Does RPS Still Run the Renewable Energy Engines?

Renewable energy deployment has increased in recent years thanks to two primary turbo chargers: federal tax policies that incentivize investment and state renewable portfolio standards (RPS) that require utilities to procure increasing amounts of renewable energy to serve their load obligations.

But the stimuli that supported this significant growth may not prove as effective going forward.  First, the federal investment tax credit (ITC) reverts from 30% back to its original 10% level in 2017, thereby reducing the ability of solar projects to raise specialized investments called “tax equity” designed specifically to take advantage of tax credits and depreciation benefits.  Further, the stimulative impacts of the Section 1603 program — which allowed the ITC to be received in the form of a cash payment — are winding down as projects “under construction” are completed.

Second, state RPS requirements no longer challenge the deployment capabilities of the industry. Once considered ambitious targets, RPS standards are now relatively easy goals to meet as the wind and, in particular, solar industries are capable of developing generating capacity at scales unheard of even just a few years ago. Data provided by Lawrence Berkeley National Laboratory (LBNL) indicate the current state RPS mandates will require roughly 6 GW of incremental annual additions from 2012–2020 (see Figure 1 to the right). Relative to the 5–10 GW of wind additions per year from 2009–2011 and the 3 GW of solar capacity that industry is on target to deploy in 2012, the state RPSs aren’t gunning the renewable engines the way they used to.

RPS targets appear to be particularly out-of-date with respect to solar requirements. Recent figures from the Solar Energy Industries Association (SEIA) indicate solar deployment in the first half of 2012 was twice as high as during the comparable period in 2011 and that 2011 deployment was more than double 2010 deployment.

Even states with the most aggressive RPS requirements are not a particular challenge for the deployment capabilities of the industry. Let’s take New Jersey: This state’s solar set-aside is one of the country’s largest, both in percent of total load and in energy required. New Jersey requires more solar energy via its solar set-aside than Nevada, a state with more than 12 times the total square mileage and a roughly 50% better solar resource. Per legislation signed in July 2012, New Jersey’s solar mandates require its jurisdictional utilities to procure roughly 300 MW per year of new solar-generating assets through 2020 [5].

However, solar developers and installers have proven themselves capable of deploying far greater amounts. In the first half of 2012 alone, New Jersey solar installations reached 275 MW, or 550 MW on an annual basis.

Grid integration technical challenges remain, however, as RPS requirements are still escalating based on prior legislation. But the capabilities of modern electric grids are improving at rapid rates. For example, Denmark can currently integrate 29% of its annual energy requirement from wind installations alone (almost nine times more than current U.S. achievements).

In another example, Germany recently successfully integrated enough solar energy to meet roughly one-half of its daily requirements (versus <1% annual solar penetration in the U.S. market). In a recent report, NREL found that a more flexible U.S. electric system is capable of supporting renewable energy penetration rates of 80% and higher. Accordingly, meeting state RPS targets—and beyond—is technically achievable.

While RPS requirements were designed to push the capabilities of the industry to expand rapidly, the industry leapfrogged the requirements and can now develop at a scale unforeseen by policymakers. Is a policy tune-up needed to keep the industry barreling down the highway? Or does the industry have sufficient momentum to maintain its own growth and reach grid-parity with traditional sources of electric generation?

This article was originally published on NREL Renewable Energy Finance and was republished with permission.

Lead image: Green world via Shutterstock

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