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United States

In preparation for a federal standard

While more than half of all US states already have renewables targets in place, with wind playing an important role on the way to compliance, some southeastern states oppose the introduction of a federal standard. But their objection is short-sighted, experts argue

As 28 US states and the District of Columbia march towards their separate renewable energy targets that take scattershot effect during the next two decades and beyond, a federal law legislating a minimum proportion of green power in America's electricity mix could soon force the remaining 22 states into the game. Not everybody believes the concept is a good idea, however, while others fear that the willingness of states to comply with their own legislation, let alone federal regulation, could wane during an economic downturn.

While the idea of requiring utilities to acquire increasing percentages of their electricity from clean sources took shape in the late 1990s and gained momentum in recent years, naysayers argue that so-called renewables portfolio standards (RPSs) force utilities to overspend for new generation or pay stiff penalties -- and that the ultimate cost of compliance will be widespread hikes to ratepayer utility bills, rendering the entire concept a cumbersome and expensive boondoggle.

But a report issued a year ago by Lawrence Berkley National Laboratory (LBNL) says the vast majority of states have been meeting interim targets and the price of electricity in most areas has risen by less than 1% -- often much less. The report further suggests that, assuming full compliance through 2025, state renewables laws will be responsible for more than 60 GW in new clean energy -- not including the three states that have enacted legislation for renewable energy standards (RES) since the report was issued. To date, more than 90% of the green power produced to comply with the state mandates has come from wind and, in California, renewables have actually pushed power prices slightly downward.

Going just fine

"I don't want to seem too optimistic because, obviously, this is going to be a tough year," says LBNL's Ryan Wiser. "But the ultimate objective is the long-term goal. A single-year dip in installations is not the death knell to state RPSs or to a federal RPS. On the contrary, one might claim that we're way ahead of the game and we could actually take a breather for a year or two and be just fine."

Others take Wiser's optimistic take still further, suggesting that a weak economy is actually an ideal proving ground for the RES concept because utilities must plan their renewable energy acquisitions several years in advance and are for this reason cannot react to short-term economic swings. "The RPS is probably even more important today than it was when the economy was solid," says Mark Sinclair of Clean Energy States Alliance (CESA). "If it's designed right, an RPS provides a new financing mechanism through the rate base for renewable energy. It requires utilities to use their resources."

One of those utilities, Minnesota-based Xcel Energy, is the nation's leader with nearly 3000 MW of wind power across a service territory comprising eight states -- each with a unique set of RES benchmarks to navigate. While the company must ultimately reach 30% renewables in Minnesota by 2020, only 10% by 2015 is required in Michigan. Its six other states are somewhere in between, although New Mexico calls for a variety of generation sources in addition to wind. "We're ahead compared to current compliance," says Xcel's Karen Hyde. "We need to add another 200 MW in Minnesota by 2010 and some diversification requirements in New Mexico are challenging us a little bit. But other than that, we're ahead in all the other areas."

Deciding utility priorities

Hyde notes that Minnesota allows utilities to bank compliance credit in years when benchmarks are exceeded. She also adds that Xcel, which acquires the vast majority of its wind power through purchase agreements rather than ownership, sees its biggest challenge as determining how best to spread money between distribution, transmission and generation -- all while seeking new ways to handle increasing load.

"Even a big company like Xcel has limited ability to raise capital," Hyde says. "As an example, today in Colorado on a capacity basis, about 15% is wind. Sometimes at night and off-peak we're serving almost 35% of our load with wind. So if you need to double that to get to the next standard, you're talking about needing to make changes to your system."

Still, Xcel considers wind the best option as it continues to add renewables in batches without necessarily keeping a precise eye on near-term RES requirements. The company's latest request for proposals (RFP) in its Colorado system seeks 700 MW of wind and 600 MW of solar. "We'll get a big chunk and then we probably won't be out again with an RFP for two to four years, depending on where load growth is," Hyde says. "Right now wind is still the most cost-effective in terms of compliance."

A moving target

But compliance can be a moving target. In Washington state, a recent movement aimed at watering down a two-year-old RES is in search of traction among state legislators despite the Pacific Northwest's abundant wind resources (Windpower Monthly, March 2009). Despite the Washington hiccup, however, many experts agree that states are much more likely to strengthen existing standards. "There are certainly states that have revisited their RPSs and revised them," says Pat Hogan of the Pew Center on Global Climate Change. "But generally when that happens it tends to be as a result of the fact that their earlier targets were met too easily, or it turned out that they could go for a more aggressive standard without too much effort. So they generally make their goals tougher."

In Massachusetts, inadequate lead time following a 2002 RES produced scant progress in bringing renewables generation online in the early years, leaving electricity retailers forced into penalty payments. But by last summer, the state was among those that actually raised requirements. "Even though Massachusetts had trouble for the first couple of years, they were able to kind of catch up," says Karlynn Cory of the US Department of Energy's National Renewable Energy Laboratory (NREL). "So I would say that the good news is that some of the states that were having trouble getting things started have been moving forward and making some real progress."

Cory believes that the threat of penalties and alternative compliance payments (ACP) is vital, even when it is never exercised. The key, she says, is setting a high enough price and following up with strict enforcement. According to the LBNL report, ACPs totalled more than $18 million in 2006, while penalties were assessed in only two states. Most often, that money is retained by states and goes into clean energy funds that support additional renewable energy projects. "If they're set too low, it might even be cheaper just to pay than to develop a project," Cory says. "But I think they're a good motivator in terms of sending a market signal. It seems like the threat of a penalty or alternative compliance payment has definitely motivated a lot of new development."

Yet even when utilities are willing and able, some near-term development could end up delayed as a result of inadequate transmission and a bad economy. "To meet these RPS goals, some developments might require build-out of additional transmission infrastructure," says Hogan. "It really varies state to state, but given the constraints on state budgets in light of the current economic situation, build-out may be difficult to do. Some projects might get pushed back."

Major help could be at hand, however. As the Barack Obama administration puts its wind-friendly $787 billion stimulus package in motion, many believe that a federal RES is on its shortlist of coming attractions. Industry watchers expect it to require utilities in all 50 states to reach between 20-25% in renewables by 2020 and that it could be passed into law as soon as this year or next.

How such a federal policy would mesh with existing state benchmarks causes much concern. Ideally, a federal quota will serve as a floor percentage and allow ambitious states to go beyond the national benchmarks while retaining a regional flavour. "It would make sense for someone designing a federal RPS to consider not pre-empting existing standards," Hogan says. "Especially given that in most cases these standards work because they are tailored to particular states' circumstances. States know what resources they have available. They have jurisdiction over so many crucial areas, including electricity generation, transportation, land use, agricultural policy and other areas," he adds.

CESA's Sinclair says one major frustration as a federal policy takes shape is that the US Congress has been reluctant to listen to those states with RPS experience. CESA works with more than 20 states that maintain robust renewable energy mandates, using Department of Energy dollars to facilitate a dialogue on how those laws are working. "Our message has been, hey, listen, the states have been doing this for ten years now," Sinclair says. "What's been really upsetting is that the committees of jurisdiction in the House and Senate have not yet asked any of the states who have got RPS laws to come in and talk about what's working and what's not working."

Sinclair points to at least one bill under consideration that would put penalty and compliance payments into a national clean energy fund, where money from offending states would benefit utilities in other parts of the country where targets have been met. "That's a political nightmare," Sinclair says. "Already the state of Alabama does not relish an RPS. If you force that utility in Alabama to send payments that will end up going to a utility in Massachusetts that has met its targets I think that's only going to increase opposition to a national RPS."

A look at the map of states with RES laws reveals that Alabama does not stand alone. A huge swath of southeastern states is without any such policy -- and many believe those same states will continue to drag their feet on any type of federal legislation. "The utilities in the southeast have been putting on a very strong campaign to oppose a federal RPS," Sinclair says. "They take the position that they don't have abundant renewable energy resources and they don't have the wind that the Midwest has."

But such thinking does not add up, according to Jeff Deyette of the Union of Concerned Scientists. Deyette believes that, in addition to passable wind resources, the southeast as a region has enough infrastructure and skilled workforce to become a formidable component manufacturing base, while offshore wind generation could be a major boon for the region's ample coastal areas. "It's pretty easy to shoot holes in their arguments," Deyette says. "The southeastern states actually import billions of dollars each year in coal to power their coal power plants. But they're not willing to actually invest in renewable energy technologies that will keep those energy dollars right there in the southeast."

Tracking credits

Another issue that looms large is how to account for all the megawatts needed to satisfy state and federal policies in a way that is clear cut and not likely to be disputed. At present, renewable energy credits (RECs) are the currency for meeting state standards (Windpower Monthly, May 2008). RECs put a price tag on each megawatt-hour of energy produced and the system has gained legitimacy in recent years through a network of regional tracking systems that verify production and assign serial numbers to each REC. But for each state system to peacefully co-exist with a federal system, REC trading will need to be coordinated to avoid double counting and other pitfalls.

"We don't need a federal tracking system," CESA's Sinclair insists. "What we need is for the feds to assist in coordinating and building upon the existing regional tracking systems to ensure one integrated national tracking system. If you as a utility are purchasing a REC, you can use that REC both to comply with state and federal RPS standards."

A system where the same megawatt-hour satisfies both state and federal standards, essentially creating two RECs, seems like a good bet, according to Eric Thumma of Iberdrola Renewables. "One of those RECs would go toward the federal requirement and one would go toward the state requirement," Thumma says. "That's the way we're looking at it -- that it satisfies the two different requirements. And we are fine with that proposal."

However things shake out, RES requirements are likely to continue their march, upward and onward as the years tick along, regardless of whether blips in the system are large or small. "The amount of investment in renewables and the RECs that are going to market to meet the RPSs has stayed ahead of the economic downturn," Thumma says. "The challenge will be maintaining that momentum as they ramp up. That's where the stimulus package comes in and, hopefully, as the larger economy recovers we can continue to go forward and meet those standards."

The overall consensus among a wide range of experts seems to suggest that, one way or another, the standards -- whether state or federal -- will continue to be met. "You've got to decide where you're going to put your stimulus dollars or your public financing and funding," says CESA's Sinclair. "And I would argue that putting it in renewable energy is a no-regrets policy. Costs are coming down in the wind and solar area. People support it and lots of states are finding significant economic development benefits. It's one of the better strategic bets for public funding.

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