Proposed Federal RPS Needs Rewrite

Senator Jeff Bingaman (D-N.M.), chairman of the Senate Committee on Energy & Natural Resources, has promised to complete legislation on a national renewable portfolio standard (RPS), perhaps by late spring. It would require, according to the February 4 conference draft, that 16% of the nation’s electricity come from wind, solar, and other renewable energy sources by 2020.

The national RPS would only apply to utilities that sold more than 4 million MWh of electricity during the prior year. According to the Energy Information Administration (EIA) Form 861 database (2007), 127 of the nation’s 3,272 suppliers would be affected by the regulation.

A 16% national RPS would require almost a 500% increase in renewable generation in the next decade, or about 32,000 MW. EIA data show that the U.S. had about 8% renewables online at the end of 2007. What’s worse is that very few existing projects would count toward the requirements of this proposed legislation.

Punishing the Leaders

A very surprising focal point of the discussion draft is that any renewable project that entered service prior to January 1, 2006, would not be counted against meeting the 2020 goal. Such a stipulation would punish the early movers on renewables, which seems an odd way to win states’ support for a federal standard.

An obvious loser would be California. Last November, Governor Arnold Schwarzenegger’s Executive Order S-14-08 ramped up the Golden State’s RPS standard from 20% by 2010 to 33% by 2020 — an unachievable goal if ever there was one. The state’s three largest investor-owned utilities were hovering around 13% renewables at the end of 2008, which put them far from reaching even the 20% by 2010 goal. Transmission project delays, a permitting quagmire, developer contract default, and difficulty in obtaining project financing are the most common reasons cited for slow progress. Yet, for all its efforts, California could find itself even further behind should a federal standard be enacted that disregards pre-2006 renewable generation.

My intent isn’t to disparage California’s RPS but rather to note that California’s RPS solutions are home-grown — designed to meet that state’s distinctive needs and available resources — and have been developed without help from the federal government. Will a one-size-fits-all RPS work in the other 48 states (Hawaii is exempt)? Apparently, Bingaman believes common rules for all states are possible. I don’t.

Out-of-Tune Requirement

Here are five more reasons why Bingaman’s draft RPS proposal should not make it out of committee.

All Programs Aren’t Created Equal. The proposed national RPS ignores the states’ hard-won experience managing RPS programs and gives Washington bureaucrats little latitude in dealing with state-specific concerns, such as the treatment of out-of-state generation, utility cost recovery mechanisms, and compliance/enforcement. Though the draft says that "DOE shall consult with states having RPS programs and facilitate coordination between federal and state programs to the maximum extent practicable," this arrangement puts the feds in the driver’s seat and provides no assurance that federal legislation would avoid working at cross-purposes with state programs.

All States Aren’t Created Equal. Several states have insufficient renewable resources at their disposal and, under this legislation, they would be forced to comply with the mandate by purchasing renewable energy certificates (RECs). Because the target is set so high, it’s easy to predict that few, if any, RECs will be available for sale. Without active exchange of RECs on an open market, this legislation would punish some regions of the U.S. and reward others.

The Plan Doesn’t Account for T&D. The transmission and distribution (T&D) infrastructure capable of handling such large increases of renewable power doesn’t exist today, and I doubt it will be in place by 2020. Federal control of T&D planning and project approvals, as is now under consideration in Congress, will pit Washington against states and municipalities. I predict local sovereignty will ultimately prevail (see p. 20).

The Feds Won’t Share Control. The Environmental Protection Agency trusts qualified state agencies to manage their air pollution control program with one contingency: State rules must be at least as stringent as the federal rules. Any rational national RPS legislation should give that same flexibility to individual states, but Bingaman’s proposal lacks that element; it relies solely on federal command and control.

Investment Dollars Are Scarce. The majority of U.S. renewables projects are either owned and operated by merchant suppliers or are privately developed and then sold to a utility. Both paths require a developer to take significant financial risk, yet very few investors remain active with our financial markets in turmoil. Who will now assume the developers’ risk?

Write a More Harmonious Song

In its current form, this is an ill-conceived national RPS program that would order all states to march in lock step to Washington’s political beat. Senator, if you compose your next legislative draft with an ear to these concerns, you may have many states singing in concert for a national RPS. If not, you’ll be singing alone.

–Dr. Robert Peltier, PE, Editor-in-Chief