New CESA Report – “Designing the Right RPS”

Author: Warren Leon, Clean Energy Group | Project: Clean Energy States Alliance

RPS Report Cover March 2012The renewable portfolio standard (RPS) has become the most important policy mechanism for advancing renewable energy in the United States. A new report from the Clean Energy States Alliance (CESA) summarizes key lessons learned to-date about RPS program design, including best practices to emulate and pitfalls to avoid.

The report, titled “Designing the Right RPS: A Guide to Selecting Goals and Program Options for a Renewable Portfolio Standard,” benefits from CESA’s decade of experience working with clean energy innovators in states that have not waited for federal policymakers to set the clean energy agenda. Currently, 29 states plus the District of Columbia and Puerto Rico have a mandatory RPS, and eight other states have a nonbinding goal. These programs have created an effective learning laboratory, providing insight into which program design features are important to consider when setting up or modifying an efficient, cost-effective RPS.

Among the report’s insights:

  • Be clear and specific about goals. An RPS can help meet a variety of different environmental, economic, and political goals. For an RPS to be successful, states should be clear up front about what specifically they wish to accomplish.
  • Be aware of how an RPS relates to and interacts with the RPSs of nearby states. The electricity grid in most states is part of a regional system and often part of a single regional wholesale market. Markets will be more robust and procurement costs will be lower if nearby states have similar resource eligibility definitions, compliance mechanisms, compliance periods, and other RPS features.
  • Don’t neglect companion policies to help renewable energy projects secure financing and/or long-term contracts. RPSs are often not enough to guarantee that a project developer can secure financing for a cost-effective renewable energy project. There are a variety of ways for policymakers to address financing and long-term contracts issues within the context of an RPS or with related policies.

Download the report here to read more.

Although CESA’s new report was written primarily to help state policymakers who are seeking to design a new RPS or modify an existing one, it can also be used by anyone who wants to understand the strengths and weaknesses of different RPSs, or who wants to know how and why the RPSs in various states differ.

An RPS works by requiring electricity suppliers to get a certain percentage of their electricity from renewable energy or other clean energy sources. To stimulate the gradual but continued development of new renewable energy facilities, the percentage generally increases over time.

Because an RPS does not set a specific price that electricity suppliers must pay for renewable energy generation, there is competition among generators to sell to electricity suppliers and that competition theoretically ensures that renewable energy is secured at the least cost. A variety of alternative terms are used somewhat interchangeably to describe a “renewable portfolio standard.” These include renewable electricity standard, renewable energy standard, clean energy standard, and clean energy portfolio standard.

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For more information about renewable portfolio standards, including reports, webinars, and free monthly newsletters, visit the State-Federal RPS Collaborative webpage. The RPS Collaborative is a project of the Clean Energy States Alliance (CESA).

Manhattan Institute Flunks Energy Policy 101

Authors: Lewis Milford and Warren Leon, Clean Energy Group | Project: Clean Energy States Alliance

blogphoto-Light-bulb-drawn-on-blackboardLast week, the Manhattan Institute issued a report that pretends to be a serious analysis of the impact of renewable energy on electricity prices. The report includes tables and numbers that purport to show that renewable energy produced dramatic increases in customers’ electricity bills over the past decade. Yet it only takes a few minutes of close reading to realize that the data prove no such thing — and that the author disregarded pertinent studies showing that the price impact of renewable energy has been minimal.

In “The High Cost of Renewable Electricity Mandates,” Robert Bryce of the Manhattan Institute argues that states should suspend their renewable portfolio standards (RPSs), which require an increasing share of electricity to come from new renewable energy projects. As his primary argument for halting renewable energy development, Bryce proclaims that “our analysis of available data has revealed a pattern of starkly higher rates in most states with RPS mandates.”

Yet Bryce ignores the most credible evidence about the price impacts of RPSs: the reports of states that manage RPS laws. Three of the states he looks at have actually analyzed whether RPS laws raised rates.

Take Minnesota, for example. In 2011, the state required all its electric utilities to carefully analyze and report on the rate impacts of the state’s RPS. Eight of the 14 utilities concluded that the RPS had had little or no impact on rates. All but one of the other six utilities indicated that the rate impacts were modest.

In January of this year, a review of Maine’s RPS, commissioned by the state’s Public Utilities Commission and mandated by the legislature, found that the impact on retail customers’ monthly electric bills had been only 0.6 percent in 2010, and will likely still only be 1.9 percent in 2017.

More strikingly, New York found that its RPS actually led to a reduction in retail electricity rates, because renewable energy projects ended up suppressing electricity prices at times when electricity use was at its peak.

In comparison to these solid studies, Bryce’s analysis is simplistic and misleading. His lead findings are that the average price of electricity is higher in the 29 RPS states and that eight of the 10 states with the highest prices have an RPS. While this may sound convincing, Bryce omits that back in 1990, before any of those states had an RPS, the list of the most expensive states was virtually identical, with the only difference being that an RPS state (Illinois) has now dropped off the list and been replaced by one without an RPS (Vermont). The report tells a similarly incomplete story with a list of states with the cheapest electricity, again ignoring the extensive continuity since well before most RPSs were implemented.

The report also compares seven coal-dependent states with an RPS to seven coal-dependent states without an RPS. It finds that, since 2001, prices have gone up faster in the states with an RPS. However the two groups are not as good a matched set as Bryce asserts. Among the many differences, the seven states with an RPS started off with rates that were 11 percent higher. In addition, the two states with the highest increases — Delaware and Maryland — are in a very different region, with different cost factors than the states on the other list. The RPS in Ohio is so recent and affects such a small share of the state’s electricity (1.5 percent in 2011) that it cannot possibly have been a major factor in overall electricity prices. And South Dakota, a non-RPS state with very low price increases, gets more than half of its electricity from hydro (a 10-times-larger share than any of the seven RPS states).

Most of the rest of the report is a kitchen-sink attack on renewable power, filled with disconnected anecdotes from press reports, random quotes, and one-sided, biased attacks. In the midst of all this, it makes one reasonable recommendation: that there should be more cost-benefit studies of RPSs.

Most states with RPSs would agree with that, and take program evaluation seriously. For a variety of technical reasons, it is difficult and costly to undertake a full, accurate cost-benefit study. But more states will be rolling them out in the coming years.

States should — and will — continue to study the impacts of their renewable energy policies, and make policy adjustments when warranted. In the meantime, the Manhattan Institute’s report, which ignores the facts and is more propaganda than sound public policy analysis, does not justify suspending policies that are improving the environment and diversifying our nation’s electricity supply.