Saturday, November 8, 2008

RPS: Federal, State or Both?

President-elect Obama has stated unequivocally that the top priority in his new administration will be energy policy. A key element of that policy is a national Renewable Portfolio Standard (RPS) of 10% by 2012 and 25% by 2025. A national RPS would require a minimum percentage of electrical generation to come from renewable sources, but raises several questions:
  • What counts as a renewable source? Existing state RPS vary widely. For example, Washington and California do not count conventional hydropower, whereas Arizona and others do.
  • How will resource disparity be handled? Some states have considerably greater renewable resources than others; some states will have a much harder time than others meeting a national percentage standard. States in the southeast of the country in particular will be at a disadvantage lacking both wind and marine resources generally.
  • What will be the timeline? State RPS vary widely, as do the current percentages from renewable sources in each state.
  • What is the relationship between a national RPS and a state RPS? Does a national RPS replace, augment or provide a baseline for a state RPS?
It will be a considerable challenge to implement a national RPS with more than half of all states having a current state RPS. The national RPS can benefit, perhaps, from using state RPS as models and carefully assessing the experience of the various states.

Meanwhile, California continues to exercise leadership. California had one of the earliest RPS--20% by 2010. Thursday the California Public Utilities Commission announced that the goal won't be met by all utilities until 2013. Governor Schwarzenegger has previously set a longer-term state goal of 33% by 2020 and the CPUC added its support for enacting the Governor's goal into law, even though they estimate it could cost about $60B. Debate on the RPS in the California legislature is likely in the coming session.

For utilities, developers and others, the big question is what RPS goals and mandates will be operative in the coming years. More aggressive targets are likely, and in the short term existing projects will certainly go forward. Inasmuch as a RPS affects the supply and demand relationship of electricity generation it affects the future price of electricity, which in turn is one of the largest factors in determining whether and which projects receive financial backing.

How will a national RPS fit with an existing state RPS? There are several possibilities; for example:
  • The national RPS replaces the state RPS and the state RPS is abolished.
    This has the advantage of simplicity, but it ignores the variability of state situations, resources available, and progress already made--for many states this would be a step backwards.
  • The national RPS applies only to states that lack a state RPS.
    This would generate incentives for renewables everywhere, boosting demand. Each state would presumably soon write their own RPS to adapt better to their particular situation.
  • The national RPS provides a baseline for each individual state's RPS.
    States without a RPS would be subject to the national RPS; states could have their own RPS, but the national RPS would set the standard anywhere the state RPS was lower. California already has this relationship for automobile emissions standards, and other states can choose to follow either the national or the Californian standards.

For any of these alternatives the core questions remain of what is a renewable resource and what standards are achievable on what timeline. Crafting one RPS nationally that can simultaneously incentivize renewable electricity generation and not provide unrealistic goals will be very difficult, perhaps impossible.

The purpose of a national RPS should be to encourage the development of renewably generated electricity (for both energy security and the salutary effect on climate change) and to nurture the developing renewable energy industry (and its economic benefits.) Meanwhile, it should not stall, frustrate, or roll back progress already made in individual states.

The federal government is in a position somewhat analogous to a school teacher with a room of 50+ students of vastly varying abilities and motivation. Some lead the class with their enthusiasm and accomplishments; others hope not to be called upon, lacking confidence in their skills and unsure of their abilities. Some by accident of birth or benefit of previous nurture have confidence and will quickly grow to meet challenges; others dwell in pessimism and watch the clock, hoping the class will be over soon.

How can a national RPS promote new sources of renewable energy given the disparities of the individual states? As with the classroom, for the national RPS to be effective, it must concentrate on bringing the laggards up to speed while not retarding the leaps of the star performers or squelching their desire to further excel. States such as Alabama, with no state RPS and relatively fewer natural renewable resources may need baby steps to get started and get going. States such as California need to be left to continue pursuing their own, higher standards, and providing leadership in innovation and commitment.

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