Alternative Energy Portfolio Standard

Background

In May 2008, Ohio enacted broad electric industry restructuring legislation (S.B. 221) containing an Alternative Energy Portfolio Standard (AEPS), featuring advanced energy and renewable energy generation and procurement requirements for the state's electric distribution utilities and electric service companies (hereafter referred to as utilities). This definition encompasses all retail electricity providers except municipal utilities and electric cooperatives. The target was frozen in 2014 for two years, removing the previous 12.5% requirement for advanced energy resources as well. The standard target was reduced in 2019 by H.B. 6 to 8.5% by 2026.

Eligible Alternative Energy Technologies

In order to qualify under the standard, all renewable energy facilities must have a placed-in-service date of January 1, 1998, or later. The Public Utilities Commission of Ohio (PUCO) is authorized to classify any new technology as a renewable energy resource.

Renewable Energy Resources
Eligible renewable resources are defined to include the following technologies: solar photovoltaics (PV), solar thermal technologies used to produce electricity, wind, geothermal, biomass, biologically derived methane gas, landfill gas, certain non-treated waste biomass products, solid waste (as long as the process to convert it to electricity does not include combustion), fuel cells that generate electricity, certain storage facilities, and qualified hydroelectric facilities (including run-of-the-river hydroelectric systems on the Ohio River exceeding 40 MW capacities (also eligible for RECs), and small hydroelectric facilities of aggregate capacity of less than six megawatts). waste heat recovery or cogeneration system may qualify for either the Renewable Energy Resource Standard or the Energy Efficiency Portfolio Standard. Distributed generation systems used by customers to generate electricity using the aforementioned eligible renewable resources are also included. Biological methane gas not converted into electricity is also eligible, and heat energy derived from biological methane gas equal to 3,412,142 BTUs is treated the same as 1 MW of renewable energy generation (which is equivalent to 1 REC).

AEPS Compliance

Annual Obligation
A utility's obligation under the Alternative Energy Portfolio Standard (AEPS) is calculated using the average of a utility's total retail sales (sold under standard service offer) during the preceding three calendar years as a baseline. Utilities are required to file a compliance report by April 15 of each year. These reports must allow and consider public comments. PUCO in turn must review reports and report back to the General Assembly on a yearly basis.

Solar Carve Out
The requirement also contains a carve-out for solar-energy resources with an ultimate solar target of 0.5% of the total electricity supply in 2026 and thereafter. The total renewable percentage requirement includes the solar-specific portion (i.e., the solar requirement is not added on top of the specified renewables requirement). The detailed schedule of annual compliance benchmarks appears below. The law does not identify annual benchmarks for the overall alternative energy standard. To comply utilities can acquire Solar Renewable Energy Credits (SRECs) or pay the Solar Alternative Compliance Payment (SACP).

The solar carve out was eliminated by H.B. 6 in 2019; beginning in 2020 the solar carve out no longer applies. SRECs can still be used to meet the overall RPS requirements.

Renewable Energy Credits (RECs)
The annual benchmark obligations may be met through the purchase of qualified renewable energy credits (RECs), which are defined as the environmental attributes associated with one-megawatt hour of electricity generated by a renewable energy resource. Under the standard, RECs have a lifetime of five years following their acquisition. The utility utilizing RECs for compliance must be a registered member with PJM’s generation attribute tracking system (GATS) and/or Midwest Independent Transmission System Operator (MISO) generation attribute tracking system, and/or other credible tracking system PUCO subsequently approves. Only RECs generated after July 31, 2008 may be used for compliance. Separate Solar Renewable Energy Credits (SRECs) are used to comply with the solar carve-out portion of the program.

Annual Review and Alternative Compliance Payments (ACP)
PUCO is also tasked with annually reviewing compliance with the renewable and solar energy benchmarks and imposing penalties if the benchmarks are not met.  Compliance payments are deposited into the Ohio Advanced Energy Fund, which provides financial support to renewable energy and energy efficiency projects within the state. Utilities may not pass along the cost of compliance payments to their customers, but they are required to share compliance costs on the customer’s monthly bill.

The alternative compliance payment (ACP) for the renewable portion is initially set at $45/megawatt-hour (MWh) but will be adjusted annually by PUCO according to the federal Consumer Price Index with a price floor of $45/MWh. 

The separate Solar Alternative Compliance Payment (SACP) was initially at $450/MWh in 2009, reduced to $400/MWh in 2010 and 2011, fell In 2017 to $250/MWh, and resumes the schedule of being reduced every 2 years by $50/MWh until a $50/MWh SACP at 2026. To avoid Solar Alternative Compliance Payments, utilities can acquire market-based SRECs. The solar carve out no longer applies beginning in 2020; SRECs can still be used to meet overall RPS requirements.

The law contains clauses for cost limitations and allowances for non-compliance for reasons beyond a utility's control (i.e., force majeure). Utilities are not required to comply with the annual benchmarks if it is "reasonably expected" to raise their costs by 3% or more above what they would have otherwise been. The PUCO may require the utility to make solicitations for renewable energy resource credits before the utility may request a force majeure determination. PUCO is authorized to reduce a utility's obligation under the standard if it receives a petition for such treatment from the utility and determines that resources sufficient to meet the obligation are not reasonably available. Under these circumstances, a utility may be required to make up the shortfall with additional purchases in subsequent years.