In October 2008, Michigan enacted the Clean, Renewable, and Efficient Energy Act (Public Act 295), requiring the state’s investor-owned utilities, alternative retail suppliers, electric cooperatives, and municipal electric utilities to generate 10% of their retail electricity sales from renewable energy resources by 2015. SB 438, signed in December 2016, increased this requirement to 15% by 2021, and made other changes. The standard allows utilities to use energy waste reduction (i.e., energy efficiency) to meet a limited portion of the requirement. In Case No. U-15825 Michigan Public Service Commission calls on proposals regarding Renewable Energy Plan filling requirements in response to amendments made in SB 438.
The state’s two largest investor-owned utilities, DTE Electric and Consumers Energy, have additional obligations beyond those of other utilities.
Under the standard, eligible renewable energy include biomass, solar photovoltaics (PV) and solar thermal, wind, geothermal, municipal solid waste (MSW),* landfill gas, existing hydroelectric, tidal, wave, and water current (e.g., run of river hydroelectric) resources.
Biomass is broadly defined as organic matter that is not derived from fossil fuels and which replenishes over a human time frame. New hydroelectric facilities that require new dam construction are not considered an eligible resource, although repairs, replacements, and upgrades of existing dams may be counted towards compliance.
"Energy Waste Reduction"
The definition of energy waste reduction is synonymous with what is generally defined as energy efficiency. In order to be counted under the standard, energy efficiency measures must reduce customer consumption of energy, electricity, or natural gas. This includes both changes in equipment and changes in customer behavior directly attributable to an energy efficiency program or energy waste reduction plan. It does not include utility infrastructure projects that are approved for cost recovery (e.g., transmission or generation facility upgrades).
All Electric Utilities
The compliance period for the standard began in 2012. Each utility has a unique annual obligation based on its existing renewable energy portfolio, the amount of energy that would be required to meet the ultimate target during a compliance year, and the applicable percentage obligation for that year. The annual benchmarks are as follows:
- 2012: Existing renewable energy baseline plus 20% of the gap between baseline and 10%
- 2013: Existing renewable energy baseline plus 33% of the gap between baseline and 10%
- 2014: Existing renewable energy baseline plus 50% of the gap between baseline and 10%
- 2015 – 2018: 10%
- 2019 – 2020: 12.5%
- 2021: 15%
The existing renewable energy baseline is determined by the amount of qualifying electricity produced or obtained by an electric provider during the one-year period preceding the effective date of the act (October 6, 2008). The existing portfolio also includes certain renewable electricity production associated with PURPA qualifying facilities (QFs)** during the same time period.
For the purpose of determining the target for a given year, a utility may calculate total retail sales using average retail sales during the previous three years or using weather-normalized sales from the previous year. After the law was enacted, all utilities were required to file a proposed plan for meeting the renewable energy standard. The Michigan Public Service Commission (MPSC) reviews these plans every 2 years.
Additional Requirements for Large Utilities
In addition to the percentage-based energy requirements, a utility with more than 1 million retail customers as of January 1, 2008, (i.e., Consumers Energy) must meet a renewable energy capacity standard of 200 megawatts (MW) by December 31, 2013, and 500 MW by December 31, 2015.
A utility with more than 2 million retail customers as of January 1, 2008, (i.e., DTE Electric) must meet a renewable energy capacity standard of 300 MW by December 31, 2013, and 600 MW by December 31, 2015.
Energy production from these new renewable energy facilities can be counted towards the percentage-based component of the standard.
Compliance with the percentage standard can be met by purchasing renewable energy credits (RECs) with or without the associated electricity generated from the renewable energy resource (i.e., "bundled" or "unbundled" RECs). A REC is created for every megawatt-hour (MWh) of electricity generated by a renewable energy system.
Up to 50% of the standard may be met with RECs produced by utility-owned facilities.
A REC has a lifetime of three years from the end of the month it was generated. RECs generated within 120 days of the start of a calendar year may be used to satisfy the previous year’s obligation.
Utilities may substitute energy waste reduction credits for renewable energy credits with approval of the PSC. No more than 10% of a utility’s obligation may be met using energy waste reduction credit.
Generally, RECs may be obtained from in-state facilities or from out-of-state facilities located within the retail electric service territory of a utility (or subsequent expansions) as recognized by MPSC. Alternative electric suppliers are generally not permitted to meet the standard using out-of-state resources. However, a variety of exceptions exist to these general eligibility criteria, relating primarily to existing power purchase agreements with out of state facilities.
Verification and Reporting
MPSC established the Michigan Renewable Energy Certification System (MIRECS) as the REC certification and tracking system.
Utilities and alternative suppliers are required to submit plans for complying with the standard to MPSC (details vary by utility type). They are permitted to recover their compliance costs through an itemized charge beginning 90 days after the PSC approves their renewable energy plan. The program website has information on the plans filed by Michigan utilities.
Public Act 295 also included annual reporting requirements for the PSC, including information on the status of renewable and clean energy in the state, the effects of the standard on electricity prices, the cost effectiveness of the standard, and the effect on employment in the standard. The reports are due annually by February 15. The 2015 report is available here.
The standard also contains a series of bonus credits, termed Michigan incentive renewable energy credits, for each MWh of electricity generated by certain types of systems. These credits act in addition to the single credit that a facility receives for producing 1 MWh of electricity from a qualified resource. Thus it is possible to earn multiple credit bonuses on a single MWh of electricity generation. The bonuses are described below.
- Electricity produced using solar power placed in service prior to April 2017 receives an additional 2 credits per MWh.
- Renewable electricity produced at peak demand times by technologies other than wind receives an additional 1/5 credit per MWh.
- Off-peak renewable electricity generation stored using advanced electric storage technology or hydroelectric pumped storage and used during peak demand times receives an additional 1/5 credit per MWh. The credit is calculated based on the initial amount of electricity used to charge the storage device, not the amount that is discharged.
- Renewable electricity produced using equipment manufactured within the state of Michigan receives an additional 1/10 credit per MWh. This add-on is only available for three years after the in-service date of the facility.
- Renewable electricity produced using a system which was constructed using an in-state workforce receives an additional 1/10 credit per MWh. This add-on is only available for three years after the in-service date of the facility.
Cost Mitigation Measures
Rate impact cost ceilings have been set at $3.00 per month for residential customers, $16.58 per month for secondary commercial customers and $187.50 per month for primary commercial and industrial customers.
*In reviewing DTE Electric renewable energy plan, the PSC determined that scrap tires do not qualify as municipal solid waste, but that the utility could request ACECs for energy produced using scrap tires.
**The renewable energy standard addresses ownership rights of renewable energy credits (RECs) produced by PURPA QFs. In synopsis, the law upholds PURPA contracts that address REC ownership as they are written, while it specifies REC ownership in situations where REC ownership is addressed as part of a separate contract or is not addressed at all. The existing component of a utility’s renewable portfolio includes RECs it would have had title to under the new law had it existed during the time period for which the existing renewable baseline is calculated.