Texas Goal for Renewables is Most Successful in U.S.

The Renewables Portfolio Standard in Texas is one of the most successful state policies for boosting renewable energy generation in the United States, according to a study by the Department of Energy’s Lawrence Berkeley National Laboratory.

BERKELEY, California, US, 2001-12-07 [SolarAccess.com] The Texas RPS requires 2,000 MW of new renewable capacity to be installed by 2009, with intermediate targets of 400 MW by 2003, 850 MW by 2005 and 1,400 MW by 2007. The measure requires electricity suppliers to source electricity from eligible sources such as wind, biomass, geothermal and solar. “The Texas RPS is exceeding even optimistic projections,” says study co-author Ryan Wiser of LBNL. “Under the RPS, 900 MW of new wind power capacity is slated for construction in Texas this year, easily exceeding the 400 MW target for 2003.” “Texas has rapidly emerged as one the leading wind power market in the United States,” he adds. “With the federal production tax credit for wind, much of this wind generation is reportedly coming in at costs of less than 3 cents/kWh.” “Wind power projects are the most competitive of all RPS-eligible renewable energy technologies in Texas at the moment, as untapped landfill gas resource opportunities are limited and hydro resources are nearly fully exploited,” it explains. “Solar generation and traditional forms of biomass energy are too costly in Texas to compete with wind power at this time.” State RPS are an increasingly popular method to support electricity generation from renewable energy. Ten states have passed legislation, but achieving the full potential of RPS requires detailed attention to the design of the policy. Outside of the U.S., RPS have been introduced in Australia, Austria, Belgium, Italy and the United Kingdom. Germany, Spain and Denmark use ‘feed-in’ tariffs to achieve the same goal. “Only the Texas RPS is already driving significant additions of renewable energy supply,” says Wiser. “State RPS policies have substantial potential, but no other state yet has the same combination of an aggressive renewable energy target, an effectively implemented policy, and an outstanding wind power resource.” More than ten windfarms with total capacity of 930 MW, including one project of 275 MW, will be completed in Texas before the end of this year, and another 2,650 MW of wind has applied for access to the grid. Twelve landfill gas projects of 44 MW capacity have been announced and 50 MW of hydropower renovations are planned in the near future. Experience from other states indicates that inadequate purchase obligations, overly broad renewable energy eligibility guidelines, unclear regulatory rules, insufficient enforcement, and wavering political support can cause an RPS to fail. The authors identify specific success factors in the Texas policy, including strong political support and regulatory commitment, predictable long-term purchase obligation to encourage new development and economies of scale, credible and automatic enforcement of non-compliance, certificate trading for tracking and verifying compliance with the RPS, favourable transmission rules, and the availability of the federal production tax credit for wind power. “Resistance towards the RPS was significant among some sectors, especially large industrial customers,” the report notes. “Helping to overcome this resistance was the fact that the RPS was only a small part of the overall restructuring legislation in which it was embedded, that the renewable and environmental advocacy communities argued forcefully and collaboratively for the RPS, and that public surveys showed overwhelming support for renewable energy.” RPS compliance costs are negligible, with new wind projects generating power for less than US$0.03/kWh, thanks to the 1.7¢/kWh production tax credit, an outstanding wind resource, and an RPS that is sizable enough to drive project economies of scale. Retail suppliers have been willing to enter into long-term contracts with renewable generators, reducing important risks for both the developer and the retail supplier. “Given these results, it is evident that the RPS capacity targets for 2003 (400 MW) and 2005 (850 MW) may be met several years early,” it predicts. Four utilities have no RPS obligations in 2002 and their commitments to wind are driven by customer preferences for renewable energy or utility resource planning decisions. The Texas RPS encourages electricity suppliers to sign contracts of 10 to 25 years, without which “renewable energy developers are faced with the unenviable position of developing merchant renewable energy projects with highly uncertain returns.” “Other states would be well served to carefully study the successful efforts of RPS design in Texas,” concludes Wiser. “Emerging experience from Texas shows that a well-crafted and implemented RPS can deliver on its promise of strong and cost-effective support for renewable energy.” Ole Langniss of the German Aerospace Center in Stuttgart was the other author. ‘Though there are numerous ways of effectively structuring an RPS, certain fundamental policy design principles must be followed if an RPS is to function at low cost and with maximum impact,” it explains. “Of particular importance is that the RPS must provide sufficient confidence to renewable energy developers and retail electricity suppliers to ensure long-term, least-cost investment in renewable energy facilities.” “Though the RPS has been hailed as the leading ‘market-based’ approach to supporting renewable generation…, little experience exists on RPS implementation,” the report concludes. “What is becoming clear from the little experience that does exist is that, like any renewable energy policy, an RPS can be designed well or it can be designed poorly.” “Perhaps the most intriguing element of the Texas RPS is that it obliged electricity suppliers to deal with wind power and other renewable energy sources on a large scale and in a proactive fashion,” it says. “Growing industry confidence in these technologies seems unavoidable, and electricity suppliers are beginning to realize that sizable wind projects in Texas, with the PTC, are sometimes able to compete on an equal footing with other, more traditional generating sources.”

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