-cycle units that can quickly ramp-up or -down when demand or solar output changes. This flexibility will be important in the future. Ensuring that flexible sources of supply and demand (natural gas plants, batteries, controllable electricity loads like air conditioning) are compensated for this flexibility should be a key part of Nevada's Energy Choice discussions and committees. Market design is already a topic.

There are a lot of models Nevada can use to do this: Texas uses an uncapped real-time energy market, PJM uses market-based capacity payments. Governor Sandoval, in his signing statement, can reassure potential gas plant buyers that "Nevada understands the value of flexible, dispatchable resources like natural gas plants, and will ensure these resources are fairly compensated post-Energy Choice for the value they provide to the grid."

But it would be wrong-headed to hold back solar to prop up potential future revenues of these gas plants: Nevada would lose a half-decade of economic development, cheap insurance against natural gas price rises, and the benefit of the Investment Tax Credit.

Nevada knows how to deal with this 600 megawatts of new solar post-Energy Choice

People assume that post-Energy Choice, NV Energy will need to have a power plant fire sale. That is not necessarily the case. When MGM and Wynn exited NV Energy’s system and began purchasing electricity from a different provider, NV Energy didn’t sell off or stop running the renewable energy facilities that it built earlier to serve those customers. It kept running them for the benefit of all customers on whose behalf they were constructed, including MGM and Wynn, and these entities continue to pay a “non-bypassable” charge for their operation, receiving a proportional share of energy and renewable energy credits from these facilities. To the extent MGM and Wynn need additional renewables to meet their RPS, it’s up to their new provider to buy it.

That’s the way to think about how the 600 megawatts of solar would be dealt with. NV Energy would likely continue to hold the power purchase agreement, and the customers on NV Energy’s system at the time the plant was placed into service would continue to pay for and get benefit from the plants.

This system is common feature of transitions to retail choice in other states, and Nevada has already implemented it.

Nevada does not need to wait for Energy Choice to increase the RPS