U.S.: Renewable Portfolio Standards Create Mandate
Authored by Kenneth J. Gish, Jr. and Andrew B. Young
A key driver for new renewable energy resources in the United States has been the adoption by over half of the states of renewable portfolio standards (RPS) (sometimes called renewable energy standards (RES)). The details RPS vary from state to state, but put simply, an RPS is a requirement that electric utilities obtain from qualifying renewable resources (meaning renewable resources that are deemed acceptable under the applicable state RPS statute for purposes of meeting the RPS mandate) not less than a certain percentage – a percentage that typically increases over time -- of the electricity that the utilities use to serve their retail customers in that state.
Renewable portfolio standards typically do not directly address greenhouse gas emissions, but because of the nature of the qualifying resources, the standards generally result in reductions in greenhouse gas emissions. Since RPS requirements vary from state to state, electric utilities providing retail service in more than one state can be confronted with a multiplicity of different requirements. Those inconsistencies, combined with concerns that more than a third of the states have no RPS requirement, have prompted calls for the adoption of federal renewable portfolio standards. As a result, any comprehensive federal energy legislation is likely to contain a renewable energy standard. Questions remain, however, as to whether any such federal standard will support or complicate efforts on the state level.
Existing State Renewable Portfolio Standards
Currently, twenty-nine states and the District of Columbia have renewable portfolio standards in effect. Renewable portfolio standards in these states typically contain two basic components: the designation of defined percentages of retail electric demand to be met by renewable resources and the creation of a list of renewable resources that qualify for purposes of satisfying that requirement. These standards mandate that an electric utility comply with the applicable renewable resource power supply requirements by specified dates. The ultimate percentages of power required to be procured from renewable resources differ from state to state, and vary from a high of 40% in Hawaii (by 2030) to a low of 12.5% in North Carolina (by 2021). The states also differ on the types of electric utilities that are subject to the standards. In some states, the standards apply only to investor-owned utilities, whereas other states include within their mandates public power utilities, such as municipal utilities and rural electric cooperatives, in excess of a specified minimum size.
State renewable portfolio standards also vary in the types of technologies that are deemed to be qualifying renewable resources for purposes of satisfying the RPS requirements. The Pew Center on Global Climate Change recently surveyed the qualifying renewable energy technologies in the states with RPS programs. While the list of technologies that are qualifying resources varies from state to state, the survey found several technologies that qualify across the board. These technologies include biomass-fueled generators, certain hydroelectric facilities, landfill gas, photovoltaic generators and wind-powered facilities. Biofuel generators qualify in every state having an RPS except for Kansas, and solar thermal electric generators qualify in every state except for Colorado, Michigan, New York and Rhode Island.
The list of qualifying technologies highlights that an RPS is not designed in the first instance as a tool for direct reduction of greenhouse gas emissions. Depending on the nature of the biomass fuel or biofuel used, electric generation from those sources can result in significant greenhouse gas emissions. An RPS is designed to limit the use of non-renewable energy resources, essentially extending fuel supplies and reducing reliance on fossil fuels. Other state regulatory schemes, such as California’s and Washington’s greenhouse gas performance standards, which place a limit on the amount of greenhouse gas emissions per megawatt hour of electricity, address greenhouse gas emissions more directly. However, the use of most technologies that are qualifying renewable resources for RPS purposes -- particularly wind, solar and hydroelectric resources -- will result in a significant reduction in greenhouse gas emissions.
Potential Federal Renewable Standards
Although predicting the details of any final comprehensive energy bill to emerge from Congress is fraught with difficulty, the bill that passed out the House of Representatives earlier this year provides some insight into what a comprehensive bill might include in terms of a federal RPS mandate. The American Clean Energy and Security Act (H.R. 2454) (“ACES”) was approved by the House of Representatives on June 26, 2009 by a vote of 219-212. Among its many provisions, ACES includes a combined efficiency and renewable electricity standard. Under ACES, retail electric suppliers (defined as those retail suppliers that deliver over four million megawatt hours of electricity per year) must meet 20% of their customers’ demand through renewable energy and electricity savings by 2020.
The federal standard in ACES differs from the typical state RPS program is several key respects. First, a retail electric supplier may meet 5% (or up to 8% upon petition by the state’s governor) of the 20% requirement through electricity savings. This sort of efficiency incentive may help to reduce greenhouse gas emissions to the extent it represents avoided fossil fuel generation. Second, the list of qualifying technologies includes a range of renewable technologies -- including wastewater treatment gas, coal mine methane and certain waste-to-energy facilities – that are not qualifying resources for purposes of many state RPS requirements. Finally, the ACES standard allows a supplier’s overall demand to be reduced for RPS purposes (thus affecting the quantity of megawatt-hours of electricity that must be obtained from renewable resources or efficiency savings) by the amount of its customers’ demand met by certain types of generation, including hydroelectric power, new nuclear generation and fossil-fuel units that capture and sequester greenhouse gas emissions.
What’s Next
It is generally assumed that any comprehensive federal energy legislation to be adopted in the U.S. will include an RPS-type component. The impact of such a program will be felt from coast to coast and it is currently unclear whether a federal program will preempt or merely add to existing state requirements. Parties whose interests are likely to be implicated by any such legislation would be well served to monitor proceedings in Congress and begin positioning themselves to avoid difficulty should a federal RPS standard be enacted.
- Electric utilities that are operating under existing state RPS programs should evaluate the differences between such state RPS programs and the new federal RPS mandate, and be especially attentive to any potentially conflicting requirements imposed by the new federal standard.
- Electric utilities that are not currently subject to any state RPS program should begin planning for a federal RPS mandate and evaluate the availability of qualifying renewable and efficiency resources to meet the requirements of such a mandate.
- Renewable energy and energy efficiency technology companies should ensure that the technologies offered by them meet the definition of qualifying resources under the federal standard, and should begin marketing their resources to retail electric suppliers – including those that are not currently subject to a state RPS program but that will be subject to a new federal RPS mandate.
