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States should weigh carbon impacts of time-of-use rates, sustainability CEO says

Jeffrey Eckel, chairman, president and CEO of sustainable investment firm Hannon Armstrong Sustainable Infrastructure Capital Inc., told state commissioners that shifting power use to off-peak hours can have the unintended consequence of increasing greenhouse gas emissions.

For a mid-Atlantic state such as Maryland, coal and natural gas tend to be more on the margin in the off-peak hours, Eckel told S&P Global Market Intelligence on the sidelines of a March 20 forum in Annapolis, Md., where the company is headquartered. The Advancing Maryland's Clean Energy Economy forum was co-hosted by the Citizens for Responsible Energy Solutions Forum, which backs free-market clean energy solutions, and membership-based groups the Maryland Tech Council and Clean Energy Business Network.

Speaking on a panel about policies to spur clean energy investment, the Maryland Energy Administration's director of government affairs and policy, John Fiastro, said rate mechanisms such as time-of-use rates can help change behavior in customer use.

"If we can use rate design to change behavior, we can achieve efficiency as well. ... What I mean is, if we can take rate design and we can reward off-peak behavior ... over that of peak behavior, we can actually bend curves in a way that is not just good for individual adopters or investors of technologies [but] for the distribution service territory as a whole," Fiastro said.

Eckel advised that state utility commissions should not just look at system efficiency but also impacts to greenhouse gas emissions. "State utility commissions have the tendency to look at system efficiency versus the carbon intensity, and they are not the same thing."

"So if you shift use off-peak, which may reduce the overall bill and make the overall [grid] system more efficient, it may also produce more carbon, which I think would be an unfortunate, unintended consequence," Eckel told S&P Global Market Intelligence after the panel.

Kelly Speakes-Backman, CEO of the Energy Storage Association and a former commissioner of the Maryland Public Service Commission, agreed with Fiastro that "it depends on what your policy goal is, and as you say, if a state does not have a policy goal of environmental impact, then it does not matter."

"Not all states have a mandate for a commission to consider carbon as a matter to consider before the state," Fiastro said.

The panel comes as the Maryland Public Service Commission in fall 2016 started a proceeding called Public Conference 44 to examine how to modernize its distribution system. As part of that proceeding, the commission is considering rate mechanisms such as pilot programs for charging on- and off-peak rates to help trim peak energy use and encourage charging new technologies such as electric cars when rates are cheaper.

Hannon Armstrong, which has been investing in clean energy projects since the 1980s, has built carbon emissions into its process for how it evaluates new investments. "We always look at the investment metrics first," but among its secondary metrics is looking at how a project is reducing greenhouse gas emissions, Eckel said.

The firm employs the CarbonCount tool provided by the Alliance to Save Energy, a bipartisan nonprofit group that advocates for energy efficiency, to calculate an investment's annual impact to greenhouse gas emissions in the first year of investment. When divided by the capital needed, the firm comes up with a carbon-intensity ratio in terms of the greenhouse gas impact for the capital invested.

By using this ratio, we "see wind projects in the Midwest being very impactful and efficiency projects in the Northeast being impactful," Eckel said. But a solar or efficiency project is not that impactful in California because there is not that much carbon in that state, he said.

David Fein, Exelon Corp.'s vice president of state government affairs in the East region, supported a broader discussion on carbon emissions looking at the role of nuclear power. The 1,768-MW Calvert Cliffs nuclear plant, half owned by Exelon and EDF Group, provides 88% of the emission-free generation in Maryland, he said.