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Alternative Energy Schemes Share Same Drawback: Ratepayer Subsidies

NJ consumers pay some of the highest energy charges in U.S., can they afford clean but costly alternatives?

The Legislature keeps coming up with new ways to saddle utility customers with the cost of generating electricity in unconventional ways.

In separate actions this week, a pair of legislative committees voted out bills to establish requirements that a certain portion of the electricity sold in New Jersey comes from alternative ways of producing power, instead of more traditional generating units fueled by natural gas or coal.

In one case, ratepayer-subsidized incentives would be targeted toward developing combined heat and power (CHP) plants or facilities that use fuel-cell technology. In the other, the incentives would apply to a new technology, one that converts municipal solid waste and sewage sludge into a substance that could be burned to produce power.

All three schemes had their advocates in hearings before the two panels, but the bills once again ignited fears that the state is relying too heavily on ratepayer subsidies to promote technologies that may be beneficial, but would also lead to increases in energy costs for businesses and residents, which are among the highest in the nation.

Environmental groups were unhappy, arguing that any ratepayer subsidies should be solely dedicated to promoting renewable energy, and not ones that produce greenhouse gas emissions.

Still, the bills had their proponents, especially a measure (S-2651) aimed at promoting CHP plants, a technology widely supported by both the Christie administration and lawmakers, who say it is a cleaner and more cost-effective way of producing electricity.

In this case, the state would establish a new requirement that a certain portion of the electricity sold in New Jersey come from CHP plants or facilities that use fuel-cell technology.

The measure debated by the Senate Environment and Energy Committee earlier this week but not acted on is the latest effort on the part of lawmakers to promote CHP, which produces both electricity and heat simultaneously. It is a top priority of the Christie administration, especially in the wake of Hurricane Sandy.

The state’s Energy Master Plan has set a goal of developing 1,500 megawatts of CHP by 2020, a target that seems increasingly elusive because funding for the projects has been repeatedly diverted by lawmakers and the administration,.

Without some kind of incentives, CHP advocates say the projects are not economically viable. What form those incentives should take is not yet clear. The bill debated by senators earlier this week -- identical to one that came out of the Assembly Telecommunications and Utilities Committee in February -- would give developers incentives somewhat similar to ones now being used in the solar sector.

CHP plants would be granted financial credits for the power they produce, which would have to be purchased by power suppliers. If not enough credits are available, the suppliers would have to make a compliance payment to the state.

The Christie administration appears to be taking a different approach. A straw proposal developed by the New Jersey Office of Clean Energy suggests using a long-term financing mechanism through loans from natural gas utilities to CHP developers, a portion of which would be repaid to the utilities and ratepayers over time, based on the positive cash flow from the energy savings of the project.

The idea of using CHP to make the grid more reliable gained wider currency after Hurricane Sandy, which left hospitals, nursing homes, and wastewater treatment plants without power, sometimes with dire consequences.

“We just can’t afford to have these types of facilities out,’’ said Fred DeSanti, a lobbyist who is a strong advocate for CHP. “Distributed generation [plants supplying power locally] will play a critical role here.’’

Others argued, however, that it is not appropriate to establish a so-called portfolio standard, which usually applies only to renewable energy, to promote a fossil fuel. A portfolio standard requires power suppliers to purchase a certain amount of their electricity from prescribed sources, whether they be solar systems, offshore wind farms, or even, in this case, CHP facilities.

“It is important to remember that every portfolio standard and certificate program raises rates,’’ said Division of Rate Counsel Director Stefanie Brand in written testimony submitted to the committee. “Like the renewable energy portfolio standards, this program could involve significant costs to ratepayers.’’

Those costs already are steep, according to business lobbyists. The bulk of the money from a surcharge on customers’ bills goes to support the state’s clean energy programs and a low-income energy assistance program, as well a few other initiatives.

Even those who supported the bill noted the rising cost of the surcharge on customers’ utility bills. In the past 10 years, the surcharge has raised $2.5 billion from ratepayers, according to Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey.

Still, he thought the bill made sense because, like others, Bozarth said he believed CHP could lower bills for facilities that deploy them and for all customers by reducing congestion on the power grid, which tends to spike electricity prices.

“Better this, than spending on solar,’’ he said.

But Jeff Tittel, director of the New Jersey Sierra Club, argued that credit programs envisioned by the bill for CHP, which typically runs on natural gas, should be limited to renewable energy.

“Even though it’s more efficient, you’re still burning a fossil fuel,’’ he said.

Tittel and other environmentalists repeated that argument yesterday in a hearing by the Assembly Telecommunications and Utilities Committee. It voted out a bill (A-4081) aimed at promoting hydrothermal decomposition, an environmentally friendly way of disposing of waste and generating electricity, according to the chief executive officer of Delta Thermal Energy, who spoke to the panel.

The technology disposes of waste through use of high pressure steam and high temperatures that turn it into a “clean pulverized material’’ that is burned to produce electricity, according to the company’s website.

“It’s perfectly clean,’’ said Robert Van Naarden, the Pennsylvania company’s CEO. It will save local governments money, he said, by reducing the cost of shipping garbage to out-of-state landfills and incinerators, which typically rise by about 10 percent each year.

The company has a pilot project underway at the Atlantic County Utilities Authority in Egg Harbor and is building a plant to take care of the waste for the city of Allentown, PA.

If this technology is so good, Tittel asked, why should ratepayers have to pay for it. “Hydrothermal decomposition is just another fancy name for incineration,’’ he said.

David Pringle, campaign director of the New Jersey Environmental Federation, agreed. “It’s not proven. It’s experimental,’’ he said.

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