The States Address Climate Change – Renewable Portfolio Standards

Failure of the Federal Government to Act on Greenhouse Gas Emissions

On December 12, 2015, the United States and 186 other nations gathered in Paris to sign an historic accord aimed at reducing greenhouse gas emissions.  Under the Paris Accord the United States committed to reducing its greenhouse gas emissions to 26% to 28% below 2005 levels by 2025. Fossil fuel generation accounts for 28% of the greenhouse gas emissions in the United States. Therefore, any effort by the United States to meet its obligations under the Paris Accord will require a plan for increasing use of Renewable Energy. 

In anticipation of the obligations under the Paris Accord, on August 3, 2015, the Environmental Protections Agency issued the Clean Power Plan. The Clean Power Plan directed each state to implement a program for reducing greenhouse gas emissions. It gave the states the flexibility to determine how they intended to comply. If implemented, the Clean Power Plan would have reduced greenhouse gas emissions from power plants by 32%. 

However, after he was elected President, Donald Trump directed the EPA to not implement the Clean Power Plan. He also announced his intention to withdraw the United States from the Paris Accord.

The States Step in to Encourage Renewal Energy Use

In the absence of Federal leadership on greenhouse gas reduction, a number of states adopted their own greenhouse gas reduction programs. Those programs fall into one of the following three categories:

  • Renewable Portfolio Standards (RPS) applicable to electricity sold in the state;
  • Cap-and-trade programs applicable to power plant emissions in the state; and
  • Establishment of a date by which there will be zero greenhouse gas emissions in the state.

This post describes the state RPS programs. Future posts will describe the cap-and-trade programs and the zero emission programs.

RPS Programs – Renewable Energy as a Percentage of Total Electricity Sold

Investor owned electric utilities, municipal utilities, rural electric cooperatives and unregulated competitive suppliers all sell electricity to end-use customers. All of these entities obtain their electricity from somewhere. It might come from their own generation, purchases directly from an independent power producer or purchases from a wholesale power exchange. That electricity is referred to as the seller’s “portfolio” of power supply. 

The electricity in each seller’s portfolio is produced using some type of fuel. Not too long ago, except for small portions produced by nuclear or hydroelectric power, each seller’s entire portfolio would have been produced from fossil fuels like coal, natural gas or oil. There was virtually no electricity produced from renewables like solar or wind power. 

To encourage use of Renewable Energy states that have implemented Renewable Portfolio Standard (RPS) programs. These programs require sellers to include a minimum percentage of Renewable Energy in their electricity portfolios by a date certain. The percentage of renewables and the date certain of their incorporation varies from state to state. But, as examples, Delaware requires 25% renewables by 2025 and California requires 100% renewables by the end of 2045.  

Who is Subject to the RPS Requirements?

The state RPS programs focus on retail electric sales. They require compliance by retail electric sellers. This differs from cap-and-trade programs that focus on power plant emissions and require compliance by electricity generators. 

Iowa implemented the first state RPS program in 1981. Numerous additional states implemented programs in the early 2000s. Currently twenty -nine states and the District of Columbia have adopted mandatory RPS programs. Eight additional states have adopted non-binding RPS goals. The following map depicts all of the binding and non-binding programs:

Investor-owned electric utilities and competitive retail electric suppliers all have to comply with the RPS programs. Depending upon the state, municipal utilities and rural electric cooperatives may also be required to comply. But they are often subject to reduced renewable percentage requirements.

The Sources of Renewable Energy Used to Comply with the RPS programs

Suppliers face significant penalties if they fail to meet the percentage requirements by the date certain. Therefore, they all must implement strategies for obtaining the required Renewable Energy. They will obtain their Renewable Energy from one of the following three sources:

Customer Owned Renewable Energy

Suppliers may obtain a portion of their Renewable Energy by purchasing electricity produced at customer owned renewable facilities. In order to increase the opportunity for these purchases, suppliers may provide incentives to customers who install solar panels on their roofs. These incentives may come in the form of rebates paid to customers for part of the cost of installation. The supplier will then spread the cost of these rebates to its other customers through increases in their electric rates. The state may also include tax credits or direct rebates to customers installing renewables as part its RPS program.

Supplier Owned Renewable Energy

The suppliers may also meet all or part of the requirements by installing their own renewable generation. Alternatively, they may purchase the output from a commercial renewable generation facility located close to their service territory. 

Renewable Energy Credits

Suppliers may also meet their obligation by purchasing Renewable Energy Credits (REC). In states or regions where there is a market for Renewable Energy, qualified renewable generators create one REC for each kWh that they produce. Those RECs have a market value and can be sold independently of the associated kWh.

Electricity sellers that are obligated to meet RPS requirements can purchase the RECs from renewable generators even if they are not located close to the seller’s service territory. From an engineering perspective, there is no way to know whether the kWh produced by the remote renewable generator will actually be delivered to the electricity seller or by the electricity seller to its end-use customers. However, sellers who purchase RECs are deemed to have purchased, and incorporated in their portfolio, the associated renewable energy. 

Success of the RPS Programs

Lawrence Livermore National Laboratory prepares an Annual Status Report summarizing that status of the state RPS programs. The 2018 Annual Report includes the following conclusions:

  • States have generally been meeting their RPS requirement targets.
  • The cost of RPS compliance has been about $4.1 billion – or about 2% of average retail electric bills in RPS states.
  • Roughly half of all growth in non-hydro Renewable Energy since 2000 (from >1% of total electric sales to 11% of total electric sales) is attributable to compliance with state RPS programs.
  • To meet state RPS requirements Renewable Energy will have to grow to about 15% of total electric sales by 2030.
  • Renewable Energy is expected to will grow to about 19% of total electric sales by 2030 through a combination of compliance with RPS requirements and additional Renewable Energy installed in response to market conditions.

The RPS programs appear to be doing what they were intended to do. They are increasing the use of Renewable Energy in the United States.  But these programs will only do so much.  

Without additional state programs or modification to existing programs they will only increase Renewable Energy’s share of total sales to less than 20% of all electricity sold. However, the increased use of Renewable Energy in response to the RPS programs has caused the cost of Renewables to go down. Thus, more Renewables will be installed in the future simply because they are an economic alternative to other forms of generation.   

Author

I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describes a different aspect of the past, present or future of the electric industry. 

Leave a Reply