International Experience with Public Benefits Funds: A Focus on Renewable Energy and Energy Efficiency FINAL REPORT Prepared by: Ryan Wiser, consultant to the Center for Resource Solutions Catherine Murray, consultant to the Regulatory Assistance Project Jan Hamrin, Center for Resource Solutions Rick Weston, Regulatory Assistance Project Prepared for: Energy Foundation, China Sustainable Energy Program October 16, 2003 Table of Contents 1. Introduction and Summary ..........................................................................................................4 1.1 Report Purpose and Content .........................................................................................................4 1.2 Report Summary...........................................................................................................................5 2. Overview.......................................................................................................................................10 2.1 What is a PBF? ...........................................................................................................................10 2.2 Where Are PBFs Used?..............................................................................................................10 3. Why Have PBFs Been Established? ...........................................................................................22 3.1 Historical Overview....................................................................................................................22 3.2 Why Support RE and EE Markets? ............................................................................................22 3.3 Advantages and Disadvantages of a PBF ...................................................................................24 4. Mechanisms for Collecting the Funds........................................................................................26 4.1 Fund Collection Options.............................................................................................................26 4.2 International Experience.............................................................................................................26 4.3 Lessons Learned .........................................................................................................................27 5. Setting the Level and Duration of the PBF................................................................................29 5.1 Funding Level.............................................................................................................................29 5.2 Funding Duration........................................................................................................................30 5.3 Defending and Protecting the PBF .............................................................................................31 6. Models for Fund Application and Distribution.........................................................................33 6.1 Models for the Application of RE and EE PBFs ........................................................................33 6.2 Incentive Types...........................................................................................................................35 6.3 General Fund Disbursement Options..........................................................................................35 7. Common Program Types ............................................................................................................37 7.1 Renewable Energy Programs......................................................................................................37 7.2 Energy Efficiency Programs.......................................................................................................38 8. Administrative Options ...............................................................................................................42 8.1 The Three Administrative Options .............................................................................................42 8.2 Experience Summary..................................................................................................................42 8.3 Advantages and Disadvantages of Different Administrative Structures ....................................44 8.3 Summary.....................................................................................................................................48 9. Administrative Costs and Staffing .............................................................................................50 10. Management and Monitoring of the Fund ................................................................................54 10.1 Utility Administrator ..................................................................................................................54 10.2 Government Agency Administrator ...........................................................................................55 10.3 Independent Institution Administrator........................................................................................56 10.4 Performance Incentives ..............................................................................................................57 11. Program Evaluation.....................................................................................................................58 11.1 Why do Program Evaluation?.....................................................................................................58 11.2 The Evaluation Process ..............................................................................................................59 11.3 Evaluation Issues ........................................................................................................................60 11.4 Some International Experiences with Evaluation.......................................................................60 12. Effectiveness of PBF Programs...................................................................................................63 12.2 Effectiveness of Renewable Energy PBF Programs...................................................................64 12.3 Effectiveness of Energy Efficiency PBF Programs....................................................................72 13. The Need for Complementary Policies.......................................................................................81 13.1 Minimize Utilities’ Financial Disincentive to Pursue Energy Efficiency ..................................81 13.2 Ensure that RE Projects Can Sell Their Power Under a Long-Term PPA .................................83 14. PBF Trends, and Lessons for China ..........................................................................................84 2 14.1 PBF Trends.................................................................................................................................84 14.2 PBF Lessons and Recommendations for China..........................................................................85 References..................................................................................................................................................89 Appendix A. Case Studies of PBF Programs..........................................................................................93 3 1. Introduction and Summary 1.1 Report Purpose and Content Renewable energy and energy efficiency investments have long been supported through public policy efforts in a wide array of countries. Public benefits funds (PBFs) are one of several policy tools that might be used to provide this support, and PBFs have become increasingly common in recent years, especially as competition in the electricity industry has increased. While the objectives of different PBF programs are often similar, the structures and means to deliver energy efficiency and renewable energy services through PBFs show much wider variation across countries and U.S. states. This report summarizes international experience with PBF policies that target renewable energy (RE) and energy efficiency (EE) investments, and identifies lessons learned from these experiences that are applicable to the Chinese context. Financially supported by the Energy Foundation, a number of Chinese organizations are exploring the possibility of applying PBFs at both a national and provincial level in China. This report is intended to assist these efforts by summarizing international experience.1 This report does not provide detailed information on each PBF in existence internationally. Instead, its purpose is to identify the key issues that arise when developing a PBF policy, and identify lessons learned, referencing examples in individual countries or U.S. states as appropriate. Because the PBF is a relatively new policy mechanism, experience with its use continues to grow. This report should therefore be viewed as a living document; experience with the PBF is by no means static, and lessons will continue to be learned over time. This report is organized as follows: • Chapter 2 provides an overview of PBFs, describes what a PBF is, and summarizes some basic information on the use of PBFs internationally in supporting renewable energy and energy efficiency. • Chapter 3 discusses the reasons that PBFs have been established to support renewable energy and energy efficiency, and some of the advantages and disadvantages of the PBF as a policy instrument. • Chapter 4 highlights various mechanisms