TODAY’S STUDY: THE SUCCESSES OF RENEWABLE ELECTRICITY STANDARDS

Renewable Electricity Standards: State Success Stories

May 20, 2013 (Governors Wind Energy Coalition)

Introduction

Renewable electricity standards (RES) in the states are well-established policies for both encouraging renewable energy development and electric generation fuel diversity. More than 30 states have adopted mandatory or voluntary standards over the past 30 years, stimulating significant renewable energy growth, economic development, and pollution reduction.

Because of the substantial turnover of state legislators and governors since the adoption of RES laws, plus new scrutiny of renewable energy policy at the state and federal levels, this is a good time to highlight the impact that RESs have had on the states.

The RES is market-based — firmly rooted in public interest goals, and consistent with both traditional utility regulation and competitive markets. The RES has enjoyed strong bipartisan support both during adoption and repeated revisions. It has been tailored to meet the evolving needs and market conditions of each state, but has never been repealed or reduced.

RES laws have stimulated the significant growth of renewable energy, especially wind power. Collectively, state RES policies have already supported the development of more than 33,000 megawatts (MW) of new renewable power through 2011. Once fully achieved, current state standards will support more than 103,000 MW of renewable energy capacity by 2025, or about 10 percent of the nation’s current electric generation capacity. More than 87,000 MW will come from new projects, which represent enough new clean power to meet the electricity needs of 50 million homes.

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The RES advances a set of public interest goals:

❚ renewable energy is diverse energy. It creates a diverse energy portfolio – analagous to a diverse investment portfolio – reducing exposure to increases or volatility in fuel costs, which are passed through to consumers. as a result, it can stabilize prices and support predictable, long-term economic development.

❚ renewable energy is american energy, adding to the nation’s domestic energy supply. It is also primarily a local energy supply. While fossil and uranium fuel production is concentrated in a few states, renewables are everywhere. This can reduce energy imports and keep energy dollars in local economies.

❚ renewable energy creates new industries with new jobs and new wealth. These jobs occur in manufacturing, construction, operations and maintenance. Because wind and solar are mass-produced in factories, they have revitalized manufacturing in many states, often in places far from the energy source. and because renewable energy equipment consists of hundreds of components — both high-tech and conventional — they can spur new high-tech ventures as well as support traditional manufacturing.

❚ renewable energy reduces emissions. Renewable energy reduces air pollution, including smog, acid rain, toxic metals, and other emissions. It reduces water use and water pollution, including the risk of coal waste spills, aquatic impacts from thermal discharges, and mercury deposition.

❚ renewable energy is primarily rural energy. It can stimulate economic activity needed in rural areas. new construction jobs, ongoing operations and maintenance jobs, and teady property tax payments pump substantial revenues into rural communities, supporting vital services and stimulating a revitalization of states’ rural economies.

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Market Based

What is the most effective way to achieve these public goals? In the long run, renewable energy will deliver the most benefits when it is competitive with conventional power sources. The fastest way to realize those cost reductions is through the scale and discipline of market forces.

The RES is a market based policy, using competition to drive down technology prices and move technologies to maturity — all at the lowest cost. It motivates action by the private sector, by creating a market opportunity for project developers to pursue. The government’s role is to set the standard that will be met by utilities and project developers.

Because the RES is performance based, and increases over time, the most attractive projects are the ones with the lowest cost, that best fit power company needs, and that are of sufficient scale to meet the standard with minimum transaction costs. Winning bidders are chosen by power marketers in competitive markets, or by utilities with oversight from their regulators, or, in a couple of states, by a centralized government procurement entity.

This approach uses the size of the marketplace to deliver large-scale and longterm investments — projects that are large enough to capture economies of scale, attract low-cost financing, and create sufficient experience by project developers. These projects in turn drive down future costs.

The RES delivers value to consumers while also creating constant innovation, not just in technology but in business models, finance, and execution.

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RES Fits Well in Diverse Power Market Contexts

The RES was originally applied in a regulated utility world, but has been adapted to apply to competitive markets as well.

In a regulated market, the RES provides guidance to the utility procurement process, which is typically overseen by a state utility commission. By setting a procurement target, the RES adds the numerous public interest goals to the traditional regulatory goals of low cost, reliability, and equity.

The RES is also compatible with competitive markets, through the flexibility of renewable energy credits (RECs). While deregulation uses market competition to deliver low cost, reliability and equity, an RES can help ensure that public policy goals are met.

While electricity is different from conventional products, setting minimum standards for a product is very common. Vehicle safety standards, energy efficiency standards for appliances, and many more have been applied for over a century. Setting standards is a fundamental role of government in protecting consumers, guiding markets to deliver public benefit, and meeting public policy goals.

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What the RES Is Not

The RES is often misrepresented by opponents of renewable energy as a popularity contest, as the government “picking winners and losers,” and as a barrier to competition.

These characterizations ignore the fact that the role of government policy is to protect the public interest, setting clear standards to accelerate economic development or addressing market failures that might otherwise harm public health or safety.

Renewable technologies are eligible for the RES because they meet these policy criteria, not because they are “popular.” for example, large hydroelectric power is a renewable energy source, but is often not included because it is a mature and competitive technology, and because there is little opportunity for growth from large new dams.

The RES is intended to create change in the power supply, not to simply reward power companies for past decisions.

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States often tailor their eligibility rules to local circumstances, to achieve unique public policy goals. north Carolina is trying to address livestock waste pollution through energy policy, by creating an incentive for manure-derived energy production. Pennsylvania included “waste coal” in their advanced energy standard as an incentive to clean up piles of coal mining waste that were polluting waterways. Some states use the RES to encourage combined heat and power, solar water heating, and sustainable forestry for biomass fuel production.

The RES is sometimes accused of being a quota system that picks winners and losers from politically favored companies and technologies. While policymakers indeed tailor eligibility to meet local public interest goals, the RES also requires competition between technologies and companies, and rewards those that are most ready for large-scale deployment.

The RES is also assumed by some to be a permanent prop for technologies that will never be competitive. But one public interest goal of the RES is to accelerate the maturity of new technologies, so they can compete without special policy support. It is possible that once a technology has reached market competitiveness, it may no longer need a sheltered marketplace.

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RES In Context

While states take the lead in regulating electricity markets, the federal government also has good reasons to support renewable energy. The federal government provides policy support for renewable energy because it creates national benefits that go beyond state borders. This includes reducing cross-border pollution, promoting domestic energy production, spurring investment in new industries with future growth potential, and improving our global economic competitiveness.

Because of these national benefits, Congress has maintained federal tax incentives for over twenty years, such as the production tax credit (PTC) and the investment tax credit (ITC). Congress has repeatedly considered adopting a national RES. Both houses have approved RES legislation, though at separate times. Recent legislation has proposed setting a “clean energy standard” based on carbon emissions, which would require more renewables, nuclear, and natural gas power.

The federal government also has a lead role in regulating wholesale power markets and transmission, through the federal Energy Regulatory Commission. The Commission’s rules are critical for integrating renewable energy into regional power markets, removing barriers, and expanding transmission to connect renewables to customers.

A partnership between states and the federal government can deliver the benefits of renewable energy…

Conclusion

Renewable energy standards are bipartisan policies with a strong history of producing remarkable results — modernizing the nation’s power systems while delivering significant benefits. Renewable energy standards deliver jobs and economic benefits to rural areas and cities alike, all while insulating consumers from fuel price risks and building america’s global competitiveness in a growing market for new technology.

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