What are the regulatory issues presented by renewable technologies (solar, wind, biomass, geothermal, and hydropower) and what are the basic characteristics of these options?

[Response by Sanford Berg and Achala Acharya, drawing heavily upon the three references noted at the end: World Bank Renewable Energy Technology Toolkit Module, “Technical and Economic Assessment of Off-grid, Mini-grid and Grid Electrification Technologies” ESMAP Technical Paper 121/07 (December 2007), and Encouraging Renewable Energy Development: Handbook for International Energy Regulators, (2011)Prepared by Pierce Atwood for NARUC/USAID, January, viii-138.  Sara Sigrist provided particularly helpful comments on the municipal waste-to-power segment of this FAQ.

Overview

To discuss the regulatory issues presented by renewable energy (RE), it is necessary for decision-makers to have a basic understanding of alternative RE technologies.  So here we provide background information and links to authoritative resources that will enable regulators and managers to appreciate the general features of solar, wind, biomass, geothermal, and hydropower.  Technical detail is not emphasized, since specialists would be called in when conducting a project analysis.  In addition, the World Bank Renewable Energy Technology Toolkit represents a comprehensive resource for those developing and implementing RE Policy.

Since energy regulatory commissions carry out a number of functions, each potential policy affecting renewable energy has different implications for rule-making.  Given the different types of incentives that might be utilized to promote renewables (from feed-in tariffs to quota systems—like renewable portfolio standards), it is useful to identify the regulatory issues presented by the various renewable technologies.  The issues associated with each renewable technology will differ across countries, depending on access to resources, topology, geography, population density, technical capacity to operate systems, legal obligations, inter-agency relationships, and other factors.  Decision-makers can expect technological advances and increased economies of scale in production in the coming years, as input suppliers discover new features of materials and adopt improvements in their production processes.  However, the actual pace of innovation across different renewable technologies is not easy to predict.  “Picking” technologies is risky because of changing input prices, un-predictable scientific advances, unexpected social responses to local projects, and other factors.  Special interests promoting specific technologies tend to under-emphasize these uncertainties.  The sector regulator is in a position to ensure that those able to mitigate these risks are in a better position to bear these risks—a point that needs to be recognized in public policy.  Specific policies are examined in other FAQs; here, the focus is on the general features of specific renewable technologies and how these characteristics raise issues for regulators.

1. Solar Energy is used to generate electricity and to heat water. Intermittency is the main challenge.  Broadly speaking, solar energy is converted into three types of energy: solar thermal, concentrated solar and solar photovoltaic.

Regulatory Issues include

  • Pricing back-up power:  where the need arises from variability of weather patterns;
  • Licensing and siting: for large scale production requiring land and access to transmission lines;
  • Siting:  for smaller scale technologies requiring rooftop zoning and strength codes;
  • Evaluating complementary government policies: subsidies often accompany solar energy programs, so monitoring the effectiveness of programs is often a regulatory responsibility;
  • Cost Recovery Mechanisms for connecting remote renewables with the grid;
  • Pricing Studies and Rulings: for Net Metering or Feed-in Tariff design.

1.1   Solar thermal energy refers to solar energy converted to heat. Generally aimed at household populations, it can take the form of solar space, water and pool heating and solar thermal cooling. It requires collecting and concentrating the solar energy to power a heat engine.  A solar-thermal electric power plant, which incorporates thermal storage, can have a higher capacity factor, but at increased cost.

1.2   Concentrated solar power is a type of solar thermal energy used to generate electricity. Most often aimed at large-scale energy production, concentrated solar power technologies use lenses or mirrors to reflect and concentrate sunlight, creating heat that  is then converted to thermal energy, which in turn produces electricity via a steam turbine or heat engine driving a generator.  Here, siting is a key challenge, where land values and distance from the transmission grid are factors affecting the economics of this technology. Kulichenko and Wirth (2011) have a comprehensive report on regulatory and financial incentives for this technology, drawing upon cases from Algeria, Egypt, Morocco, India, and South Africa.

1.3   Solar Photovoltaic (SPV) power is electricity generated from the use of photovoltaic cells. PV modules can offer electricity in areas where it is not cost effective to use the conventional grid, or where electricity grids are rudimentary. SPV systems generate electrical power by converting solar radiation into direct current electricity using semiconductors. Over the years SPV, has gained many niche applications, like satisfying remote power needs for telecommunications, pumping and lighting.  Both the module size and the sunlight availability determine the amount of electricity available for daily use.  SPV systems have many attractive features, including modularity, no fuel requirements, zero emissions, no noise and no need for grid connection.  Local conditions greatly influence the cost of SPV.

2. Wind Power Systems

Wind power systems convert wind energy to electricity. Wind energy has been used for pumping water for centuries; its use in generating electricity has grown dramatically.

Regulatory issues include

  • Accounting for Intermittency in contracts and for Net Metering or Feed-in Tariff design;
  • Developing grid codes, promoting open network access and efficient interconnection;
  • Deciding Cost Recovery for connecting remote wind renewables with the grid;
  • Monitoring Power Quality, including voltage variation that results in light flickering;
  • Licensing and siting for large scale production. On-shore siting issues (tall structures which are usually highly visible on mountain peaks/ridges), and offshore issues (waters with sometimes overlapping regulatory jurisdiction within federal or state governments);  Offshore challenges also include balancing competing interests such as fishing and boating;
  • Addressing Noise Regulation where siting is near populated areas;
  • Pricing back-up power where the need arises from intermittent wind power;
  • Determining FIT design based on geographic areas, such as in China; Resource potential by regions/sub-regions can be an issue that determines FIT level differentiation; and
  • Addressing environmental and social issues (impacts on bird populations and citizen concerns over siting)

A book by Madrigal, Marcelino; Porter, Kevin (2013) provides a thorough examination of variable renewable resources that are dispatchable but not controllable.  The focus is on the technical operational impacts of intermittent resources.  This feature has implications short term reserve-related costs and long term system adequacy and security—both of which are of interest to sector regulators.  The Toolkit describes factors affecting cost projections:  “Accurate, preferably multi-year, wind speed data of a high quality is critical to determining the economic feasibility of a wind project. Wind is a modular technology and wind farms can be erected quickly.” Wind turbines are classified into two types: small (up to 100 kW) and large.

Small wind turbines are used for off-grid, mini-grid and grid-connected applications—primarily the distribution grid. Wind turbines ranging from 50 W to 10 kW are primarily used in battery charging (for use in houses, telecommunications, and other applications).

Wind farms involving large wind turbines are connected to the transmission network.  Wind turbine components include the rotor blades, generator (asynchronous/induction or synchronous), power regulation, aerodynamic mechanisms and the tower.

SPV-wind Hybrid Power Systems: “Hybrid power generation schemes using a combination of SPV and wind energy allow providers to exploit the complementary availability of solar and wind resources. Wind-PV hybrid systems are used for large stand-alone energy systems, such as schools, clinics and cottage industries, or for mini-grid applications.

3. Geothermal Electric Power Systems

Geothermal energy comes from within the Earth, taking the form of hot water and steam.

Regulatory issues:

  • Ensuring that ownership is well-defined: legislation needs to specify how ownership is to be treated. For instance, do geothermal facilities fall under rules similar to minerals or petroleum? Or, does geothermal jurisdiction stay under state ownership, with rights granted through concession to use the resource, explore a given area, and produce the energy?
  • Overseeing power purchase agreements, applying standard templates or model contracts:  bidding procedures, cost-pass-through arrangements and other issues arise here;
  • Coordinating Agency rules: Interaction between multiple authorities requires coordination, including how regulatory differences should apply for shallow or deep geothermal resources.  Such coordination is necessary for environmental oversight. Groundwater and other environmental impacts must be considered with streamlined processes in place for less invasive shallow resources (though shallow resources present less environmental harm, they can present some; thus, individual conditions should be monitored to guard against specific environmental harms or pollutants);
  • Licensing: Monitoring and reporting of operations, particularly deep exploration sites, is necessary for national forecasting;
  • Deciding Cost Recovery for connecting remote geothermal with the grid;
  • Evaluating Investment incentives: Incentives stemming from public policy must be carefully structured to fit with the specific nature of geothermal, including consideration of the cost and risk at the exploration stage and environmental or tax credits.
  • Identifying risks associated with different segments of the “supply chain:” For geothermal, the supply chainruns from exploration to electricity generation.  Each stage presents different types of risks and may require different public/private (or PPP) arrangements.  Risk allocation has implications for regulation and contracts; see Gehringer and Loksha (2012)—a handbook recently published by ESMAP.

Geothermal reservoirs are inherently permeable, which means that fluids can flow out of wells drilled into the reservoir. Once the geothermal resource is properly tapped, well fields and distribution systems allow the hot geothermal fluids to move to the power generation block, which consists of steam turbines or binary cycle turbines using an organic working fluid. Geothermal power requires no fuel, so it is insulated from fuel cost fluctuations. However, capital costs tend to be high.

4. Biomass Gasifier Power Systems

Biomass materials include woody cellulose and other organic solids (including municipal waste and human excreta).  It need not have the intermittency problems of solar and wind and can be utilized in a number of production scales. Biomass can have some positive regional employment impacts as the supply chain involves local resources.

Regulatory issues include:

  • Overseeing purchase power agreements;
  • Evaluating sustainability of feedstock prior to licensing;
  • Addressing low energy density and high transport costs for cellulous sources; and
  • Coordinating rules with air emissions regulator to ensure air quality standards are met.

“The gasification process involves successive drying, pyrolysis, oxidation/combustion and reduction in a staged chamber under different temperatures and pressures.” Fuel cost is the most important parameter in estimating the generation costs of any biomass-based power generation technology. The cost of biomass depends on many factors including project location, type of biomass feedstock, quantity required and present and future alternative use.

Three types of biomass systems are biomass-steam electric power systems, municipal waste-to-power via anaerobic digestion systems, and biogas power systems.

4.1 Biomass-steam Electric Power Systems: “A biomass-fired boiler generates high-pressure steam by direct combustion of biomass in a boiler. There are two major types of biomass combustion boilers – pile burners utilizing stationary or traveling grate combustors and fluidized-bed combustors.”   The future costs for biomass-steam generation projects are expected to drop as a result of increased market penetration and technology standardization. The key uncertainty in estimating biomass-based power generation technology is the cost of biomass, which depends on many parameters including location, type of biomass feedstock, quantity required and present and future alternative use.

4.2 Municipal Waste-to-power via Anaerobic Digestion System:  Municipal waste can be converted to electric power either by mass burning in a waste-to-energy facility; or through anaerobic digestion (AD) of the organic fraction of solid waste, either in closed digesters or in landfills. Environmental regulators generally view minimizing the amount of municipal waste generated in the first place to be the preferred management strategy for this material:  recycling is preferred over any method of disposal.  There can be significant GHG reduction benefits from recycling and source reduction when compared to other waste management options.  Both capital and generating costs of waste-to-power systems are expected to decrease in the future due to technological developments and movements along the learning curve.

4.3 Biogas Power Systems:  “A biogas electric power system operates in a manner similar to the municipal waste-to power system with biomass feedstock in the form of animal dung, human excreta and leafy plant materials anaerobically digested to produce a highly combustible biogas.” The simplicity and modularity of design, construction and operation and the variety of uses for the biogas product, make this technology well suited for small-scale applications. As with the other biomass applications, the Green House Gas impacts are highly positive, as the design sequesters and utilizes methane that would otherwise escape to the atmosphere. Since biogas technology is very simple, uses local resources, and has been in commercial operation for a long time, the cost is expected to remain steady in the coming years.

5. Hydropower

Hydroelectric power is perhaps the oldest technology, presenting different issues depending on the scale of the technology.  The main risks outlined by the International Energy Agency (IEA, 2012) include those associated with construction, hydrology, financial strength of the off-taker, life-cycle costs, and regulation.  Here, in describing the technology, we focus on the latter.

Regulatory issues include

  • Addressing incentives for dispatch when storage is available;
  • Developing Rules of the electricity market;
  • Defining mechanisms for tariff adjustment;
  • Forecasting availability due to seasonal variation in flow and drought situations;
  • Reconciling the multi-purpose objectives of large scale hydro systems (water for irrigation, recreation, and environmental systems);
  • Coordinating with other regulatory agencies to addressfish migration impacts, land inundation, and population re-location characterizing some larger projects.  It is important to investigate, predict and evaluate potential environmental and other impacts, and to take measures to mitigate them or incorporate the costs into the economic assessment process. Potential environmental and social impacts include sediment transport and erosion, relocation of populations, and loss of habitat of rare and endangered species.
  • Dispute resolution and arbitration for addressing siting and operational issues.

Three types of hydropower systems are described below:  micro- and pico-hydro systems, mini-systems, and large hydro/pumped storage systems.

5.1 Micro- and Pico-hydroelectric Power Systems: Micro-hydro power projects are usually “run-of-the-river” schemes.  “Such schemes require no water catchments or storage, and thus have minimal environmental impacts. A drawback of such a scheme is seasonal variation in flow, making it difficult in some cases to balance load with power output.”  A pico-hydroelectric power plant is much smaller than a micro-hydro (for example, 1 kW or 300 W), and incorporates all of the electro-mechanical elements for regulating voltage and balancing loads into one portable device. There has been very little variation in the equipment cost of micro- and pico-hydro- electric equipment, but costs can be expected to decline in the near future.

5.2 Mini-hydroelectric Power Systems: Mini-hydroelectric power systems are “Run-of-the-River” schemes using the same design principles and civil and electro-mechanical components as micro-hydro projects. The systems are simple enough to be built locally at low cost and have simple operation and management requirements. These systems provide a source of affordable, independent and continuous power, without degrading the environment.

5.3 Large Hydroelectric and Pumped Storage Power Systems:  Large hydroelectric projects typically include dams and water catchments in order to ensure a very high capacity factor consistent with the high construction cost of these facilities. A distinct characteristic of large hydroelectric projects is the dam design, which is highly site-specific.  There can be significant environmental and socioeconomic impacts associated with construction and operation of large hydroelectric power systems.

Concluding Observations

Regulators need not become experts in these different technologies. However, it is necessary that they be aware of the strengths and limitations of each technology as policies to promote renewable energy are developed and implemented. The key technical and operational risks associated with renewable energy projects are outlined in greater detail in the REToolkit (p. 86).  The risk management considerations associated with solar thermal, large PV, wind power, geothermal, biomass Gasifier, and hydropower must be incorporated into RE planning, lest investors discover that the projects are riskier than anticipated.   For private investors, realistic estimates of the cost of capital are essential if later developments are not to be saddled with disappointments from initial projects.  In particular, formal procurement processes warrant attention from the regulator.  Such processes should create greater transparency, provide a level playing field for bidders, promote legitimacy (by removing any basis for charges of cronyism when contracts are awarded), and establish clear qualities expected in bidders (including experience with the technology and financial strength).  As innovations impact technologies differentially, those asked to bear risk should be in the best position to evaluate likely future developments.   Finally, this overview only provides general background information on the most important renewable technologies:  the engineering and economic details of the technologies are available in the REToolkit.  Specialists should be called upon to assist in responding to the regulatory issues associated with each technology.

Resources:

Design and Performance of Policy Instruments to Promote the Development of Renewable Energy: Emerging Experience in Selected Developing Countries  
Azuela, Gabriela Elizondo and Luiz Augusto Barroso (2011)

Regulator’s Handbook on Renewable Energy Programs & Tariffs
Center for Resource Solutions,March, iii-72.
Hamrin, Jan, Dan Lieberman, Meredith Wingate (2006)

EPA’s Decision Makers Guide to Solid Waste Management
chapter 8,  Combustion

ESMAP 121: Technical and Economic Assessment of Off-Grid, Mini-Grid and Grid Electrification Technologies
ESMAP Technical Paper 121/07 December 2007.

Geothermal Handbook: Planning and Financing Power Generation
ESMAP Technical Report 002/12, June, pp. ix-149.
Gehringer, Magnus and Victor Loksha (2012)

Regulatory and Financial Incentives for Scaling Up Concentrating Solar Power in Developing Countries 
Energy and Mining Sector Board Discussion Paper No. 24, June, xviii-144.
Kulichenko, Natalia and Jens Wirth (2011)

Bundles of Energy: The Case for Renewable Biomass Energy
International Institute for Environment and Development, Natural Resourc Issues, No. 24.  Pp. 1-86.
Macquen, Duncan an and Sibel Korhaliller (2011)

Operating and planning electricity grids with variable renewable generation : review of emerging lessons from selected operational experiences and desktop studies
Washington DC : World Bank.
Madrigal, Marcelino; Porter, Kevin (2013)

NARUC/USAID Handbook: “Encouraging Renewable Energy Development: A Handbook for International Energy Regulators” Prepared by Pierce Atwood.

PPP in Infrastructure Resource Center for Contracts, Laws, and Regulation  http://ppp.worldbank.org/public-private-partnership/

Philibert, Cedric and Carlos Gasco, “Technology Roadmap: Hydropower,” International Energy Agency, 2012, 1-61.

Toolkit: World Bank “Renewable Energy Technology Toolkit” downloaded from http://go.worldbank.org/35W6O1WG60