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, which have been adopted in 38 of 50 U.S. states and the District of Columbia. The United States federal RPS is called the Renewable Electricity Standard (RES). Several states have clean energy standards, which also allow for resources that do not produce emissions, such as large hydropower and nuclear power.
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.awea.org >> Policy
Program diversity 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). 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. 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 an RPS program.
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.
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.
Renewable energy certificates (RECs) 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.
Multipliers RPS multipliers adjust the amount of renewable energy credits (RECs) awarded (up or down) for each MWh of electricity produced based on its source. Since the definition of what is considered "renewable energy" varies, 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 design and implementation. 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.
Solar renewable energy certificates (SRECs) Over 16 of the approximately 30 states with RPS programs have also established a set-aside for solar energy. This results in the creation and trading of RECs specific to solar known as solar renewable energy certificates (SRECs). 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.
Tiers and set-asides Energy supply companies need to show that they have acquired a particular percentage of their power sales from the designated technology type. 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.
Eligible technologies Every state defines renewable technologies differently. Many states exclude existing renewable facilities from benefiting from an RPS program. 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.
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.
Penalties 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.
Cost caps 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. However, likely costs can be estimated, and some states appear to have set cost caps low enough that complete RPS requirements could not be fulfilled without a significant decrease in renewables costs.Johnson, S.D. and E.J. Moyer (2012). "Feasibility of Renewable Portfolio Standards Under Cost Caps and Case Study for Illinois". Energy Policy 49, p. 499-514, 2012.
Cost recovery 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.
Policy by jurisdiction Federal Public Utility Regulatory Policies Act is a law passed in 1978 by the United States Congress as part of the National Energy Act that is meant to promote greater use of renewable energy.
In 2009, the US Congress considered Federal level RPS requirements. The American Clean Energy and Security 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. However, the proposed Support Renewable Energy Act died in the 111th Congress.
In 2007, the Edison Electric Institute, a trade association for America's investor-owned utilities, reiterated their continuing opposition to a nationwide RPS; among the reasons included were that it conflicts with and preempts existing RES programs passed in many states, it does not adequately consider the uneven distribution of renewable resources across the country, and it creates inequities among utility customers, by specifically exempting all rural electric cooperatives, and government-owned utilities from the RES mandate.Oppose the Revised Udall 15% RPS Amendment , August 2, 2007
The American Legislative Exchange Council (ALEC) drafted the model bill Electricity Freedom Act, which ALEC affiliate representatives are attempted to roll out in various states and which "would end requirements for states to derive a specific percentage of their electricity needs from renewable energy sources." As a result, of being unable to stop the approval of this model legislation, the American Wind Energy Association and the Solar Energy Industry Association allowed their ALEC membership lapse after one year as members.
Different state RPS programs issue a different number of Renewable Energy Credits depending on the generation technology; for example, solar generation counts for twice as much as other renewable sources in Michigan and Virginia.Challenges of Playing Favorites: State & Federal RPS Programs
State General citation: States with active RPSes that have not yet been met are in bold.