State-Level Policies Work; Utilities and States Issue RFPs for Renewable Energy

Renewable energy project announcements that include utility contracts come from either RFPs or bi-lateral negotiations directly between a utility and a developer. Utilities and states have different processes for how they acquire new energy projects. Some states require a competitive bidding process and won't allow bi-lateral negotiations. Renewable energy companies are responding to both processes as utilities' need for renewable energy grows.

According to Liz Salerno, manager of policy analysis for the American Wind Energy Association (AWEA), a well-designed RPS is a very effective policy. If required levels are set high enough, they will encourage new development.

"The actual installation of renewable energy in RPS states, compared to non-RPS states, is proof that state RPS programs are working. Between the late 1990's and 2007, 8,900 megawatts (MW) of new non-hydro renewable capacity was installed in RPS states, which is more than 50% of all new non-hydro renewable capacity, and RPS compliance was at 92% in 2006," Salerno said.

She cautioned however that implementation of even the best RPS policies is hampered by the expiration and extension cycles of the production tax credit (PTC), which is currently set to expire at the end of 2008 and has not yet been renewed by Congress. Congress is reportedly working this week on bills that would extend the tax credits, see earlier story.

Utilities commonly issue three different types of RFPs: all-source, renewable and solar only. From the utilities' perspective, there are advantages to all three. Keeping an RFP broad allows a utility to look at all the applications in concert. This is the most common RFP. Utilities are looking for renewable MWh delivered on a needed schedule at the lowest cost. From the developer's perspective, technology specific, or all renewable RFPs are preferable because they can provide a more level financial playing field.

When it comes to solar-only RFPs, Mike Taylor, director of research for the Solar Electric Power Association (SEPA) says that there are a number of factors that utilities use when they make their decision.

"Price isn't the only factor — transmission constraints, risk of project failure, date of completion, delivery schedule (i.e. production correlation to peak), etc. can all play into decisions. Each utility will assess these merits differently."

While it isn't often that solar energy projects win under all-source RFPs or even under all-renewable RFPs for that matter, Taylor says that it does happen.

“Arizona Public Service’s [APS] Solana CSP plant was chosen through an all-renewables RFP because it provided multiple solutions for APS, ballpark price to new natural gas, renewable MWh to meet an RPS, and with storage, firm power on peak," Taylor said.

Sources say that included in the current energy debates in Congress is a national RPS. If Congress manages to pass a bill that includes a federal-level RPS, the country could see an even greater surge in renewable energy development, says AWEA's Salerno.

"[In total] state RPS programs will require approximately 60,000 MW of new renewables by 2020. However, a recent report from the U.S. DOE shows that 150,000 MW of wind by 2020, and 305,000 MW of wind by 2030, are technically and economically feasible," Salerno said. "A strong national RPS would begin to tap this potential by offering a long-term, stable and predictable signal that would help overcome key barriers by allowing for regional and national transmission planning and investment, expansion of the manufacturing infrastructure, and economies of scale and efficiency increases associated with long-term business planning."

A big selling points for increased development of renewable energy is the jobs and investment that it creates, potentially giving a jolt to the sluggish U.S. economy. With increased demand for electricity, officials in many states as well as the federal government are cognizant of the rising fuel price and construction costs associated with developing new gas, coal or nuclear plants leading some experts to believe that renewables are well-positioned to pave the way into the future.

Both Taylor and Salerno say that a strong national RPS could work if the political circumstances were right; including an interim timetable, real enforcement and penalties for non-compliance, national trading of renewable energy credits for flexibility and accommodation of existing state RPS programs would be the keys to making the plan work.

States with open RFPs include Hawaii, California, New Mexico, Massachusetts and North Carolina among others. Hawaii is looking for 100 MW of renewable energy resources with proposals due September 25. Northern California is looking for up to 58 MW of renewables with proposals due September 23. New Mexico has issued an RFP for multiple proposals for wind, solar, geothermal and biofuel energy resources that can go online from 2009 to 2011. Proposals are due October 15. Massachusetts seeks up to 260,000 megawatt-hours (MWh) per year from renewables with proposals due by December 1. Duke Energy Carolina's is seeking bids from solar power companies to install at least 16 MW of PV with proposals dues October 15.

The DOE's Office of Energy Efficiency and Renewable Energy has a database of open RFPs. On the same page, interested parties can subscribe to receive RFP updates.