Crafting a winning RPS

RE Insider In the panoply of policy mechanisms designed to stimulate renewable energy development, a relative newcomer – the Renewable Portfolio Standard (RPS) – is emerging as the most important.

RE Insider – March 10, 2003 In the panoply of policy mechanisms designed to stimulate renewable energy development, a relative newcomer – the Renewable Portfolio Standard (RPS) – is emerging as the most important. An RPS requires that a certain percentage of energy be derived from renewable resources. Several states have already adopted such standards, and additional states and the federal government are actively debating these measures. Properly designed, a renewable portfolio standard could literally mean billions of additional revenue for the industry and a permanent, significant contribution to the U.S. energy mix. Done wrong, however, it could act as an anchor weighing down growth in the U.S. market. A Texas state RPS, in conjunction with a Federal Production Tax Credit for wind energy, is responsible for the multi-billion explosion in wind – in Texas alone. The U.S. RPS market could soon easily exceed US$10 billion as more and more states embrace this policy. While incredibly successful for stimulating wind power, a Texas-style focus on lowest-cost, central station renewable energy really translates into a Wind Standard. Other states are taking a different route, developing models that will stimulate a variety of technologies. The tactics range from creating a “portfolio within a portfolio” to providing “credit multipliers.” It is essential that pro-solar advocates master these nuances, because an RPS that satisfies the public’s demand for cleaner energy but that leaves the solar industry shut out will harm the industry and ultimately harm the American people. If we are to make this a viable policy mechanism for solar energy, a “Rooftop RPS,” which requires that a certain percentage of RPS requirements be met with distributed resources, and a credit multiplier for solar resources in the Southwest are critical elements. It improves the proposal by diversifying it. Believe it or not, the original proposed federal RPS unveiled by our friends failed to include Solar Water Heating (SWH), ignored the additional value of on-site generation, and omitted any mechanism to develop the world’s best solar resource, in the Southwestern United States. As the Federal energy bill worked its way through the Senate and a Conference Committee – where it ultimately stalled – we succeeded in securing double credits for on-site generation and inclusion of SWH, but we must be more aggressive in this session of Congress. The RPS, however, is more than a federal issue. The three largest states – California, Texas, and New York – have established or are establishing rules for these clean energy mandates. About 15 states overall have RPS’s and many more are considering them. The wind industry, to its credit, is organizing and leading this national effort. The solar industry must vigorously join this effort – with time, effort, and MONEY – or face a more uncertain future. Tax credits tend to expire. Consumer rebates are designed to phase-out over time. But the RPS, often designed to last 20 years or more, is basically permanent, as a consensus is emerging that a portion of our nation’s energy generation should come from renewable resources. Just as smart investors diversify, sensible RPS’s look beyond just the issue of today’s cost to the long-term potential of a variety of clean energy technologies. After all, the “P” in RPS stands for “portfolio.” Several states understand this point. Nevada, Arizona, and New Mexico all provide different rankings for different renewables. The proposed RPS’s in Colorado and Maryland do as well. The most obvious area to diversify is in type of resource. No one resource should dominate an RPS. A limit on the output from any technology – both in terms of production and trading – is appropriate. A “roof-top” component of any RPS is also essential. On-site generation that reduces the need for peak power – when power is most expensive and generated from the filthiest generators – deserves increased emphasis. Additionally, PV reduces the congestion on the grid and reduces the need for additional transmission. The best way to ensure on-site generation is to promote a distributed band as part of an RPS, for example a band of at least 25 percent of any RPS. To not take advantage of vacant roof space is a sin. Covering 50 percent of the roof space of the six largest “big-box” retail chains, and 50 percent of all elementary schools in America, could supply our nation’s total electricity needs. A credit multiplier is another tactic to increase diversification. The Solar Electric Power Association – a collection of energy service providers and PV companies – suggests a multiplier of 5x for PV. (While every kWh generated by wind, for instance, would produce one kWh worth of RPS compliance credits, the same kWh generated by solar would generate 5.) This would create a market pull for PV that would put it on the path it is currently on in Japan and Germany – a lower-cost resource on the verge of competing with retail rates. Over 50,000 grid-connected PV systems are now in service in both Japan and Germany, with annual deployments for each country in the 20,000 range. A properly designed RPS would produce similar results in the United States. Naturally, a multiplier should apply to other distributed resources, including solar water heating. The potential generation from this resource alone is awesome. Israel displaces 6 percent of its electricity annually with this technology – triple the percentage of non-hyrdo renewable electricity generation here in the US. Also important is to develop our renewable resources where they are the strongest. We are blessed with the world’s premier solar resource in the Southwest. The existing RPS’s in Nevada and New Mexico recognize this, providing a solar band and a credit multiplier, respectively. A federal RPS should as well. If we succeed in diversifying the RPS we will increase the coalition fighting for this effort, while creating a climate where myriad renewables will flourish – cleaning the air, creating jobs, and moving America closer to energy self-sufficiency. About the Author: Glenn Hamer is Executive Director of the Solar Energy Industries Association. He can be reached at: ghamer@seia.org
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