States Promote Clean Energy Programs

While the proposed federal renewable portfolio standards (RPS) continue to be caught in Washington gridlock, a number of states are aggressively enacting programs that promote renewable energy, such as wind and solar power.

States Move Ahead with Renewables Initiatives

Lori Bird, senior analyst at the National Renewable Energy Laboratory, told POWER in March that RPS policies currently exist in 29 states and the District of Columbia, and seven more states have nonbinding clean energy goals. In February, Bird presented a webinar titled “State Renewables Policies—Lessons Learned After a Decade of Success.”

An RPS is a requirement that retail electric providers supply a minimum percentage or amount of their retail load with eligible sources of renewable energy, Bird explained. Typically, an RPS is backed with penalties of some form and is often accompanied by a tradable renewable energy certificates (REC) program to facilitate compliance. Most policies have been established through state legislation, but some initially were implemented through regulatory actions (New York and Arizona) or ballot initiatives (Colorado, Missouri, and Washington). Currently, California represents the largest RPS market since it increased its RPS goal to 33% by 2020. (However, Maine’s RPS percentage goal is higher, sooner, at 40% by 2017, and Alaska’s nonbinding goal is the highest: 50% by 2025.)

In contrast, at the federal level there is a strong possibility that Congress will allow the federal Production Tax Credit (PTC) to expire at the end of the year, which is causing anxiety among renewable energy proponents, such as the American Wind Energy Association. Under current law, the PTC is an income tax credit of 2.2 cents/kWh that is allowed for the production of electricity from utility-scale renewable energy facilities. Many PTC opponents argue that the federal government should not subsidize renewables, but rather force them to compete on their own merits in the private sector.

Setting up State Clean Energy Programs

Some states have more than a decade of implementation experience with RPS policies, while others are just beginning implementation. Bird pointed out that “even though the enactment of new RPS policies is now waning somewhat, many states continue to hone existing RPS policies.”

In their presentation at the 2011 National Summit on RPS titled “The State of the States: Update on the Implementation of U.S. Renewables Portfolio Standards,” Ryan Wiser and Galen Barbose of the Lawrence Berkeley National Laboratory explained how state RPS policies often have significant design differences. Examples include, but are not limited to: renewable purchase targets and timeframes, the eligibility of different renewable technologies, the treatment of out-of-state generators, methods of enforcing compliance, contracting requirements and the degree of regulatory oversight, the allowance for RECs and REC definitions, and the role of state funding mechanisms.

State RPS policies are being designed to support resource diversity and often use specific mechanisms to help achieve that goal. For example, some RPS standards use set-asides, which are requirements that some portion of the RPS come from certain technologies, technology types, or applications. Another tool is the use of credit multipliers that mean selected technologies or applications can qualify for more credit than other forms of generation as far as meeting the RPS. In addition, some RPS policies use resource-specific contracting targets, which are requirements that regulated utilities enter into long-term contracts for minimum quantities of specific renewable resource types. Currently, 16 states and D.C. have solar or distributed generation set-asides, which in some instances are combined with credit multipliers.

Not surprisingly, many state RPS programs face a variety of implementation challenges. These include obstacles such as rate impacts and cost concerns; transmission access for remote renewable facilities; problems related to siting projects; procurement and viability issues; project financing that involves the need for long-term contracts, particularly in restructured markets; and REC price volatility.

Positive Developments

State RPS programs appear to be motivating substantial renewable capacity development. Though not an ideal metric for RPS’s impact, 61% of the 44 GW of non-hydro renewable additions from 1998 to 2010 (27 GW) have occurred in states with active or impending RPS compliance obligations, according to Wiser and Barbose.

Despite the slow U.S. economy and other obstacles, the states—and not the federal government—are becoming leading catalysts in promoting the development and deployment of renewable energy technologies. “Total state RPS demand in the U.S. is set to increase from approximately 55,000 GWh in 2010 to more than 250,000 GWh in 2020,” Bird said.

The National Governors Association recently released a report titled “Clean State Energy Actions: 2011 Update” showing that in 2011, 28 states developed policies and made investments to advance green economic development, including clean electricity. For example, Michigan and local governments in that state offer tax credits, property tax exemptions, and payroll credits to businesses that participate in NextEnergy, a comprehensive economic-development plan to position Michigan as a world leader in the research, development, commercialization, and manufacture of alternative-energy technologies, including renewables. Likewise, since 2010, Arizona has budgeted $70 million per year for tax incentives to attract renewable energy companies to Arizona.

State officials are becoming increasingly focused on the intersection of policy, energy technology, and business economics. Many of these officials are motivated because they see the attractive economic and environmental benefits that new clean energy projects are bringing to their states, often as part of state economic recovery strategies.

Angela Neville, JD, is POWER’s senior editor.