Alternative Energy Portfolio Standard

Pennsylvania’s Alternative Energy Portfolio Standard (AEPS), created by S.B. 1030 on November 30, 2004, requires each electric distribution company (EDC)* and electric generation supplier (EGS) to retail electric customers in Pennsylvania to supply 18% of its electricity using alternative-energy resources by 2020.** 

Eligible technologies

The eligible alternative energy resources are categorized into two “Tiers”. The standard calls for utilities to generate 8% of their electricity by using “Tier I” energy sources and 10% using “Tier II” sources by May 31, 2021. 

Tier I sources include new and existing facilities which produce electricity using the following sources/technologies: photovoltaic energy, solar-thermal energy, wind, low-impact hydro, geothermal, biomass, wood pulping and manufacturing byproducts from energy facilities within the state, biologically-derived methane gas, coal-mine methane, and fuel cells. 

Tier II sources include (new and existing) waste coal, distributed generation (DG) systems less than 5 MW in capacity, demand-side management, large-scale hydro, municipal solid waste, wood pulping and manufacturing byproducts from energy facilities located outside the state, useful thermal energy, and integrated gasification combined cycle (IGCC) coal technology. (See 73 P.S. § 1648.2 for detailed definitions of eligible alternative-energy sources.) Provision for “useful thermal energy” is defined as as thermal energy created from the production of electricity. This technology and fuel neutral definition of useful thermal energy essentially allows combine heat and power (CHP) facilities to qualify as a Tier II resource, however, this definition expressively prohibits combined-cycle electric generation facilities as being considered as an eligible resource. 

Beginning October 30, 2017 solar PV systems located out of state will not be eligible to meet solar PV portion of the AEPS. Previously out of state solar PV energy resources located within the service territory of PJM regional transmission organization (RTO) were eligible for compliance; the new provision provides that solar PV sources must be located within Pennsylvania and be physically interconnected with the Electric Distribution Company’s (EDCs) distribution or transmission system to be eligible to comply with solar PV carve-out of the AEPS. Out of state Solar PV systems that were previously certified to meet the solar PV component are grandfathered in the provision. Other out of state solar PV systems after October 30, 2017 can only used to comply with Tier 1 non-solar PV share requirements of the AEPS. Act 40 final implementation order entered on May 3, 2018, which states that Interested out of state suppliers can file a Petition within sixty (60) days of the entry date of this Order.

The Technical Reference Manual, first adopted in May 2009 and revised annually, contains a detailed description of how demand-side management will be addressed under the standard. The eligible energy efficiency technologies listed at the top of this page are a selection of specific measured identified in the Technical Reference Manual. Solar thermal technologies that do not produce electricity (e.g., domestic solar water heaters) are considered Tier II demand-side management resources.

Carve-outs

Pennsylvania’s standard provides for a solar set-aside, mandating a certain percentage of electricity generated by photovoltaics (PV). Pennsylvania’s AEPS also includes demand-side management, waste coal, coal-mine methane and coal gasification as eligible technologies. 

In 2007 H.B. 1203 provided a more detailed solar schedule, clarified the force majeure clause, confirmed REC property rights for generators, added solar thermal to Tier I, clarified that AEPS credits (Alternative Energy Credits or AECs) retirement, and expanded the definition of customer-generator. Revised rules addressing these changes and other necessary clarifications became effective in November 2008. 

Compliance

The Public Utility Commission (PUC) has adopted the following 15-year compliance schedule to implement Pennsylvania’s AEPS. The compliance year (CY) for the standard runs from June 1 to May 31 and is followed by a 3-month true-up period. The table below refers to each compliance year according to the year in which it ends (e.g., CY 2008 ran from June 1, 2007 to May 31, 2008). Due to supplier exemptions, CY 2007 did not begin until February 28, 2007. All other compliance years include a full year of time

Compliance is based on alternative energy credits (AECs). An AEC is equal to a megawatt-hour of qualified generation, and credits are the property of the generator unless expressly transferred. Banking of excess credits is allowed for up to two years, thus an AEC’s useful life is three years, the year it was produced and the two subsequent years for which it can be banked. AECs are tracked by the PJM GATS system. Notably, the 2008 rule amendments exempt PV systems of 15 kW or less from a requirement that AEC production be verified by metered data, instead allowing the AEC program administrator to verify system output through alternate means (i.e., an engineering estimate of annual production). All other systems must have AEC production verified by metered data, and the rule has been implemented to only allow such “alternate means” to be used in cases where the system is not equipped with a revenue-grade system production meter. RECs produced by individual small generators may contract an aggregator who will bundle multiple RECs and facilitate the sale of RECs on behalf of the system owners. HB 118 enacted in October 2017 requires all new solar PV generation facilities must meet one of the criteria for compliance with solar AECs-  i) directly deliver electricity generated to retail customer within EDC, ii) directly connected to the electric system of the municipal utility, or iii) connected directed to the electric transmission system within the service territory of EDC within the State. 

The law establishes an alternative compliance payment (ACP) of $45 per megawatt-hour for shortfalls in Tier I and Tier II resources. A separate ACP for solar PV is calculated as 200% times the sum of (1) the market value of solar AECs for the reporting period and (2) the levelized value of up-front rebates received by sellers of solar AECs. For the compliance year 2012/2013 ACP for solar PV amounted to $218.47. Monies received through the ACP will be transferred into Pennsylvania’s Sustainable Energy Funds and used solely to support alternative-energy projects. 

Cost mitigation measures

The PUC has determined that electric distribution companies may fully recover “the reasonable and prudently incurred costs of complying” with the AEPS. These include the costs for purchases of alternative energy or alternative energy credits, payments to credit program administrators, and costs levied by RTOs to ensure that alternative resources are reliable. Recoverable costs generally do not include ACPs. The costs will be recovered through an automatic adjustment and are considered to be a cost of generation supply.

The AEPS contains a force majeure clause under which the PUC can make a determination as to whether there are sufficient alternative energy resources in the market for utilities to meet their targets. If the PUC determines that utilities are unable to comply with the standard despite good faith efforts, it may alter the obligation for a given year. The Commission may then require higher obligations in subsequent years to compensate for shortfalls.

Reports summarizing progress and compliance with the standard for 2007 -2014 are available on the PUC program website. 

*Pennsylvania has an de-regulated electricity market, which allows customers to choose their electric suppliers. EDC is the public utility company that provides transmission and distribution of electricity to retail customers. EDCs are regulated the Public Utility Commission (PUC). EGS are private companies that are licensed by the PUC to sell electricity to customers. Customers who opt not to choose their EGS are supplied electricity by the public utility in its role as a Default Service Provider (DSP).  

**Pennsylvania’s rural electric cooperatives must offer retail customers a voluntary program of energy efficiency and demand-side management programs to satisfy compliance with the AEPS.

**With the 2008 legislation designating additional Tier I resources and providing for equivalent increases to the Tier I compliance %, the values listed here no longer precisely reflect actual Tier I obligations. As the increases associated with this change will be based on actual generation from the newly designated Tier I resources, it cannot be known precisely in advance how much the values will change for future years. As noted above, the quarterly adjustments averaged 0.004% during CY 2012.