April 16, 2018

Warren Leon Executive Director

State Renewable Portfolio Standards Current Status and Trends

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Clean Energy States Alliance

CESA is a national, nonprofit coalition of public

agencies and organizations working together to

advance clean energy

• Facilitates information sharing

• Provides technical assistance

• Coordinates multi-state collaborative projects

www.cesa.org

State-Federal RPS Collaborative

• Funded by the US Department of Energy and the Energy Foundation

• Managed by CESA

• Encourages information sharing among RPS program managers

• Monitors and reports on RPS news, trends, and best practices

• Free monthly newsletter

• Regular webinars

www.cesa.org/projects/renewable-portfolio-standards/

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Table of Contents

1. RPS basics 2. The current state of RPSs

across the country 3. The projected future RPS

market 4. RPS prices and costs 5. RPS benefits 6. General observations about

RPSs: strengths, weaknesses, and considerations for RPS design

Many of the charts and related information comes from Lawrence Berkeley National Laboratory’s U.S. Renewables Portfolio Standards: 2017 Annual Status Report

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What Is an RPS?

• A requirement that retail electricity suppliers get a specified minimum share of their electricity from eligible clean energy electricity generators

• The % usually increases over time

• Most often use tradable renewable energy certificates (RECs) to facilitate compliance

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What Is a REC?

• When a renewable energy generator generates a MWh of electricity, it produces two things for sale:

• 1 MWh of generic electricity

• 1 REC: a certificate that symbolizes the generation’s renewable energy attributes

• The REC can be traded separately from the electricity

• Whoever owns the REC can claim that they have purchased and/or are using renewable electricity

• A REC that meets the requirements of a state’s RPS can be used for RPS compliance

• Otherwise, the REC can be sold in the voluntary market

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Overview of the State of State RPSs

• RPSs in a large number of states • 29 states plus DC

• 8 more states have voluntary goals

• Outside the broader southeast (WV to LA), only 4 states without either an RPS or voluntary goals

• Leading to considerable renewable energy generation

• Catalyzed far-reaching changes, altering the decisionmaking and operations of electricity regulators, utilities, the energy industry, and other stakeholders

• Much variation among states in goals, technologies, timing, other provisions

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Renewable Portfolio Standard Policies www.dsireusa.org

WA: 15% x 2020*

OR: 50%x 2040* (large utilities)

CA: 50%

x 2030

MT: 15% x 2015

NV: 25% x

2025* UT: 20% x

2025*†

AZ: 15% x

2025*

ND: 10% x 2015

NM: 20%x 2020

(IOUs)

HI: 100% x 2045

CO: 30% by 2020

(IOUs) *†

OK: 15% x

2015

MN:26.5%

x 2025 (IOUs) 31.5% x 2020 (Xcel)

MI: 15% x

2021*†

WI: 10%

2015

MO:15% x

2021

IA: 105 MW IN:

10% x

2025†

IL: 25%

x 2026

OH: 12.5%

x 2026

NC: 12.5% x 2021 (IOUs)

VA: 15%

x 2025†

KS: 20% x 2020

ME: 40% x 2017

29 States + Washington

DC + 3 territories have a

Renewable Portfolio

Standard (8 states and 1 territories have

renewable portfolio goals) Renewable portfolio standard

Renewable portfolio goal Includes non-renewable alternative resources * Extra credit for solar or customer-sited renewables

†

U.S. Territories

DC

TX: 5,880 MW x 2015*

SD: 10% x 2015

SC: 2% 2021

NMI: 20% x 2016

PR: 20% x 2035

Guam: 25% x 2035

USVI: 30% x 2025

NH: 25.2 x 2025

VT: 75% x 2032

MA: 15% x 2020(new resources)

6.03% x 2016 (existing resources)

RI: 38.5% x 2035

CT: 27% x 2020

NY:50% x 2030

PA: 18% x 2021†

NJ: 50% x 2030

DE: 25% x 2026*

MD: 25% x 2020

DC: 50% x 2032

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CO

HI IL

MA CT MD DC NH MI

ME PA NJ NY DE NC MO

IA MN AZ NV WI TX NM CA RI MT WA OR OH KS VT

1983 1991 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

IA MN AZ MN NM CT NJ CT AZ CA DC HI CO CA MA CO IL CA DC MA NJ

WI NV MN NM CO CA CO DE IL DE CT MD CT MA CT IL MD

NV PA NV CT CT HI ME IL DC NJ MD OH HI MA

TX HI DE MA MN MA DE NH MN OR KS MI

NJ MD MD NV MD IL NM MT WI VT NY

WI ME NJ OR NJ MA NY NM OR

MN RI NY MD OH NV RI

NJ NC

NM WI

PA

TX

Most RPSs have been in place for at least 10 years

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Source: Berkeley Lab

Current as of July 2017

Year of RPS Enactment

Year of Major Revisions

States make regularly and significant revisions to their RPSs

Creation of resource-specific carve-outs: Solar and DG carve-outs are most common (18 states + D.C.), often added onto an existing RPS

Increase and extension of RPS targets: More than half of all RPS states have raised their overall RPS targets or carve-outs since initial RPS adoption

Long-term contracting programs: Often aimed at regulated distribution utilities in competitive retail markets; sometimes target solar/DG specifically

Refining resource eligibility rules: Particularly for hydro and biomass, e.g., related to project size, eligible feedstock, repowered facilities

Loosening geographic preferences or restrictions: Sometimes motivated by concerns about Commerce Clause challenges or to facilitate lower-cost compliance

Note: Although many states have introduced bills to reduce, repeal, or freeze their RPS, only two (Kansas, Ohio) have been enacted

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General Trends in RPS Revisions

• Many states/utilities well ahead of schedule, easily meeting interim targets

• Others met interim targets by relying on stockpile of banked RECs from prior years

• Some state-specific conditions create a few exceptions:

• DC (Solar): In-district eligibility requirements limit pool of supply

• IL (General RPS & Solar): Alternative retail suppliers required to meet 50% of RPS with ACPs

• NH (Solar): Solar/DG data is from 2015, when there was a Class II Rec shortage. Low solar ACP prices led to Class II RECs flowing into neighboring Class I markets

• NY (General RPS): Procurement has lagged targets, partly due to budget constraints

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Percentage of RPS Obligations Met with RECs or RE

For most-recent compliance year available in each state

Source: Berkeley Lab

Notes: “General RPS Obligations” refers to the non-carve-out portion of RPS requirements

in each state. For New England states, it refers to Class I obligations.

0%

20%

40%

60%

80%

100%

CT

MA

ME

NH

NY RI

DC

DE IL

MD

NJ

OH

PA IA MI

MN

MO WI

AZ

CA

CO HI

MT

NM

NV

OR

WA

NC

TX

Northeast Mid-Atlantic Midwest West

0%

20%

40%

60%

80%

100%

AZ

CO

DC

DE IL

MA

MD

MO

NC

NH

NJ

NM

NV

NY

OH

PA

General RPS Obligations

Solar/DG Carve-Out

States Have Generally Met Their Interim RPS Targets

RPSs Are a Major Driver of Renewable Energy Growth

• RPS requirements constitute ~50% of total U.S. RE growth since 2000

• Other RE growth associated with:

• Corporate procurement and other voluntary green power markets

• Economic utility purchases • Accelerated RPS procurement

• Significant variations among regions

• In New England, almost all capacity additions serve the RPS market

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

5

10

15

20

25

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Na

me

pla

te C

ap

ac

ity (

GW

)

Non-RPS RE Capacity Additions (left)

RPS Capacity Additions (left)

RPS Percent of Annual RE Builds (right)

Source: Berkeley Lab

Notes: RPS Capacity Additions consists of RE capacity contracted

to entities with active RPS obligations or sold on a merchant basis

into regional RPS markets.

Annual Renewable Capacity Additions

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Projected RPS Demand (TWh)

Source: Berkeley Lab

Notes: Projected RPS demand is estimated based on current targets, accounting for

exempt load, likely use of credit multipliers, offsets, and other state-specific

provisions. Underlying retail electricity sales forecasts are based on regional growth

rates from the most-recent EIA Annual Energy Outlook reference case.

• Under current policies, total RPS

demand roughly doubles,

growing from roughly 235 TWh in

2016 to 450 TWh in 2030

• Increased demand does not

necessarily equate to required

increase in supply

– Some utilities/regions ahead of

schedule, others are behind

– Some growth in demand will likely

be met with banked RECs

• Much Northeast growth linked to

NY’s 30% by 2030 target

TexasSoutheast

Midwest

Northeast

Mid-Atlantic

Non-CA West

California

0

50

100

150

200

250

300

350

400

450

500

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

TW

h

Projected RPS Demand through 2030

RPS Procurement Needs by 2030

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0%

5%

10%

15%

20%

25%

30%IA

MT

NC

TX

WI

ME

CO

PA MI

CT

DE

AZ

WA

MN

NJ

NH

MD

OR

NM

MO

OH

VT

NV

CA IL

MA HI

RI

NY

DCP

erc

en

t o

f A

pp

lic

ab

le R

eta

il S

ale

sResidual RPS Procurement Needs by 2030

(Percent of Applicable Retail Sales)

Source: Berkeley Lab

• 8 states effectively have no remaining need; 8 others have needs >10% retail

sales • Numbers based on 2016, so some of these needs have already been filled

States Reaching Their Maximum Targets

• 4 states have already reached their maximum target • 15 more states will reach their max by 2025 • Options

• Sunset the RPS • Leave targets unchanged but extend compliance period • Increase RPS targets (8 states have done that since 2015)

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Source: Holt, When Renewable Portfolio Standards Max Out, CESA, 2017

The Context for Understanding RPS Costs and Benefits

• It is easier to count the costs than the benefits

• The easiest thing to focus on is electricity prices, but even that isn’t easy. Factors to consider:

• Renewable integration costs. Some portion of incremental integration and transmission costs may be socialized by the network operator and not reflected in REC prices

• Merit-order (price suppression) effect. At least within the short-run, low marginal-cost resources (like wind and solar) put downward pressure on wholesale prices, and in turn retail prices. This benefits consumers and reduces income for generators. MA found this to be greater than the cost of all RECs in 2010.

• Other considerations on the benefits side • Creation of local businesses and jobs • Environmental benefits (with associated economic benefits)

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REC Price Trends

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$0

$20

$40

$60

$80

2010 2011 2012 2013 2014 2015 2016 2017

New England Class I

CT MA ME NH RI

$/M

Wh

$0

$10

$20

$30

$40

2010 2011 2012 2013 2014 2015 2016 2017

Mid-Atlantic/PJM Tier I

DC DE IL MD NJ OH PA

$/M

Wh

• REC prices can be volatile and are sensitive to sudden changes in eligibility rules.

• REC prices are a function of ACP rates and current/expected supply and demand.

• Prices have declined in New England in recent years.

• SREC prices are very state-specific, because markets are primarily instate and are shaped by ACP price.

$0

$100

$200

$300

$400

$500

$600

$700

$800

2010 2011 2012 2013 2014 2015 2016 2017

Solar Renewable Energy Certificates (SRECs)

DC DE MA (I) MA (II) MD

NH NJ OH PA

$/M

Wh

Source: Berkeley Lab

Recent RPS Compliance Costs

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

DC

DE IL

MD

NJ

OH

PA

CT

MA

ME

NH

NY RI

TX

Mid-Atlantic/PJM Northeast

2013 2014 2015 2016

% o

f R

eta

il E

lec

tric

ity B

ills

Restructured States Based on REC+ACP Expenditures

Regulated StatesBased on Utility- or PUC-Reported Costs

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

AZ

CA

(C

PU

C)

CA

(IO

Us)

CO MI

MN

MO

NC

NM

OR

WA

WI

Costs as % of Average Retail Electricity Bill • The numbers are estimated based on REC and ACP expenditures.

• They ignore other factors that work in opposing directions: renewable integration costs and merit-order effect.

• ACPs may be credited to ratepayers or recycled through incentive programs

• Variation among states reflects differences in:

• RPS target levels

• Resource tiers/mix

• Wholesale electricity prices

• Available renewable energy resources

• Other factors

Source: Berkeley Lab, based on spot market data and sample long-term contract data. For New Hampshire, the % should be lower for 2017, when REC prices were much lower. NH PUC reports actual RPS costs to be about 1% in the years from 2013-2016.

Future RPS Compliance Costs

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Current Costs Compared to Maximum Future Cost

(% of Average Retail Electricity Bill) • For New England,

offshore wind development will be a big factor in determining whether there is a surplus or shortage of RECs

0%

5%

10%

15%

20%

CT

DC

MA

MD

ME

NH

NJ

RI

VT

CO

DE IL MI

MO

MT

NM

NC

OH

OR

TX

WA

ACP-Based Cost Containment Other Cost Containment Mechanisms

Historical Compliance Cost (Most-Recent Year)

Cost Cap (Equivalent Max Rate Impact)

% o

f R

eta

ilE

lec

tric

ity B

ills

Source: NREL and Berkeley Lab

Notes: Each state’s cost containment mechanism was

translated into the equivalent maximum allowed rate

impact for the final year in the RPS. For states with an

ACP, this corresponds to a scenario in which the entire

RPS obligation in the final RPS year is achieved with

ACPs or RECs priced at the ACP rate.

Historical Benefits of RPSs

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From: Wiser et al, A Retrospective Analysis of the Benefits and Impacts of U.S. Renewable Portfolio Standards, National Renewable Energy Laboratory and Berkeley Lab, 2016

Observations about RPSs: Strengths of RPS as a policy

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• It is straight-forward concept with appeal to the public

• It uses a market-based approach

• It is a long-term policy

• It is a flexible policy mechanism • Most states have undergone at least one major revision

• RPSs have had modest costs up to now

• They have created jobs and contributed to local economic development

Observations about RPSs: Weaknesses of an RPS as a policy

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• There can be significant volatility in the price of renewable energy certificates

• An RPS can have free riders

• For an RPS to work well, it needs to be fine-tuned over time, but that can be difficult

Considerations for RPS Design

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• Review progress regularly

• It is easy to have unintended consequences

• Assess possible RPS modifications carefully

• Consider potential interactions with other states’ RPSs • Assess implications of ACP rates (encourage others to reduce rates)

• Maintain flexibility

• The New Hampshire renewable thermal carve-out has been path-breaking and influential

• Keep in mind the implications of the Commerce Clause of the US Constitution

• For guidance: www.cleanenergystates.org/assets/Uploads/CEG-Commerce-Clause-paper-031111-Final.pdf

• More on RPS design: Leon, Designing the Right RPS, CESA, 2012

Clean Energy States Alliance 50 State Street, Suite 1 Montpelier, VT 05602

802-223-2554 www.cesa.org

Warren Leon

978-317-4559 wleon@cleanegroup.org

Contact Information

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