Like Federal Renewable Energy Policy, State Policy Is Important and Uncertain

Clean energy advocates have praised the decision in the fiscal cliff legislation to extend important federal energy tax provisions, such as the production tax credit for wind. They have pointed to the hundreds of megawatts of additional renewable energy generation that will be developed because of Congress’s decisions. But the federal policies would not have nearly as large an effect without the existence of complementary state-level policies.

Especially important are the state renewable portfolio standards (RPSs), which require electricity suppliers to secure a certain percentage of the electricity they sell from designated clean energy sources. Despite RPSs’ undeniable success in helping to stimulate clean energy generation, those policies are now entering a period of uncertainty.

RPSs have been established in 29 states plus the District of Columbia. They apply to 54 percent of all US electricity sales. According to analysis by Lawrence Berkeley National Lab (LBNL), if the state RPS targets and timetables achieve full compliance, 93 gigawatts of new renewable energy will be developed by 2035, representing nearly one-third of all projected US load growth between 2000 and 2035.

There are reasons to be both optimistic and pessimistic about the ability of state RPSs to lead to this large amount of new renewable generation. On the positive side:

1. The pace of required development should be manageable. As LBNL points out, achieving the 93 gigawatts of new capacity required by the RPSs translates into less annual renewables development than occurred nationwide between 2008 and 2011. That amount of development was neither daunting nor disruptive.
2. The costs have so far been modest. RPSs have generally achieved their short-term targets relatively easily at a small cost to electricity ratepayers. In all but one state, the electricity rate impact has been less than 2 percent and some states have even experienced net economic benefits and reduced rates from having an RPS.
3. State support for renewable energy has broad support. Most members of the public, as well as a large share of the politicians from both parties, have shown that they like the concept of renewable energy and are willing to support it.
4. A few states are reaching their RPS limits. In a few cases, including California with its ambitious 33 percent renewables goal, the state RPS is in close reach of its final goal. There may be the political will and the technical ability to increase the state goal in future years, thereby compensating for the fact that a few other states may have difficulty reaching their goals.
5. RPSs are encouraging technological innovation. RPS laws, often without a lot fanfare, are helping to drive technology innovation in emerging technologies, such as offshore wind and fuel cells, that could provide more electricity generation in the future.

On the other hand, there are at least four reasons why state RPSs could run into difficulty in the coming years:

1. Federal policy could become less supportive. Just as state policies complement federal policies and allow them to succeed, the converse is also true. State and federal policy are each more effective when they work in combination and reinforce each other. Without some continued federal encouragement of clean energy development, such as a continued production tax credit for wind after 2013 and investment tax credits for solar after 2016, it would become more difficult and more costly for state RPSs to achieve their goals.
2. Low natural gas prices could undercut renewables. Because of current very low natural gas prices, new generating facilities powered by natural gas have a competitive advantage over other forms of new power generation, including renewables. Although natural gas is projected by the markets to rise in price, albeit slowly, in the coming years, it is possible that prices will remain at their current low levels.
3. Future years’ higher RPS targets could be more challenging to achieve. RPSs are generally designed to ramp up slowly over time under the assumption that renewable energy development should be gradual but continual. Having a higher annual target makes total spending on an RPS increase, because ratepayers at any given time have to pay for all the cumulative renewable generation that has come online from the RPS, not just for the current year’s increment. In many states, electricity rates would not go up significantly, because there are RPS rate caps or cost caps in place.
4. Political attacks could increase. In the past two years, legislators in about 10 states filed legislation to eliminate or reduce their state’s RPS. None of these efforts was successful, demonstrating the continued strong political support for renewables, but it is possible that the RPS roll-back efforts will intensify. The American Legislative Exchange Council (ALEC), an association for conservative state lawmakers, has adopted model RPS repeal legislation and is encouraging its members to introduce it in state legislatures. Because the proponents of ALEC’s anti-RPS initiative include deep-pocketed fossil fuel interests and individuals with philosophical opposition to government support for clean energy no matter how small the cost, they are not likely to be dissuaded from proceeding simply by learning about the small rate impacts of most states’ RPS policies.

For all these reasons, people interested in clean energy should closely monitor the RPS policy arena in the coming years. Although it is impossible to predict where things will end up, there are two factors that tilt the balance towards the more optimistic view: (1) with all the recent investment in renewable energy and development of markets for renewables, prices should continue to decline, and (2) there is little reason to believe that the public will turn its back on renewable energy, especially because concern about climate change is only likely to increase over time.

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For more information about renewable portfolio standards, including reports, webinars, and free monthly newsletters, visit the State-Federal RPS Collaborative webpage. The RPS Collaborative is a project of the Clean Energy States Alliance (CESA).