Changing Resources, Changing Market: The Impact of a National Renewable Portfolio Standard on the U.S. Energy Industry

By Fershee, Joshua P. | Energy Law Journal, January 1, 2008 | Go to article overview

Changing Resources, Changing Market: The Impact of a National Renewable Portfolio Standard on the U.S. Energy Industry


Fershee, Joshua P., Energy Law Journal


Synopsis: The U.S. Congress recently passed a new energy bill that, until that last minute, included provisions that would have established a national renewable portfolio standard (RPS). The RPS would have required electric utilities to procure a certain percentage of their electricity from renewable resources or purchase renewable energy credits from other sources to meet the standard. The recent energy bill is just the latest of repeated, and thus far failed, efforts to impose a national RPS. As such, there has been much debate about the potential merits and hazards of a national RPS, and more is sure to follow. Rather than joining this part of the policy debate, this Article considers the effects implementing a national RPS would have on the operation of the energy industry. More specifically, the Article considers what a national RPS would mean for electric utilities, regulators (state and federal), and consumers. The Article begins with an introduction to the most recent national RPS proposal, including a brief summary of both the program's goals and major criticisms of the proposal. This introduction also includes an overview of the current and pending state-level RPS standards. The Article then discusses the primary issues a national RPS would raise for key stakeholders. First, the Article considers what a national RPS would mean for electric utilities-focusing on necessary compliance activities and the possible effects on short- and long-term investment decisions-including infrastructure and RPS compliance sources. Next, the Article discusses the impacts on state and federal regulators, focusing on the development of a renewable energy credit tracking system, the enforcement of the national RPS, and the role regulators at each level will have in the process. Finally, the Article considers the impacts a national RPS could have on consumers with regard to short- and long-term electricity costs. The Article concludes that, although the implementation of any major policy initiative takes significant resources, the biggest hurdle facing a national RPS is political, not technological or economic.

I. INTRODUCTION

Across the country and around the world, renewable energy sources are creating interest and excitement as alternatives to traditional fuel sources for electricity generation. Proponents of mandating the use of renewable energy sources cite many potential benefits, including expanded economic development, improved national security, lower electricity prices, and reductions in greenhouse gas emissions. Although the extent and net value of such benefits are subject to debate, as are the best methods to achieve the benefits,1 the broad range of potential benefits has created interest from a wide variety of constituencies, including business leaders, academics, environmental advocates, and even national security experts.2

The most common method for requiring the use of renewable fuel sources3 is the imposition of a renewable portfolio standard (RPS).4 The U.S. Congress recently considered, until the last moment,5 legislation that would have established a national RPS, which would have required electric utilities to procure a certain percentage of their electricity from renewable resources or purchase renewable energy credits from other sources to meet the standard.6 Instead, the energy bill moved forward, once again, without establishing a national RPS. Twenty-five states and the District of Columbia already have some form of an RPS in place.7 Nonetheless, both literally and figuratively, renewable energy is not going away.

A national RPS would create a national market for renewable energy credits (RECs),8 which are earned by generating electricity from qualified renewable generators, such as those using wind, solar, and biomass as their energy source.9 Covered electricity retailers would be required to hold RECs in the specified proportion to the amount of retail energy they sold.10 These RECs could be self-generated or purchased from other qualifying renewable generators. …

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