Your Fuel Can Pay You: Maximize the Carbon Value of Your Fuel Purchases Sean H. Turner October 18, 2017
Agenda Traditional Funding Mechanisms vs. Market- Based Incentives for Renewable Fuels and Electric Vehicles EPA Renewable Fuels Standard (RFS) CARB Low Carbon Fuel Standard (LCFS) How do these programs incentivize the production of renewable fuels (RNG & RD) and electric vehicles/chargers? Credits for EVs Proposed changes to LCFS (2018-2019)
Traditional Funding Mechanisms Federal/State/Local grant programs for vehicles, infrastructure, facility modifications Federal/State/Local low-cost loan programs Fuel Cost Differential Common to look at fuel cost differential to finance new alt fuel & electric projects More differential means more savings to finance initial project costs (e.g., new vehicles, fueling stations, etc)
Market-Based Funding Mechanisms Programs funded by market participants that need to comply with Federal and/or State Regulations for renewable and lower carbon fuels ( obligated or regulated parties ) These participants can choose to produce their own renewable/lower-carbon fuels or purchase credits from others that have already produced these fuels for transportation The credits we are discussing today can only be generated by using low-carbon fuels, renewable fuels, and electricity in transportation applications
EPA Renewable Fuel Standard (RFS) The RFS program is designed to force transportation fuel producers (not end users) to increase the amount of renewable fuel blended into US gasoline and diesel fuels Obligated Parties are refiners or importers of gasoline or diesel fuel in the 50 US states Renewable Identification Numbers (RINs) are the currency of compliance. Obligated Parties must satisfy their renewable volume obligations by: Blending renewable products with the fuel they are selling Purchase RINS RINs can be generated by using RNG and RD as transportation fuels
California LCFS Program Overview The California Low Carbon Fuel Standard (LCFS) is similar to the EPA RFS program, but it was specifically designed to reduce greenhouse gas (GHG) emissions by reducing the carbon intensity (CI) of the transportation fuel used in California. The LCFS generally applies to fuel producers in California and out-of-state fuel producers ( The Regulated Parties ) that are importing fuel into California. LCFS Credits are the currency of compliance. The Regulated Parties must satisfy their carbon intensity reduction requirements by: Blending lower CI products with the fuel they are selling Purchase LCFS Credits When renewable transportation fuel is used in California, both a RIN and LCFS Credit can be generated simultaneously!
Carbon Intensities within the LCFS
Renewable Fuel Value Chain Regulated parties need to generate or buy RINs and LCFS credits RNG and RD producers can generate those credits, but renewable fuel production cost is higher than fossil fuel production. Furthermore, natural gas and electric vehicles are more costly to purchase than conventional fuel vehicles, but they are necessary for using RNG and electricity to generate RINs and LCFS credits. The value of the RINs and LCFS credits can thus be used to recover these higher fuel production and vehicle costs
Renewable Fuel Value Chain RIN & LCFS Credit Sales (to Regulated Parties) Revenue Renewable Fuel Production Marketing & Distribution Fuel Stations & Charging Inf End Users Majority Stakeholder in Chain (>80% of value needed)
Historical RIN Values
Historical LCFS Values
RIN & LCFS Incentive Values NGV fleets will likely have to negotiate their piece of the RNG value chain with their fuel supplier Scenario below illustrates a 5% RIN-LCFS sharing agreement on a per diesel gallon equivalent (DGE) basis for the NGV fleet user 5% RIN + LCFS Sharing Value for RNG Current D3 RIN Value ($/RIN)* $ 2.88 Current LCFS Value ($/MT)** $ 93.00 D3 RIN Value per DGE $ 0.23 LCFS Value per DGE $ 0.03 Total RIN + LCFS Value per DGE $ 0.26 * OPIS 10/12/17 ** assumed landfill gas RNG
RIN & LCFS Incentive Values To date, RD users have not had access to RIN and LCFS incentive values because the fuel suppliers have kept those incentives to cover their incremental fuel production costs Depending on future supply, sophisticated fleets will likely begin negotiating for a piece of this value chain. Renewable Diesel RIN + LCFS Value Current D5 RIN Value ($/RIN)* $ 0.93 Current LCFS Value ($/MT)** $ 93.00 D5 RIN Value per DGE $ 1.50 LCFS Value per DGE $ 0.74 Total RIN + LCFS Value per DGE $ 2.24 * OPIS 10/12/17
EV Credit Generation in the LCFS 19
Electricity Pathways The LCFS recognizes electricity from on-site generation/charging and from the CA grid. Directed electricity is not currently allowed under the LCFS. CA Electrical Grid Not currently allowed under LCFS. Proposed for 2018 program update. On-site Generation Average CA grid mix. CI specified by CARB. On-site generation only. CI depends on generating technology. End Use 20
Carbon Intensities CARB defines the carbon intensity for the CA grid in the regulatory text as 105.16 gco2e/mj (not EER-adjusted). This is currently the only approved electricity pathway. On-site generation requires an approved pathway to receive a carbon intensity value PV and wind would receive a CI of zero Biogas, biomass, and other fuel sources could have CIs above or below zero 21
Energy Economy Ratios (EER) The credits generated by an EV are based on the EER-adjusted carbon intensity of the electricity provided to the EV The EER reflects the relative efficiency with which a vehicle uses its energy, as compared to a baseline diesel or gasoline vehicle. EERs for EVs are broken down into several different categories. To generate credits, you should know how much energy is delivered to each vehicle type. Application EER Baseline Electricity/BEV, or PHEV (Light Duty) 3.4 Gasoline Electricity/BEV, or PHEV (Heavy Duty) 2.7 Diesel Truck Electricity/BEV or PHEV Bus 4.2 Diesel Electricity/Fixed Guideway, Heavy Rail 4.6 Diesel Electricity/Fixed Guideway, Light Rail 3.3 Diesel Electricity/Trolley Bus, Cable Car, Street Car 3.1 Diesel Electricity Forklifts 3.8 Diesel 22
Calculating Credits Credits are calculated using a simple formula specified in the LCFS regulation. The equation accounts for the difference in carbon intensity between the reference fuel s (gasoline or diesel) standard and the electricity. It also adjusts for the EER of the electric vehicle. The standard for the reference fuel declines each year, until 2020, as proscribed in the regulation. Therefore, the number of credits generated per kwh of electricity dispensed also declines. Reference: 17 CCR 95486 (b)(3)(a) 23
Eligible Parties In most cases, the initial party eligible to generate credits is the electrical utility. However, the fleet/charging station/site owner can elect to generate credits, essentially preempting the utility s claims. In fixed guideway applications, the transit agency in the primary party and the utility can only claim credits if the transit agency agrees not to claim credits. Application Charging Location Primary Party Optional Party On-road Single/multi-family residence Electrical Distribution Utility None On-road Public access EV charger Electrical Distribution Utility Electric Vehicle Service Provider On-road Fleet charging Electrical Distribution Utility Fleet On-road Fleet battery-switch station Electrical Distribution Utility Station owner On-road Workplace charging Electrical Distribution Utility Site host On-road Other Electrical Distribution Utility None Fixed Guideway N/A Transit Agency Electrical Distribution Utility Forklifts Fleet facility Electrical Distribution Utility Fleet 24
LCFS Electricity Eligible Parties 25
Sample Credit Values Credits can have significant value. ARB s sample credit calculator for CA grid-average electricity supplied to an EV bus in 2017 estimates: $0.12/kWh at a credit price of $110 Roughly equivalent to $4.35/DGE Value declines slightly to $0.11/kWh in 2020 due to lower CI standard Renewable electricity credit values could be significantly higher, especially if generated from carbon-negative feedstocks like RNG. 26
Basic Process for Generating Credits Register with CARB in the LCFS Reporting Tool Credit Bank & Transfer System (LRT- CBTS). Accessible online. Fleets, other than transit agencies, will need to notify CARB and their electric utility in writing that they intend to claim LCFS credits generated by their fleet. This is to avoid double counting of credits. Once registration is complete, user commits to provide quarterly and annual reports of electricity dispensed (kwh). Reports must be submitted every quarter, even if the amount of electricity dispensed is zero The fleet is legally obligated to accurately report the electricity dispensed. Reporting process is straightforward but requires some training. A fleet will likely need someone trained to submit reports. The process is fairly straightforward for CA grid-derived electricity and CARB Staff can assist with questions. Register with CARB Notify EDU Report Energy Use Receive Credits into Account Bank/sell Credits to Obligated Parties 27
Recent EV/RNG LCFS Credit Sales In August, PG&E ran a procurement for 58,000 LCFS credits generated from the sale of electricity for EV-fueling and CNG as a vehicle fuel ~$5.4 million in LCFS proceeds In June, PG&E sold 44,000 credits at an average price of $77/MT ~$3.4 million in LCFS proceeds 29
Important Proposed Changes to the LCFS CARB is currently preparing modifications to the LCFS. These will generally be neutral or beneficial to EV fleets. Increase EER from current values of 2.7 to 4.2 for on-road vehicles to ~5.0. Will increase the number of credits generated per kwh dispensed. Update the CI for the CA Grid. This will also increase the number of credits generated per kwh dispensed. Create lookup table value for EVs charged from 100% wind/solar and assign a CI score of 0 g/mj. Simplifies the process of generating credits for charging EVs from renewables behind the meter. Allow for directed renewable electricity. The requirements are likely to be complex, but could open up new projects for combined PV/EV deployments or similar renewable generation+ev deployments. Draft changes will be available in early 2018 for public comment. Final adoption of changes by the end of 2018, with implementation starting in 2019 or 2020. 30
Sean Turner Chief Operating Officer (310) 894-1534 sean.turner@gladstein.org THANK YOU!