A Renewable Portfolio Standard (RPS) is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. Other common names for the same concept include Renewable Electricity Standard (RES) at the United States federal level and Renewables Obligation in the UK.
The RPS mechanism generally places an obligation on electricity supply companies to produce a specified fraction of their electricity from renewable energy sources. Certified renewable energy generators earn certificates for every unit of electricity they produce and can sell these along with their electricity to supply companies. Supply companies then pass the certificates to some form of regulatory body to demonstrate their compliance with their regulatory obligations. Because it is a market mandate, the RPS relies almost entirely on the private market for its implementation. Unlike feed-in tariffs which guarantee purchase of all renewable energy regardless of cost, RPS programs tend to allow more price competition between different types of renewable energy, but can be limited in competition through eligibility and multipliers for RPS programs. Those supporting the adoption of RPS mechanisms claim that market implementation will result in competition, efficiency and innovation that will deliver renewable energy at the lowest possible cost, allowing renewable energy to compete with cheaper fossil fuel energy sources.[1]
RPS-type mechanisms have been adopted in several countries, including Britain, Italy, Poland, Sweden, Belgium,[2] and Chile, as well as in 30 of 50 U.S. states, including the District of Columbia.[3] Regulations vary from state to state, and there is no federal policy. Together these thirty states account for more than 42 percent of the electricity sales in the United States.[4]
RPS mechanisms have tended to be most successful in stimulating new renewable energy capacity in the United States where they have been used in combination with federal Production Tax Credits (PTC). In periods, where PTC have been withdrawn the RPS alone has often proven to be insufficient stimulus to incentivise large volumes of capacity.[5]
The Edison Electric Institute, a trade association for America’s investor-owned utilities, has taken a stand against a nationwide RPS, saying it would “raise consumers’ electricity prices and create inequities among states.”[6]
In 2009, the US Congress has been considering Federal level RPS requirements. The "American Clean Energy Leadership Act" reported out of committee in July by the Senate Committee on Energy & Natural Resources includes a Renewable Electricity Standard that calls for 3% of U.S. electrical generation to come from non-hydro renewables by 2011–2013.[7]
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Public Utility Regulatory Policies Act is a law, passed in 1978 by the United States Congress as part of the National Energy Act. It is meant to promote greater use of renewable energy. The Support Renewable Energy Act of 2010 (Bill S.3021/111th Congress) amends the Public Utility Regulatory Policies Act of 1978 to authorize the Secretary of Energy to promulgate regulations to allow electric utilities to use renewable energy to comply with any Federal renewable-electricity standard.[8]
Of all the state-based RPS programs in place today, no two are the same. Each has been designed taking into account state-specific policy objectives (e.g. economic growth, diversity of energy supply, environmental concerns), local resource endowment, political considerations, and the capacity to expand renewable energy production. At the most basic level, this gives rise to differing RPS targets and years (e.g. Arizona's 15% by 2025 and Colorado's 30% by 2020 [9]). Looking at these two values alone can however be misleading. Other factors in program design include resource eligibility, in-state requirements, new build requirements, technology favoritism, lobbying by industry associations and non-profits, groups cost caps, program coverage (IOUs versus Cooperatives and Municipal utilities), cost recovery by utilities, penalties for non-compliance, rules regarding REC creation and trading, and additional non-binding goals. Since RPS programs create a mandate to purchase renewable energy, they create a lucrative captive market of buyers for renewable energy producers who are eligible in a particular state's RPS program to issue RECs. Because of the wide variety and localized regulation of US RPS programs, they are vulnerable to regulatory capture. A state may choose to promote new investment in renewable energy generation capacity by not making eligible existing renewable energy such as hydroelectric plants or geothermal energy to qualify under a RPS program.[3]
Many states that have mandatory Renewable Portfolio Standards also have additional voluntary targets either for the total proportion of renewable energy or for a particular technology type.[10]
Program coverage refers to those entities that are expected or obliged to meet the renewable portfolio targets and goals. In many states, municipalities and cooperatives are exempt from the RPS target, have a lower target, or are required to develop their own targets. Furthermore, in some states such as Minnesota, individual utilities (e.g., Xcel Energy) are singled out for special treatment.[10]
Most states with RPS programs have associated renewable energy certificate trading programs. RECs provide a mechanism by which to track the amount of renewable power being sold and to financially reward eligible power producers. For each unit of power that an eligible producer generates, a certificate or credit is issued. These can then be sold either in conjunction with the underlying power or separately to energy supply companies. A market exists for RECs because energy supply companies are required to redeem certificates equal to their obligation under the RPS program. State specific programs or various applications (e.g., WREGIS, M-RETS, NEPOOL GIS) are used to track REC issuance and ownership. These credits can in some programs be 'banked' (for use in future years) or borrowed (to meet current year commitments). There is a great deal of variety among the states in the handling and functioning of RECs and this will be a major issue in integrating state and federal programs.[10]
Over 16 of the approximately 30 states with RPS programs have also established a set-aside for solar energy.[11] This results in the creation and trading of RECs specific to solar known as Solar Renewable Energy Certificates (SRECs). The solar set-aside establishes a separate market for SRECs that encourages the inclusion of solar technology in the renewable energy mix. This differs from the REC multiplier approach used by some states in which a REC from solar might count 2-3 times as much as any other REC. Multipliers have had limited impact in promoting solar technology since most REC buyers will find it easier to source 2-3 times their REC needs from the economics and scale that come with wind farms. With a separate market for SRECs, states are able to ensure that a portion of their renewable energy comes from solar. As a result, states with solar carve-outs, such as New Jersey, have had more success in promoting solar energy through the RPS than states, such as Texas, with a generic REC market or REC multiplier.
For states with REC trading programs, a Renewable Energy Certificate is issued to eligible producers for each MWh of renewable energy production. Some state programs, in order to promote specific renewable technology types, apply a credit multiplier by which a MWh of electricity produced by a particular technology receives more than one REC. For example, a wind multiplier of 3 means that one MWh of electricity produced with wind technology provides the producer of that electricity with 3 certificates. RPS multipliers are powerful tools for regulators to direct revenue, investment, and job creation to particular types of renewable energy vs a free market of renewable energy. Since the definition of what is renewable energy isn't clear cut, for example, nuclear power, and whether an RPS program should consider environmental damage of a renewable energy source (for example, hydroelectric dams, bird strikes of wind turbines, geothermal earthquakes, solar thermal water use) affects RPS program implementations. A state can use a multiplier as protectionism to local renewable energy generators from out of state renewable generators. Since RECs are regulated at a state level, their ability to be traded over state lines varies.[10]
Many state programs promote particular technology types by establishing sub-targets known as carve outs or set-asides. In addition to meeting the overall RPS targets, energy supply companies need to show that they have acquired a particular percentage of their power sales from the designated technology type. In some instances, multiple technology types are bundled together in 'tiers' or 'classes' with similar effect. Not all states have set-asides or tiers (some preferring to promote particular technologies through credit multipliers) and each state that groups technologies together in a tier does so differently.[10]
Every state defines 'renewable' technologies differently. Ohio, for example, is the only state that counts advanced nuclear power generation as an eligible technology. States often start with an assessment whether the renewable technology is economically feasible in the absence of an RPS program. This is best personified by distinguishing between small and large hydroelectric facilities. Many states exclude existing renewable facilities from benefiting from an RPS program for the same reason. A state's definition of eligible technologies is also driven by the objectives of the program. Programs designed to promote diversity in generation types may include or promote technologies different from programs designed to achieve environmental goals.[10]
In a 2011 report published by the Union of Concerned Scientists, Doug Koplow said:
Nuclear power should not be eligible for inclusion in a renewable portfolio standard. Nuclear power is an established, mature technology with a long history of government support. Furthermore, nuclear plants are unique in their potential to cause catastrophic damage (due to accidents, sabotage, or terrorism); to produce very long-lived radioactive wastes; and to exacerbate nuclear proliferation.[12]
In order to motivate compliance, states that have enforceable standards will have penalties for utilities that fail to reach the specified targets. States may choose to set penalty values or make arbitrary penalty amounts when suppliers fail to meet a renewable target. Where specific technologies are promoted through either tiers or set-aside provisions, the penalties for missing these targets are typically separate and higher. Some states have higher penalties for repeat violations and others escalate penalties on a yearly basis according to price indices.[10]
All states either place caps on the cost of the program or include some form of 'escape clause' whereby the regulatory authority can suspend the program or exempt utilities from meeting its requirements. The need for such measures arises from the difficulties in estimating in advance the actual cost of the RPS program. The realized cost to the utility and the ratepayer is not known until the supply and cost base of renewable power, along with actual demand, is established.[10]
With few exceptions, utilities are allowed to recover the additional cost of procuring renewable power. The method by which this can be achieved varies by state. Some states opt for a ratepayer surcharge while others require utilities to include costs in rate base. In some instances, utilities are even able to recover the cost of penalties associated with non-compliance.[10]
China adopted a renewable energy target in 2006 and modified it in 2009 to the following targets:[13]
The European Union passed the Directive on Electricity Production from Renewable Energy Sources in 2001 and expanded it in 2007 to the following EU-wide targets (although member states are free to pass more aggressive targets):[14][15]
The German Renewable Energy Act, since its adoption in 2000, is producing strong growth in renewable power capacity by encouraging private investors through guaranteed Feed-in tariffs. Germany adopted targets more aggressive than EU mandated targets on September 2010:[16]
Reviewing state-by-state RPS programs, it is clear that the norm is to differentiate support by technology type. The varying degree and method by which state programs do this means that any move toward harmonizing existing RPS programs will be a difficult one. Support for particular renewable technologies, either through credit multipliers or technology set-asides, poses challenges. The issue lies with how RECs are used to meet both state and federal standards. A technology-neutral federal standard would either have to accept RECs that have been generated on an multiplied basis (e.g. 2:1 for solar in MI or VA) or require that the REC origin is labeled and valued according, thereby reducing the fungibility of the REC itself. Another (opposite) problem arises with states’ use of technology set-asides. Here a technology specific REC used to meet a set-aside requirement (e.g. a New Jersey S-REC) has a higher value in that state’s program but would be treated equally in a federal program. While acceptable at the federal level, the market for S-RECs would be driven by New Jersey’s demand and supply further reducing the pool of homogeneous tradable federal certificates.[17]
| State | Amount | Year | Notes |
|---|---|---|---|
| Arizona | 15% | 2025 | Of this percentage, 30% (i.e. 4.5% of total retail sales in 2025) must come from distributed renewable (DR) resources by 2012 and thereafter. One-half of the distributed renewable energy requirement must come from residential applications and the remaining one-half from nonresidential, non-utility applications. |
| California | 20% (33%) | 2010 (2020) | |
| Colorado | 30% | 2020 | Electric cooperatives: 10% by 2020
Municipal utilities serving more than 40,000 customers: 10% by 2020 |
| Connecticut | 27% | 2020 | |
| District of Columbia | 20.4% | 2020 | RECs retain a three-year trading lifetime from their generation date before they must be retired.[18] |
| Delaware | 25% | 2025 | Suppliers will receive 300% credit toward RPS compliance for in-state customer-sited photovoltaic generation and fuel cells using renewable fuels that are installed on or before December 31, 2014.[19] |
| Hawaii | 40% | 2030 | HB 1464, signed by the governor in June 2009, increased the amount of renewable electrical energy generation required by utilities to 40% by 2030.[3] |
| Iowa | 105 MW | 1999 [10] | |
| Illinois | 25% | 2025 | |
| Kansas | 20% | 2020 | 10% by 2010, 15% by 2019 |
| Massachusetts | 15% | 2020 | Rises by 1% per year until revised by the legislature.[10] |
| Maryland | 20% | 2022 [20] | |
| Maine | 10% (new renewable resources; existing RPS is 30% and has been since 2000) | 2017 (increasing 1% every year for 10 years, until reaching 10% by 2017) | |
| Michigan | 10% | 2015 | Detroit Edison: 300 MW of new renewables by 2013 and 600 MW by 2015
Consumers Energy: 200 MW of new renewables by 2013 and 500 MW by 2015 [21] |
| Minnesota | 25% | 2025 | Xcel Energy has its own individual standard: 30% by 31 December 2020.[10] |
| Missouri | 15% | 2020 | In Nov. 2008 Missouri passed Proposition C, requiring the state's 3 largest utilities to generate or
purchase at least 15% of their energy from renewable sources by 2021.[10] |
| Montana | 15% | 2015 | For compliance year 2011 through compliance year 2014, public utilities (not applicable to competitive suppliers) must purchase both the renewable-energy credits (RECs) and the electricity output from community renewable-energy projects totaling at least 50 MW in nameplate capacity.[22] |
| New Hampshire | 23.8% | 2025 | |
| New Jersey | 22.5% | 2021 | Alternate Compliance Credits (ACP) and Solar ACPs (SACP) can be purchased by
retailers and used as RECs and Solar RECs. Starting on June 1, 2008, SACPs will be set according to the following schedule ($/MWh) decreasing by 3% per year until 2016: June 1, 2008 - May 31, 2009, $711; June 1, 2009 - May 31, 2010, $693; June 1, 2010 - May 31, 2011, $675; June 1, 2011 - May 31, 2012, $658; June 1, 2012 - May 31, 2013, $641; June 1, 2013 - May 31, 2014, $625; June 1, 2014 - May 31, 2015, $609; June 1, 2015 - May 31, 2016, $594. After May 31, 2016, the BPU will review the SACP annually in consultation with an advisory committee. .[10] |
| New Mexico | 20% | 2020 | Rural electric cooperatives: 10% by 2020[22] |
| Nevada | 25% | 2025 | 5% solar |
| New York | 30% | 2015 | |
| North Carolina | 12.5% | 2021 | |
| Ohio | 12.5% | 2025 | Additional 12.5% from alternative sources |
| Oklahoma | 15% | 2015 | Signed May 27, 2010[23] |
| Oregon | 25% | 2025 | |
| Pennsylvania | 18% | 2020 | 0.5% solar |
| Rhode Island | 15% | 2020 | |
| South Dakota | 10% | 2015 | Compliance is not mandatory |
| Texas | 5,880 MW | 2015 | |
| Utah | 20% | 2025 | Voluntary |
| Vermont | 10% | 2013 | Voluntary |
| Virginia | 12% | 2022 | Voluntary |
| Washington | 15% | 2020 | |
| West Virginia | 25% | 2025 | WV's standard is an alternative energy standard, which permits fulfillment through nonrenewable sources |
| Wisconsin | 10% | 2015 |
The California Renewables Portfolio Standard was created in 2002 under Senate Bill 1078 and further accelerated in 2006 under Senate Bill 107. The bills stipulate that California electricity corporations must expand their renewable portfolio by 1% each year until reaching 20% in 2010. On November 17, 2008, Governor Arnold Schwarzenegger signed executive order S-14-08 which mandated a RPS of 33% by 2020 which sits in addition to the 20% by 2010 order.[24]
The Colorado Renewable Portfolio Standard was updated from 20% to 30% in the 2010 Legislative Session as House Bill 1001. This increase is anticipated to increase solar industry jobs from current (2009) estimated 2,500 to 33,500 by 2020. The updated RPS is also anticipated to create an additional $4.3B (U.S.) in state revenue within the industries.[25]
In 1997 Nevada passed a Renewable Portfolio Standard as part of their 1997 Electric Restructuring Legislation (AB 366) It required any electric providers in the state to acquire actual renewable electric generation or purchase renewable energy credits so that each utility had 1 percent of total consumption in renewables. However, on June 8, 2001, Nevada Governor Kenny Guinn signed SB 372, at the time the country's most aggressive renewable portfolio standard. The law requires that 15 percent of all electricity generated in Nevada be derived from new renewables by the year 2013.[26]
The Nevada RPS includes double goal. The 2001 revision requires that at least 5 percent of the renewable energy projects must generate electricity from solar energy.[26]
In June 2005, the Nevada legislature passed a bill during a special legislative session that modified the Nevada RPS (Assembly Bill 03). The bill extends the deadline and raised the requirements of the RPS to 20 percent of sales by 2015.[26]
Florida
On Friday January 9, 2009 the Florida Public Service Commission unanimously agreed to require the state's utilities to generate 20 percent of their power from renewable resources by 2020.
This is still not law until the legislature approves. This will drastically change the landscape for renewable energy applications for a state that gets less than 3 percent of its power from renewable energy. The proposal calls for 7 percent renewable energy by January 2013, 12 percent by 2016, 18 percent by 2019 and 20 percent by end of 2020.
In an April 2008 unanimous vote, the Ohio legislature passed a bill requiring 25 percent of Ohio's energy to be generated from alternative and renewable sources, of which half or 12.5 percent must derive from renewable sources.[27]
Pennsylvania requires that 18 percent of all energy generated in the state come from alternative and renewable sources by 2021, including 0.5 percent from solar.[28]
The Texas Renewable Portfolio Standard was originally created by Senate Bill 7 in 1999. The Texas RPS mandated that utility companies jointly create 2000 new MWs of renewables by 2009 based on their market share. In 2005, Senate Bill 20, increased the state’s RPS requirement to 5,880 MW by 2015, of which, 500 MW must come from non-wind resources. The bill set a goal of 10,000 MW of renewable energy capacity for 2025.[29]
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