Executive Viewpoint
Number crunching: Can statistics reveal the future of US renewable energy policy?
7 December 2009
To gain insight into emerging policy trends, CSP Today interviews Joyce McLaren, senior analyst at the National Renewable Energy Laboratory, about NREL's latest statistical report on US renewable energy policy.
By Rikki Stancich in Paris
In recent years an increasing number of US states and territories have implemented policy measures to promote renewable energy. However, the varied nature and reach of these policies has, in some ways, added to the challenge faced by renewable energy companies operating inter-state.
NREL’s latest report provides a useful statistical snapshot of the types of policy tools currently being used to promote renewable energy across the US. CSP Today talks to Joyce McLaren, senior analyst at NREL’s Strategic Energy Analysis Center, to find out what is behind the numbers.
CSP Today: In the US, some states have made it mandatory for utilities to offer green power purchasing programs to their customers, while other states have left this service optional. Is there evidence that one approach has been more effective than the other, in terms of the amount of renewable power purchased - or are they equally effective?
Joyce McLaren: In our analysis we did find that states with required green power purchasing programs also had significantly higher levels of development in seven categories, including total wind generation, wind generation per capita, wind generation per GSP, non hydro RE, per capita and non hydro RE per GSP. The details are provided in the report on page 106 (time lag analysis results).
To see if the mandatory green power purchasing is associated with significantly more development than the non-mandatory green power purchasing would require doing another statistical analysis. We did not do this break out in the State of the States 2009 because we were only looking at government policies. Non-mandatory green power purchasing was not defined as a policy (if it is not mandatory, it is not a government policy, per se). This would be an interesting break out to do. I will certainly put it on the wish-list for next year’s analyses.
CSP Today: Does a combination of voluntary purchasing and mandatory purchasing (under the Renewable Portfolio Standard) present any conflict? What are the benefits of accommodating both voluntary and mandatory purchasing?
Joyce McLaren: Connecticut, Illinois, Maine, Maryland, New York, Pennsylvania and Wisconsin all have both mandatory green power purchasing and renewable portfolio standard (RPS) policies. These policies encourage renewable energy development in different ways, however, so they are not really redundant policies.
The mandatory green power purchasing policy ensures that utilities give customers the option to purchase renewable energy if they so desire. The RPS requires utilities to have a percentage of their power come from renewable energy resources. Some states with RPS policies allow the sales of voluntary green power purchases to count toward the RPS requirement, while other states to not allow these purchases to count toward the requirement.
It can be argued that the voluntary green power purchases should count toward the RPS requirement since utility marketing of voluntary green power sales is simply another way for utilities to achieve the same goal. However, consumers who volunteer to pay extra for green power are likely expecting to create a market for additional renewable energy beyond any basic requirement.
Thus, including their voluntary purchases toward the RPS goal does not achieve their aim, and voluntary purchases of green power will ultimately decline, as consumers realize that their purchases do not actually increase the amount of RE generation.
Applying their voluntary purchases toward the RPS requirement creates a ‘free rider’ problem, since it uses the money of volunteer purchasers to lower the cost of compliance for other ratepayers. If RPS policy is intended to benefit the society as a whole, then all ratepayers should pay proportionately.
Voluntary green marketing plays several other roles beyond creating a small additional demand for renewable energy beyond the requirement by RPS policy. These programs often specify the source of renewable energy, creating a larger market for technologies such as solar photovoltaics, which has not achieved the same level of competitiveness in the market as wind turbines. (RPS solar set-asides, it should be noted, address the same issue.)
In addition, the visibility that voluntary green power purchases provide the industry helps to indicate to decision makers at all levels that the public wants these technologies and is willing to pay more for them. This sends a strong signal to decision makers, which can assist in securing additional policy support for renewable energy.
CSP Today: The report notes that 39 states plus the District of Columbia and Puerto Rico have implemented interconnection standards, however, that not all have aligned themselves with best practice. What are some of the common inter-state problems that have been encountered regarding interconnection standards?
Joyce McLaren: In the State of the States 2009 report, we used the grading system presented in the report 'Freeing the Grid' as a method to investigate the design features of interconnection standards.
Based on the statistical analysis performed, we are not able to identify any particular design features or best practices of interconnection standards that are associated with higher development levels. Case studies may be able to provide more insight into the benefits and problems with relation to interconnection standards. However, this was beyond the scope of the State of the States report.
CSP Today: Is it likely that a nationwide interconnection standard might emerge in coming years?
Joyce McLaren: To my knowledge, there has not been significant discussion of a nationwide interconnection standard.
CSP Today: To what extent have production incentive policies accelerated the deployment of renewable energy projects? Has there been a notable increase in project development in the states that provide production incentives? Which production incentive models are proving most successful?
Since there is a very small number of states that currently have production incentive policies, the statistical approach used in the State of the States report is not able to speak to the effectiveness of the policy (the n value is too small).
A separate NREL report looked at production incentive policy, or Feed in Tariff (FIT) policy, in detail using a more qualitative approach. That report identified several design features of successful FIT policies, one of which is basing the prices offered to suppliers on the levelized cost of RE generation in order to ensure a reasonable rate of return.
Other best practices include offering long-term, must-take contracts; differentiating FIT prices by technology type, project size, and resource quality; tariff degression, a design feature that incorporates an incremental decrease in the FIT prices over time to encourage innovation and accelerate the pace of deployment; incorporating the costs of the policy into the electricity rate base; and minimizing transaction costs by providing streamlined administrative procedures.
The report provides case studies of several US FITs, including those in Wisconsin, California, Vermont, Washington, and Oregon, as well as the local-level FIT in Gainesville, Florida.
CSP Today: To what extent has a market developed for RECs - can these be traded nationally, or is it on a state-by-state basis? If the latter, which states are the most advanced in developing a trading mechanism for RECs?
Joyce McLaren: There are at least nine separate renewable energy-tracking systems currently in place in the United States. These issue and track certificates of generation located within specific jurisdictions, including the New England Generation Information System (NE/GIS), the Pennsylvania, New Jersey and Maryland Generation Attribute Tracking System (PJM/GATS), the Energy Reliability Council of Texas (ERCOT), the Midwest Regional Tracking System (M-RETS) and the Western Renewable Energy Generation Information System (WREGIS).
The American Power Exchange (APX) is also in the process of developing a trading system to cover areas not currently within one of the existing jurisdictions. These systems are not currently standardized and there is no national registry of RECs. This means that trading is limited to within jurisdictions and limits the potential benefits and flexibility of REC trading.
There is, however, an effort underway by the Environmental Tracking Network of North America to create a standard trading and accounting system for RECs that will allow a broader range of trading and services, while ensuring that there is no double-counting of REC or their attributes.
CSP Today: In your view, which are the most powerful policy tools that will propel renewable energy development in coming years?
Joyce McLaren: When formulating policy, it is essential to consider the contextual factors involved, including the economics, resources, societal conditions and existing policy. All of these factors interplay and impact policy effectiveness. Having said that, there are measures that stand out as potentially important to improving the market for renewable energy in the coming years. These include:
- Addressing the issues facing emerging cap and trade markets (including the potential double-counting of REC attributes and the potential for leakage).
- International technology standards (also including biofuel standards)
- Investigating the potential for international emissions trading
- Close attention to land-use planning issues
- Continuing efforts toward productive world-wide technology transfer and cooperation
- Continued attention to financing gaps and bridging the 'valley of death' between technology development and commercialization
To respond to this article, please write to:
The Editor, Rikki Stancich: rstancich@gmail.com
