A U.S. Federal Renewable Portfolio Standard: Potentials and Pitfalls

When Barack Obama was still on the campaign trail calling for 25 percent of the electricity used in the U.S. to come from renewable sources by 2025, many voters may not have realized he was talking about a renewable portfolio standard.

Now that he is president, Obama is continuing his call for a federal RPS and some bills to accomplish that are coming from Congress.

There are 27 states, plus the District of Columbia, that have some form of voluntary or mandatory renewable portfolio standard (RPS). Another 13 are considering RPS. But a standard at the federal level does not yet exist.

Sen. Tom Udall (D-N.M.) introduced legislation February 12 to establish a federal RPS requiring utilities to produce 25 percent of their electricity from renewable sources by 2025. The bill would define renewable energy as coming from solar, wind, ocean, tidal, geothermal, biomass, landfill gas, incremental hydropower or hydrokinetic energy.

The bill will be considered by the House Committee on Energy and Natural Resources.

The text of the Udall bill is available here.

H.R. 890, proposed February 4 by Rep. Ed Markey, calls for 25 percent renewable energy by 2025. The bill includes renewable energy derived from wind, solar, geothermal, biomass, landfill gas, qualified hydropower, hydrokinetic or marine technologies.

The text of the Markey bill is available here.

The Markey and Udall bills would both amend parts of the Public Utility Regulatory Policies Act of 1978 to establish a federal RPS.

Sen. Jeff Bingaman (D-N.M.), who chairs the Senate Energy Committee, drafted a slightly different standard that would require 20 percent renewable energy in the national portfolio by 2020. Bingaman’s draft would allow energy efficiency measures to count toward meeting the RPS goal.

State-level Standards

Doug Houseman, chief technology officer for Capgemini’s global utilities practice, said about 40 states either have an RPS in place or are considering one. However, the target dates and technologies allowed vary greatly.

For example, in California, Houseman said hydropower facilities that generate more than 30 MW do not count toward RPS goals. In West Virginia, plants that recover and burn waste coal for electricity do. Tailoring standards to fit the capabilities of each state is a system that has worked well, Houseman said.

“People are catching on very well and I think they are working very well. Each state has looked at what works for them.”

David Walls, director of Navigant Consulting, said it might be too soon to tell how well the state-level standards are doing because many require easy-to-reach standards for the first few years, followed by tougher standards later.

“In many ways it remains to be seen how challenging this will prove over time,” Walls said. Many RPS standards were written at a time when it was assumed that renewable generation would become less expensive and more efficient. “So far we haven’t seen the cost reductions needed to make renewables more competitive.”

The changes that the American Economic Recovery and Reinvestment Act made to some tax credits that apply to renewables could help states meet their portfolio goals, however.

“The bill opens up the investment tax credit to wind, geothermal, biomass and marine options that can now get a 30 percent investment tax credit,” Walls said. He added that the production tax credit extension will provide more stability and certainty to the renewables sector, resulting in more projects reaching commercial viability.

Working with Existing Standards

Another issue surrounding a federal standard is how the federal RPS would mesh with state-level RPS.

Walls said the two standards could work together, with the federal standard setting the minimum for all states.

“It’s logical that a state should be able to exceed the federal RPS if they can. On a federal level you might consider more conservative timetables, but on the state level they might be able to exceed the federal standard if they were able,” Walls said.

Houseman said he favors a federal RPS, but said legal complications could arise from a federal requirement that differs from state standards. That could set the stage for a states’ rights issue.

“I wouldn’t be surprised if when they passed an RPS, a few states didn’t go to the courts to try and fight,” Houseman said.

Steve Hall, partner with Stoel Rives and chair of the firm’s Renewable Energy Initiative, said no legal reason exists why a federal standard could not co-exist with a state standard.

The issue may well depend on the intent of Congress. If Congress decides to provide for the higher standard to apply, then the issue is resolved. If the matter is not addressed in the legislation, then questions will remain with regard to which standard would apply, Hall said.

One Size Fits All?

Hall added that any federal RPS would have to take into account regional differences in renewable development potential, as well as existing renewable generation capacity in the states. Different states have different access to renewable resources. For example, Hall said large hydro facilities are generally not considered to be renewable energy. “But there would be no point in replacing them with wind farms, he said”

Ric O’Connell, renewable energy consultant for Black & Veatch, said a renewable energy credit trading system could help account for some of the differences between the states’ renewable generation capabilities.

“From a policy perspective, it makes sense to have one size fit all,” O’Connell said. “People who can make the cheapest renewable credits are going to get credits and sell them to people who can’t make them as cheaply.” He said this means it actually may be better not to have a complicated set of concessions to account for the regional differences.

The Future

Scott Olson, senior consultant with Black & Veatch said the possibility of a federal RPS is becoming one of the most talked-about energy issues in the U.S.

“It seems like things have definitely shifted in the last couple of years politically. A few years ago a federal RPS was a non-starter. I think there’s more support nationally,” Olson said.

Walls agreed the issue is gaining traction, but said the clash between the federal government and individual states will make the debate over a federal RPS controversial. The fact that regional differences exist and that RPS is not a bipartisan issue suggests to Wall that a federal RPS will struggle to be passed.

Before a federal standard is implemented, he said critical issues still must be addressed.

“We have national transmission corridors that have been identified, but I think you have to take that to a whole new level in order to implement something like RPS,” Walls said. “Any kind of federal RPS is going to need more state-to-state transmission.”

Hall said changing regulations to make them more consistent from state to state could be a good outcome.

“One thing a federal standard could bring is more uniform regulation between publicly owned utilities and privately owned utilities.” In some states, publicly owned utilities are exempt from that state’s RPS. “It’s hard to attain a national goal if the same standard doesn’t apply to everyone,” Hall said.

Jeff Postelwait is the online editor at Power Engineering. In that capacity, he manages news content for Power Engineering’s website and edits the magazine’s weekly electronic newsletter. He is based in Tulsa, Oklahoma.

This article was originally published by Power Engineering and was reprinted with permission.

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