Renewable Portfolio Standards
Review of Renewable Energy Sources
• Renewable energy sources, which regenerate and can be
sustained indefinitely, include:
• Hydropower
• Wind
• Geothermal
• Solar:
• Solar thermal heating for structural and water
• Solar thermal-electric power plants
• Photovoltaic Systems
• Biomass:
• Biomass waste (solid waste)
• Landfill gas and biogas
• Bio fuels (ethanol and biodiesel)
• Wood and wood waste
Use and Market Share of Renewables
• Electric Power: 53%
• Over half of renewable energy is used
producing electricity. (12% of Sector)
• Industrial: 28%
• Biomass (wood and waste) is used for
industrial production of heat and steam is
the second largest use of renewable
energy. (11% of Sector)
• Residential and Commercial: 8%
• Biomass is also used for space heating,
mostly in homes. (6% of Sector)
• Transportation: 14%
• Biofuels (ethanol and biodiesel), a subset
of biomass, are used by transportation the
transportation sector. (4% of Sector)
U.S. Consumption of Renewable Energy
In 2012, Renewables generated
around 9% of the energy consumed.
About 12% of U.S. electricity was
generated from renewable sources.
Benefits of Using Renewable Sources of
Electricity
• Renewables are a potentially
inexhaustible supply of clean
energy
• One 2012 study found that renewable
energy sources in the U.S. have the
potential to supply 482.25 trillion
KWH of electricity annually.
• (equivalent to 118 times the amount of
electricity the U.S. currently consumes).
• Renewable energy sources are job
creators:
• The renewable energy industry is
more labor-intensive than fossil fuel
technologies, which are typically
mechanized and capital intensive.
• This means that, on average,
more jobs are created for each
unit of electricity generated from
renewable sources than from
fossil fuels.
• Using renewable sources of
electricity is good for the
environment
• Non-biomass renewable sources of
energy (hydropower, geothermal,
wind, and solar) do not directly emit
greenhouse gases.
• When renewable energy sources are
used, the demand for fossil fuels is
reduced.
Why aren’t Renewables More Widely
Used as a Source of Electricity?
• Renewable Energy Technology is Expensive:
• Renewable energy power plants can be more expensive to build
and to operate than natural gas or even coal plants (in terms of
dollars per unit of electricity output).
• Renewable Resources are Often Geographically Remote:
• Renewable resources are often located only in remote areas, and
building transmission lines to deliver power to large metropolitan
areas is expensive.
• Renewable Resources are Not Always Available:
• The use of renewable sources is limited by the renewable’s
availability — cloudy days reduce solar power; calm days reduce
wind power; and droughts reduce the water available for
hydropower.
• Seasonal or daily patterns, or any other change in the availability of a
renewable resource results in a wide fluctuation of generation capacity.
Three Ways States are Encouraging Growth in
Renewable Energy
1. Feed-in-Tariffs
2. Tax Incentives (corporate, personal, and property)
3. Renewable Portfolio Standards
What are Renewables Portfolio
Standards?
• Renewable Portfolio Standards (RPS) are state policies
designed to promote generation of electricity from
renewable sources by requiring suppliers to generate or
acquire a certain portion of their power supplies from
renewables.
• Also known as “Renewable Electricity Standards” (RES)
What are the Goals of Renewable
Portfolio Standards?
• The Goals State RPS programs are to:
(1) stimulate market demand for renewable and clean energy, and
(2) increase the economic competiveness of renewable energy by
encouraging the development of new technology.
How does an RPS achieve these Goals?
Suppliers can comply with an RPS in one of three ways:
1.
Owning a renewable energy facility and its output generation.
2.
Purchasing electricity from a renewable facility inclusive of all
renewable attributes. (“bundled renewable electricity”)
3.
Purchasing Renewable Energy Certificates (RECs)
These mechanisms create demand for renewable energy.
States Implement RPSs in Different Ways
• No two RPS is alike, every state is different.
• This is because states tailor their RPS programs to according to their specific
policy objectives, electricity market needs, and renewable resource potential.
• Most RPS programs are designed to favor in-state production of electricity.
• Generally, an RPS sets a deadline and designates a minimum share
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of electricity supplied from designated renewable energy resources.
Many states schedule their RPS requirements so that compliance
with the overall target ramps up over an extended period of time.
Some states set targets for specific types of renewable energy
sources or technologies to encourage their development and use.
Some states focus the RPS requirement on large investor-owned
utilities, while others apply the standards uniformly across suppliers.
States often use renewable electricity credit (REC) trading systems
structured to minimize the costs of compliance.
Many RPS programs have "escape clauses" if renewable generation
exceeds a cost threshold.
Typical RPS-Eligible Renewables
• In general, RPS-eligible renewables include:
• Wind
• Solar
• Geothermal
• Biomass
• Hydroelectric
• Some States include resources such as:
• Landfill gas
• Municipal solid waste
• Marine energy
Renewable Energy Credits (RECs)
• RECs are tradable rights to claim the environmental and other
attributes associated with 1 megawatt-hour of renewable
electricity from a specific generation facility.
• In RPS systems that includes RECs, a producer who generates
a surplus of renewable electricity can sell or trade RECs to
other electricity suppliers who may fail to meet their RPSeligible renewable electricity requirement.
• Generally, only one entity (the generator or the REC holder)
can take credit for the renewable attribute of a RPS-eligible
source.
• RPS programs may allocate RECs for:
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Renewable space and water heating systems
Fuel cells
Energy efficiency measures
Clean fossil-fuel technologies
RPS Programs are Widely Used
• Existing state RPS policies applied to 55% of total retail
electricity Sales in 2012.
• 29 states (including NC), and D.C. have mandatory RPS
programs.
• Collectively, these programs require that nearly 10% of U.S.
electricity come from RPS-eligible renewables by 2020.
• Another 7 states have non-binding renewable generation
goals.
• U.S Territories (American Samoa, Guam, Puerto Rico,
and the U.S. Virgin Islands) have also adopted some form
of RPS.
Which States Have RPS Programs?
Impact on Consumer Cost is a Major
Concern
Over 20 states have included some form of cost limit in their
policy to deal with the potential cost of RPS programs to
consumers . These cost-limiting mechanisms include:
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Alternative Compliance Payments (ACPs) allow suppliers
meet their renewable energy requirements by making a
payments rather than purchasing renewable energy credits
or contracting with renewable energy projects.
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Rate impact caps limit how much renewable energy policy
can increase electricity rates. The terms of these
mechanisms vary significantly from state to state.
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Per-customer cost caps limit the dollar amount any
particular customer’s bill can increase because of the RPS.
•
Contract price caps limit the price that a renewable energy
generator can contract to sell power to a utility.
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Funding limits to the amount of funding that can be used to
cover the costs of renewable energy.
RPS Best Practices
When designing an RPS:
• RPS targets should be stable and ramp up
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steadily over time and not be subject to
sudden or uncertain shifts
The duration of an RPS program should be
long enough to allow for long-term
contracting and financing
An RPS program should apply to all loadserving entities
The eligibility of specific renewable energy
technologies and generators should be
clearly defined
Use of tradable RECs for RPS compliance
should be considered and monitored a
tracking system
The cost of RPS compliance should be
allocated fairly across all utility customers
An RPS program should be mandatory and
impose penalties for non-compliance.
What Works?
• RPS policies that encourage long-term
contracts for renewable energy can
significantly lower the cost of deploying
renewables because they provide a stable
source of revenue which reduces financing
costs.
• Renewable energy auction mechanisms (Ca.
and Ill.) have delivered renewable energy at
fairly low costs while reducing regulatory
uncertainty and delays that can make
developing a renewable project more costly.
• Ambitious RPS targets in some states have
driven substantial deployment.
• Ca.’s RPS, which requires a third of its
electricity come from renewable sources
in the nation’s second-largest electricity
market, represents roughly 1/4 of the
combined U.S. RPS target through 2020.
• RPS programs are most successful in driving
renewable energy projects when combined
with the federal production tax credit.
North Carolina’s RPS
N.C.G.S. § 62-133.8: Renewable Energy and Energy Efficiency Portfolio
Standard (REPS)
• Requires all investor-owned utilities in NC to supply 12.5% of 2020 retail electricity
sales in the state from eligible energy resources by 2021.
• Compliance with this overall target also requires that investor-owned utiities increasingly
integrate renewable energy into there supplies in accordance to the compliance schedule.
• Investor-owned utilities may meet up to 25% of the requirement through energy efficient
technology, including CHP using waste heat from non-renewables. (up to 40% after 2021)
• Municipal utilities and electric cooperatives must meet a target of 10% renewables by
2018.
• Cooperatives and municipal utilities are permitted to use demand side management or energy
efficiency to satisfy the standard without limitation, and may also use large hydropower to meet
up to 30% of the renewable energy requirement.
• The overall target for renewable energy includes technology-specific targets that apply
to each utility, and also includes swine and poultry waste targets for swine waste and
poultry waste that apply to the state as a whole and do not assign individual
requirements for each utility.
• The North Carolina Utilities Commission (NCUC) administers the statute and is
responsible for implementing rules and modifying the compliance schedule.
• Currently, NCUC rules do not specify penalties or alternative payment for noncompliance, but
NCUC does have authority to enforce compliance with REPS.
Eligible Renewables under the North
Carolina REPS
• Eligible Renewable Sources in NC include:
• Solar
• Wind Power
• Hydroelectric Power (up to 10 MW)
• Ocean Current or Wave Energy
• Biomass
• Landfill Gas
• Combined heat and power (CHP) using waste heat from
renewables
• Electricity demand reduction (differs from “energy efficiency
measures”)
Renewable Energy Credits in NC
• North Carolina utilities may comply with REPS by acquiring
Renewable Energy Credits (RECs).
• Under NCUC rules:
• RECs must be purchased within three years of their generation, and must be retired
within seven years from when their cost was recovered.
• A REC is equivalent to
• 1 MWh of electricity derived from a renewable energy source, or an equivalent
amount of thermal energy in the case of CHP and solar water heating, or
• 1 MWh of electricity avoided through an efficiency measure.
• Utilities may use unbundled RECs from out-of-state renewable energy facilities to
meet up to 25% of the portfolio standard. (Dormant Commerce Clause issue?)
• Qualifying out-of-state facilities are (1) hydroelectric power facilities with a generation
capacity up to 10 MW, or (2) renewable energy facilities placed into service on or
after January 1, 2007.
• Suppliers with fewer than 150,000 customers are not limited in the amount of outof-state renewable energy RECs they may procure to meet the standard.
• RECs do not include credit for emissions reductions from certain greenhouse gases
(oxides of sulfur and nitrogen, mercury or carbon dioxide).
Are RPS Programs Effective?
• Between 2001 and
2011, the RPS
programs of 26 states
began to require their
first compliance
targets.
In that Time, the Share of Electricity Generated by Renewables
Increased in Most of Those States
This increase was driven by renewable
sources other than hydroelectric.
• Maine had the highest percentage of non-
hydroelectric renewable generation, at 27%
of total in-state generation, up from 20% in
2001.
• ME’s RPS program, amended in 2000,
mandates that 40% of the state’s
electrical power come from renewable
sources by 2017.
• South Dakota and Iowa followed, with 21%
and 17%, respectively, in 2011, up from 1%
and less than one percent in 2001.
• SD’s RPS Goal of 10% of retail electricity
be generated renewables by 2015 was
enacted in 2008.
• IA’s RPS was amended in 2003 and
requires that its investor-owned utilities
generate or acquire 105 MW of
renewable electricity.
• In 2011, the states with the largest shares of
generation coming from renewables,
including hydroelectric, were: Idaho (93%),
Washington (82%), and Oregon (78%).
Growth in Renewable Power Generation
While Hydroelectric generation is the biggest
source of renewable electricity, it is highly
variable from year to year, and is often separated
from other renewable sources.
Wind has been the driving force behind the
increase in renewable generation of electricity,
and accounts for the biggest increase across all
states.
Using RPS to Project Renewable Power
Generation
In 2020, compliance RPS targets will result in
renewables accounting for nearly 10% of U.S.
electricity sales.
Currently, most states meet or exceed their
RPS requirements, a trend that is expected to
continue in the foreseeable future.
RPS Programs and the Constitution
• Under the Supreme Court’s interpretation of Article I, § 8’s
grant of Congressional authority to regulate Interstate
Commerce, the Dormant Commerce Clause prevents
states from engaging in economic protectionism by
favoring their own industry over out-of-state competition.
• State laws that are facially discriminatory to Interstate Commerce
are subject to strict scrutiny (compelling state interest + narrowly
tailored), and will be found invalid unless the state can show that
the policy serves a sufficiently legitimate state interest which could
not be served as well by available nondiscriminatory means. Maine
v. Taylor, 477 U.S. 131 (1986).
• An over-arching goal of environmental preservation is not a sufficient
state justification to render a discriminatory regulation valid. W. Lynn
Creamery, Inc. v. Healy, 512 U.S. 186, 206 (1994).
Problem?
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Most state RPS programs are designed to favor in-state production
of renewable energy, not to foster interstate commerce.
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North Carolina as an example:
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Under NC’s RPS (REPS) only 25% of a major supplier’s obligation can be
met by acquiring RECs from qualifying out-of-state renewable facilities.
Does this mean that an RPS that favors in-state production of
renewable energy is unconstitutional economic protectionism?
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Possibly….Richard Posner thinks so.
Illinois Commerce Commission v. FERC,
Case Nos. 11-3421 (7th Cir. 2013).
• Michigan’s RPS requires utilities to provide retailers with at least
10% of renewable energy by 2015 and forbids suppliers from
counting out-of-state sources.
• Posner’s dicta: (Michigan’s RPS was not at issue)
• “Michigan cannot, without violating the Commerce Clause of Article I of
the Constitution, discriminate against out-of-state renewable energy.”
• Such a law “trips over an insurmountable constitutional objection.”
RPS Implications? Two Possible Answers
Major Implications for the RPS
landscape going forward
State RPS programs are more than
economic protectionism
Ann Carlson, Professor of
Environmental Law at UCLA
• Carlson argues that Judge Posner's
language "creates new legal doubts
about the constitutional validity of a
number of states' renewable portfolio
standards.“
• Carlson says that Posner’s dicta will
cloud many other states' RPSs that
discriminate against out-of-state
renewable projects, and assumes that
many of these states will have to either
amend their RPSs or face
constitutional challenges down the
road.
Steven Weissman, Professor of
Energy Law at Boalt Hall
• Weissman argues that had Judge
Posner engaged in a more thorough
Commerce Clause analysis of
Michigan's RPS, he would have been
satisfied with the state's rationale for
favoring in-state sources.
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Weismann contends that RPS
programs like Michigan's are "not all
about protectionism“ because there
are logical and compelling reasons a
state would want to purchase
renewable energy from a nearby
source, such as displacement of local
pollution from traditional power plants
and improving local grid reliability.
Potential Solutions?
• Revise discriminatory RPS programs to exclude provisions that discriminate against
interstate purchase of electric power in favor in-state renewable sources.
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Still promotes renewables, but no guarantee of the same positive effects at home.
• Market Participant Exception
• States that issue and require utilities to purchase RECs are market participants, and can place
those RECs in commerce with restrictions.
• Therefore, it would permissible for a state to require utilities operating within its jurisdiction to
purchase a certain portion of the RECs it issues as long as the RPS does not discriminate
based on the geographic location of the renewable source of the electricity.
• Promotes renewables, but doesn’t guarantee that a state’s grid will reflect its goal because a utility can
still trade the REC by selling the renewable energy to another state.
• Federal Legislation
• Congress could expressly permit states to implement RPS provisions or implement a Federal
RPS.
• In his 2011 State of the Union Address, President Obama encouraged Congress to establish
a national “clean energy standard” of 80% by 2035.
• While national RPS-like laws have had success in a number of other countries, it would likely better to
allow states to continue to shape their own renewable energy policy, thereby avoiding the potentially
serious hurdles that shaping and implementing a Federal RPS would face.
• The Federal Power Act already recognizes a qualified state authority over exportation of
electric energy from its jurisdiction. 16 U.S.C. § 824(b)(2). Why not expand?