Analysis of the use of Multipliers as a substitute for Set-Asides

1. Analysis of the use of Multipliers as a substitute for Set-Asides December 6, 2007 Presentation at FPSC Staff Workshop on RPS Bob McGee, Marketing Services Manager Gulf Power Company

2. Overview • Caveats • Terminology • Assumptions • Analysis • Conclusions

3. Caveats • Proposing only the use of multipliers as a substitute for set-asides, carve-outs and tiers • Analysis requires the use of certain assumptions to make calculations • Those assumptions are for illustrative purposes only

4. Mandates within a mandate Terminology • Set-asides • Carve-outs • Tiers • Market-driven • Multipliers

5. Assumptions • RPS exists in Florida • RPS compliers are required to purchase renewables at costs above avoided cost • Some form of renewable, such as PV, is favored or is to be encouraged more than other renewables

6. Assumptions • RPS structure • 20% of Retail Sales • Retail Sales projections from FRCC • Exponential phase-in of 20% RPS mandate in 13yrs • The Multiplier in effect at the “commercial operation date” of a PV generator is applicable for the life of that generator

7. Assumptions • Cost curve for Photovoltaics (PV) • from FSEC • presentation to FPSC 1/19/07 • Cost of non-PV alternatives • 5¢/kWh growing to 8¢/kWh • Average PV generating capacity in Florida • 4kWh/day/installed kW of PV • from FSEC and verified

8. Analysis • On Spreadsheet

11. A B C A/C

14. D E F D x E

15. A B C D E F A/C D x E

16. B E F

17. B E F

18. B E F G ▲F/B+G-1

19. B E F G G/E ▲F/B+G-1

20. B E F G G/E G/1.46 ▲F/B+G-1

21. L K B E H J L/E K/1.46 E x H J/B K+nonPV

22. L K B E H J L/E K/1.46 D x 0.1 E x H J/B K+nonPV

23. L K B E H J L/E K/1.46 D x 0.1 E x H J/B K+nonPV

24. B E H J D x 0.1 E x H

25. K B E H J D x 0.1 E x H ▲J/B+K-1

26. L K B E H J D x 0.1 E x H K+non-PV ▲J/B+K-1

27. L K B E H J L/E D x 0.1 E x H K+non-PV ▲J/B+K-1

28. L K B E H J L/E K/1.46 D x 0.1 E x H K+non-PV ▲J/B+K-1

30. Conclusions • Multipliers and Set-asides both place emphasis on a particular type of renewable generation • Multipliers make no guarantee that kWh of a particular type will be generated

31. Conclusions • Multiplier method offers highest incentive in early years. Set-aside method sets highest mandate in last years. • Multiplier offers an incentive to choose PV without removing market pressure to keep PV costs low • Multiplier phases out logically and automatically in accordance with cost projections

32. Conclusions • Multipliers can make RPS complier indifferent to higher actual cost of PV • Multipliers can bring cost of RPS compliance using PV down to the cost of RPS compliance using other renewable sources

33. Conclusions • But Multipliers must be set high enough to be effective • Experience in other states indicates that multipliers of 2x or 3x are inadequate • Failure of Multipliers in other states is not due to the mechanism itself, but due to the inadequate level at which the mechanism is set

34. Conclusions • Even if all RPS requirements are met with PV using multipliers, a substantial portion of the original RPS target will be met • Within the context of the overall mandate of an RPS, Multipliers allow market forces to work for the benefit of customers

35. Questions?