With a huge electric load, an ambitious renewable portfolio standard (RPS) goal, a strong wind resource and transmission access, Illinois should be experiencing continuous clean energy growth. But a complex electric market and a renewable energy standard with technical flaws have hindered development in the state for the past five years. Now, thanks to persistent advocacy by the industry, environmentalists and others, it appears more likely than ever that Illinois will fix the law and see growth resume.
Of course, we’ve been here before: Illinois is the wind industry’s “boy who cried wolf.” These pages have proclaimed several times that victory was near, only to see defeat snatched from the jaws of victory. But an alignment of various forces and diligent negotiations with other stakeholders indicate that resolution may be possible later this year or in early 2017.
Battle of the bills
Environmentalists and the renewables sector have fought to fix the state’s broken RPS law since at least 2011. The effort saw new enthusiasm when the Illinois Clean Jobs Bill was introduced in early 2015, quickly gaining broad, bipartisan support for its proposals to fix the RPS, expand energy-efficiency opportunities and reduce carbon pollution.
The so-called Clean Jobs Bill is one of three major energy bills that have competed for legislators’ attention in the past two years. A proposal backed by utility giant Exelon would provide hundreds of millions in ratepayers’ dollars to save their struggling nuclear plants, while sister company ComEd supported a bill that would restructure the state’s power market in ways attractive to the utility. Statehouse observers assumed portions of all three bills would eventually be combined into an omnibus energy package, as it is unlikely that either proposal could pass on its own.[adleft zone=’190′]
All of the parties lobbied hard for their respective bills, but the General Assembly largely ignored their calls for action. A vicious partisan battle between Gov. Bruce Rauner, R-Ill., and House Speaker Mike Madigan, a Democrat, left Illinois without a budget for nearly a year, with devastating consequences to the state’s economy and social safety net. With bigger battles to fight, both parties decided not to address a complex energy bill in either the 2015 or the 2016 legislative sessions.
But discussions between Exelon and the Clean Jobs Coalition were productive during the summer and fall months, and both parties were expressing very cautious optimism that legislative action on a comprehensive bill could happen soon.
Law of unintended consequences
To understand Illinois’ broken RPS, it is important to understand the state’s complex power markets. Illinois is a fully deregulated state – meaning individuals and businesses can buy power from the incumbent utility or purchase it from one of nearly 80 alternative retail electric suppliers (ARES) licensed to operate in the state.
The Illinois Power Agency (IPA) acts as a broker for utility power supply contracts and ensures that the required percentage of renewables is incorporated into utility portfolios.
Both utilities and ARES are subject to the RPS mandates: 10% by 2015 and 25% by 2025. (Municipal and cooperative utilities are exempt.) Theoretically, the RPS should be creating hundreds of megawatts of demand each year, but the so-called “municipal aggregation” law that passed in 2010 threw the system into disarray.
Under municipal aggregation, entire cities, towns and counties can vote to leave the incumbent utility and seek another supplier. Cities can even require ARES to bid on the contract to provide renewable power, although this usually means purchasing cheap renewable energy credits (RECs) via one-year contracts.
Since the legislation’s passage, municipal aggregation has surged in popularity, with more than 450 communities choosing a competitive supplier. In the first three years of municipal aggregation, Illinois utilities lost 60%-90% of their load. Many of those communities have since switched back to the incumbent utility, but the risk of future shifting is always present. With an uncertain customer base, utilities and ARES primarily sign wholesale power supply contracts of less than three years, lest they face stranded costs if customers shift to another supplier.
Complicating the problem is the convoluted system by which the RPS is administered. Under the current law, utilities and ARES comply with the RPS in different ways, all of which revolve around one-year RECs.[adright zone=’190′]
It is common knowledge in the wind industry that lenders don’t like to finance a renewable energy project if it lacks a power purchase agreement (PPA) or another long-term off-take arrangement. But with both utilities and ARES operating on a short-term basis, PPAs are impossible to find in Illinois’ power market today.
Worse still, hundreds of millions of dollars intended for procurement of long-term renewable resources that are held in a state account have been “swept” by lawmakers and the governor, who are hoping to address the state’s gaping budget hole and $100 billion pension funding crisis. Due to this convoluted system, the business climate for renewable energy developers is far from friendly. Fortunately, there is a solution.
The best way to solve the problem is to scrap the entire system and move to a single compliance mechanism. Currently, the cost of compliance is embedded on the generation side of ratepayers’ electric bills. The proposed RPS fix aims to solve the problem by switching the compliance charge to the transmission portion of the bill. The Clean Jobs Bill would implement such a non-bypassable wires charge that would be paid by both utilities and ARES equally. This creates a pool of funds that the IPA could direct toward a portfolio of short- and long-term REC contracts.
The incumbent utility would be the counterparty to the contract, and the state would never actually hold the funds, preventing sweeps. All cost caps would remain in place, so consumers and businesses would not pay more than allowed under current law. Additionally, retail competition and municipal aggregation would continue unabated.
Under this system, the Illinois RPS would foster thousands of megawatts of new wind and solar constructed over the coming decade.
Uncertain but optimistic
As lawmakers head back to Springfield for the short veto session in November, they face a host of heavy decisions. Although Statehouse Democrats and the Republican governor reached agreement on a six-month budget back in June, that spending plan expires at the end of December. If basic state services are going to continue into the new year, lawmakers will need to put aside their partisan dispute and compromise on a budget. Also looming is the possibility of an income tax increase to help fill the massive budget gap.
With just six days scheduled for the veto session, those major issues will dominate the agenda. Even if the Clean Jobs Coalition and Exelon reach agreement on a broad energy bill, lawmakers and other stakeholders will certainly be critical of aspects of the agreement and oppose the bill or seek changes. A short window and a packed agenda don’t bode well for the complex energy bill. If no action happens in November, advocates are eyeing the short lame duck session in January.
Exelon plans to shutter the Clinton nuclear plant by mid-2017 if the state doesn’t pass a bill providing the ratepayer subsidy. It’s likely that the company will begin that process if it doesn’t see a bill by the lame duck session. The potential of losing the plant’s jobs and local economic impact places pressure on lawmakers to act in the near term. Whether they respond is an open question.
In any case, renewable energy companies and their allies in the Clean Jobs Coalition will continue advocating for their priorities. If renewables advocates are successful, the proposed change would finally help developers finance and build new projects – helping shift Illinois’ economy from fossil fuels to clean energy. After all, that was the point of the RPS law in the first place. [adright zone=’190′]
Kevin Borgia is a public policy manager at Wind on the Wires, a regional partner of the American Wind Energy Association. He can be reached at email@example.com.