Renewable Portfolio Standards

Review of Renewable Energy Sources Renewable energy sources, which regenerate and can be sustained indefinitely, include: Hydropower Wind Geothermal Solar: Solar thermal heating for structural and water Solar thermal-electric power plants Photovoltaic Systems Biomass: Biomass waste (solid waste) Landfill gas and biogas Bio fuels (ethanol and biodiesel) Wood and wood waste

Use and Market Share of Renewables Electric Power: 53% Over half of renewable energy is used producing electricity. (12% of Sector) Industrial: 28% Biomass (wood and waste) is used for industrial production of heat and steam is the second largest use of renewable energy. (11% of Sector) Residential and Commercial: 8% Biomass is also used for space heating, mostly in homes. (6% of Sector) Transportation: 14% Biofuels (ethanol and biodiesel), a subset of biomass, are used by transportation the transportation sector. (4% of Sector)

U.S. Consumption of Renewable Energy In 2012, Renewables generated around 9% of the energy consumed. About 12% of U.S. electricity was generated from renewable sources.

Benefits of Using Renewable Sources of Electricity Renewables are a potentially inexhaustible supply of clean energy One 2012 study found that renewable energy sources in the U.S. have the potential to supply trillion KWH of electricity annually. (equivalent to 118 times the amount of electricity the U.S. currently consumes). Renewable energy sources are job creators: The renewable energy industry is more labor-intensive than fossil fuel technologies, which are typically mechanized and capital intensive. This means that, on average, more jobs are created for each unit of electricity generated from renewable sources than from fossil fuels. Using renewable sources of electricity is good for the environment Non-biomass renewable sources of energy (hydropower, geothermal, wind, and solar) do not directly emit greenhouse gases. When renewable energy sources are used, the demand for fossil fuels is reduced.

Why aren’t Renewables More Widely Used as a Source of Electricity? Renewable Energy Technology is Expensive: Renewable energy power plants can be more expensive to build and to operate than natural gas or even coal plants (in terms of dollars per unit of electricity output). Renewable Resources are Often Geographically Remote: Renewable resources are often located only in remote areas, and building transmission lines to deliver power to large metropolitan areas is expensive. Renewable Resources are Not Always Available: The use of renewable sources is limited by the renewable’s availability — cloudy days reduce solar power; calm days reduce wind power; and droughts reduce the water available for hydropower. Seasonal or daily patterns, or any other change in the availability of a renewable resource results in a wide fluctuation of generation capacity.

Three Ways States are Encouraging Growth in Renewable Energy 1. Feed-in-Tariffs 2. Tax Incentives (corporate, personal, and property) 3. Renewable Portfolio Standards

What are Renewables Portfolio Standards? Renewable Portfolio Standards (RPS) are state policies designed to promote generation of electricity from renewable sources by requiring suppliers to generate or acquire a certain portion of their power supplies from renewables. Also known as “Renewable Electricity Standards” (RES)

What are the Goals of Renewable Portfolio Standards? The Goals State RPS programs are to: (1) stimulate market demand for renewable and clean energy, and (2) increase the economic competiveness of renewable energy by encouraging the development of new technology.

How does an RPS achieve these Goals? Suppliers can comply with an RPS in one of three ways: 1. Owning a renewable energy facility and its output generation. 2. Purchasing electricity from a renewable facility inclusive of all renewable attributes. (“bundled renewable electricity”) 3. Purchasing Renewable Energy Certificates (RECs) These mechanisms create demand for renewable energy.

States Implement RPSs in Different Ways No two RPS is alike, every state is different. This is because states tailor their RPS programs to according to their specific policy objectives, electricity market needs, and renewable resource potential. Most RPS programs are designed to favor in-state production of electricity. Generally, an RPS sets a deadline and designates a minimum share of electricity supplied from designated renewable energy resources. Many states schedule their RPS requirements so that compliance with the overall target ramps up over an extended period of time. Some states set targets for specific types of renewable energy sources or technologies to encourage their development and use. Some states focus the RPS requirement on large investor-owned utilities, while others apply the standards uniformly across suppliers. States often use renewable electricity credit (REC) trading systems structured to minimize the costs of compliance. Many RPS programs have "escape clauses" if renewable generation exceeds a cost threshold.

Typical RPS-Eligible Renewables In general, RPS-eligible renewables include: Wind Solar Geothermal Biomass Hydroelectric Some States include resources such as: Landfill gas Municipal solid waste Marine energy

Renewable Energy Credits (RECs) RECs are tradable rights to claim the environmental and other attributes associated with 1 megawatt-hour of renewable electricity from a specific generation facility. In RPS systems that includes RECs, a producer who generates a surplus of renewable electricity can sell or trade RECs to other electricity suppliers who may fail to meet their RPS- eligible renewable electricity requirement. Generally, only one entity (the generator or the REC holder) can take credit for the renewable attribute of a RPS-eligible source. RPS programs may allocate RECs for: Renewable space and water heating systems Fuel cells Energy efficiency measures Clean fossil-fuel technologies

RPS Programs are Widely Used Existing state RPS policies applied to 55% of total retail electricity Sales in states (including NC), and D.C. have mandatory RPS programs. Collectively, these programs require that nearly 10% of U.S. electricity come from RPS-eligible renewables by Another 7 states have non-binding renewable generation goals. U.S Territories (American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands) have also adopted some form of RPS.

Which States Have RPS Programs?

Impact on Consumer Cost is a Major Concern Over 20 states have included some form of cost limit in their policy to deal with the potential cost of RPS programs to consumers. These cost-limiting mechanisms include: Alternative Compliance Payments (ACPs) allow suppliers meet their renewable energy requirements by making a payments rather than purchasing renewable energy credits or contracting with renewable energy projects. Rate impact caps limit how much renewable energy policy can increase electricity rates. The terms of these mechanisms vary significantly from state to state. Per-customer cost caps limit the dollar amount any particular customer’s bill can increase because of the RPS. Contract price caps limit the price that a renewable energy generator can contract to sell power to a utility. Funding limits to the amount of funding that can be used to cover the costs of renewable energy.

RPS Best Practices When designing an RPS: RPS targets should be stable and ramp up steadily over time and not be subject to sudden or uncertain shifts The duration of an RPS program should be long enough to allow for long-term contracting and financing An RPS program should apply to all load- serving entities The eligibility of specific renewable energy technologies and generators should be clearly defined Use of tradable RECs for RPS compliance should be considered and monitored a tracking system The cost of RPS compliance should be allocated fairly across all utility customers An RPS program should be mandatory and impose penalties for non-compliance. What Works? RPS policies that encourage long-term contracts for renewable energy can significantly lower the cost of deploying renewables because they provide a stable source of revenue which reduces financing costs. Renewable energy auction mechanisms (Ca. and Ill.) have delivered renewable energy at fairly low costs while reducing regulatory uncertainty and delays that can make developing a renewable project more costly. Ambitious RPS targets in some states have driven substantial deployment. Ca.’s RPS, which requires a third of its electricity come from renewable sources in the nation’s second-largest electricity market, represents roughly 1/4 of the combined U.S. RPS target through RPS programs are most successful in driving renewable energy projects when combined with the federal production tax credit.

North Carolina’s RPS N.C.G.S. § : Renewable Energy and Energy Efficiency Portfolio Standard (REPS) Requires all investor-owned utilities in NC to supply 12.5% of 2020 retail electricity sales in the state from eligible energy resources by Compliance with this overall target also requires that investor-owned utiities increasingly integrate renewable energy into there supplies in accordance to the compliance schedule. Investor-owned utilities may meet up to 25% of the requirement through energy efficient technology, including CHP using waste heat from non-renewables. (up to 40% after 2021) Municipal utilities and electric cooperatives must meet a target of 10% renewables by Cooperatives and municipal utilities are permitted to use demand side management or energy efficiency to satisfy the standard without limitation, and may also use large hydropower to meet up to 30% of the renewable energy requirement. The overall target for renewable energy includes technology-specific targets that apply to each utility, and also includes swine and poultry waste targets for swine waste and poultry waste that apply to the state as a whole and do not assign individual requirements for each utility. The North Carolina Utilities Commission (NCUC) administers the statute and is responsible for implementing rules and modifying the compliance schedule. Currently, NCUC rules do not specify penalties or alternative payment for noncompliance, but NCUC does have authority to enforce compliance with REPS.

Eligible Renewables under the North Carolina REPS Eligible Renewable Sources in NC include: Solar Wind Power Hydroelectric Power (up to 10 MW) Ocean Current or Wave Energy Biomass Landfill Gas Combined heat and power (CHP) using waste heat from renewables Electricity demand reduction (differs from “energy efficiency measures”)

Renewable Energy Credits in NC North Carolina utilities may comply with REPS by acquiring Renewable Energy Credits (RECs). Under NCUC rules : RECs must be purchased within three years of their generation, and must be retired within seven years from when their cost was recovered. A REC is equivalent to 1 MWh of electricity derived from a renewable energy source, or an equivalent amount of thermal energy in the case of CHP and solar water heating, or 1 MWh of electricity avoided through an efficiency measure. Utilities may use unbundled RECs from out-of-state renewable energy facilities to meet up to 25% of the portfolio standard. (Dormant Commerce Clause issue?) Qualifying out-of-state facilities are (1) hydroelectric power facilities with a generation capacity up to 10 MW, or (2) renewable energy facilities placed into service on or after January 1, Suppliers with fewer than 150,000 customers are not limited in the amount of out- of-state renewable energy RECs they may procure to meet the standard. RECs do not include credit for emissions reductions from certain greenhouse gases (oxides of sulfur and nitrogen, mercury or carbon dioxide).

Are RPS Programs Effective? Between 2001 and 2011, the RPS programs of 26 states began to require their first compliance targets.

In that Time, the Share of Electricity Generated by Renewables Increased in Most of Those States This increase was driven by renewable sources other than hydroelectric. Maine had the highest percentage of non- hydroelectric renewable generation, at 27% of total in-state generation, up from 20% in ME’s RPS program, amended in 2000, mandates that 40% of the state’s electrical power come from renewable sources by South Dakota and Iowa followed, with 21% and 17%, respectively, in 2011, up from 1% and less than one percent in SD’s RPS Goal of 10% of retail electricity be generated renewables by 2015 was enacted in IA’s RPS was amended in 2003 and requires that its investor-owned utilities generate or acquire 105 MW of renewable electricity. In 2011, the states with the largest shares of generation coming from renewables, including hydroelectric, were: Idaho (93%), Washington (82%), and Oregon (78%).

Growth in Renewable Power Generation While Hydroelectric generation is the biggest source of renewable electricity, it is highly variable from year to year, and is often separated from other renewable sources. Wind has been the driving force behind the increase in renewable generation of electricity, and accounts for the biggest increase across all states.

Using RPS to Project Renewable Power Generation In 2020, compliance RPS targets will result in renewables accounting for nearly 10% of U.S. electricity sales. Currently, most states meet or exceed their RPS requirements, a trend that is expected to continue in the foreseeable future.

RPS Programs and the Constitution Under the Supreme Court’s interpretation of Article I, § 8’s grant of Congressional authority to regulate Interstate Commerce, the Dormant Commerce Clause prevents states from engaging in economic protectionism by favoring their own industry over out-of-state competition. State laws that are facially discriminatory to Interstate Commerce are subject to strict scrutiny (compelling state interest + narrowly tailored), and will be found invalid unless the state can show that the policy serves a sufficiently legitimate state interest which could not be served as well by available nondiscriminatory means. Maine v. Taylor, 477 U.S. 131 (1986). An over-arching goal of environmental preservation is not a sufficient state justification to render a discriminatory regulation valid. W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 206 (1994).

Problem? Most state RPS programs are designed to favor in-state production of renewable energy, not to foster interstate commerce. North Carolina as an example: Under NC’s RPS (REPS) only 25% of a major supplier’s obligation can be met by acquiring RECs from qualifying out-of-state renewable facilities. Does this mean that an RPS that favors in-state production of renewable energy is unconstitutional economic protectionism? Possibly….Richard Posner thinks so.

Illinois Commerce Commission v. FERC, Case Nos (7 th Cir. 2013). Michigan’s RPS requires utilities to provide retailers with at least 10% of renewable energy by 2015 and forbids suppliers from counting out-of-state sources. Posner’s dicta: (Michigan’s RPS was not at issue) “Michigan cannot, without violating the Commerce Clause of Article I of the Constitution, discriminate against out-of-state renewable energy.” Such a law “trips over an insurmountable constitutional objection.”

RPS Implications? Two Possible Answers Major Implications for the RPS landscape going forward Ann Carlson, Professor of Environmental Law at UCLA Carlson argues that Judge Posner's language "creates new legal doubts about the constitutional validity of a number of states' renewable portfolio standards.“ Carlson says that Posner’s dicta will cloud many other states' RPSs that discriminate against out-of-state renewable projects, and assumes that many of these states will have to either amend their RPSs or face constitutional challenges down the road. State RPS programs are more than economic protectionism Steven Weissman, Professor of Energy Law at Boalt Hall Weissman argues that had Judge Posner engaged in a more thorough Commerce Clause analysis of Michigan's RPS, he would have been satisfied with the state's rationale for favoring in-state sources. Weismann contends that RPS programs like Michigan's are "not all about protectionism“ because there are logical and compelling reasons a state would want to purchase renewable energy from a nearby source, such as displacement of local pollution from traditional power plants and improving local grid reliability.

Potential Solutions? Revise discriminatory RPS programs to exclude provisions that discriminate against interstate purchase of electric power in favor in-state renewable sources. Still promotes renewables, but no guarantee of the same positive effects at home. Market Participant Exception States that issue and require utilities to purchase RECs are market participants, and can place those RECs in commerce with restrictions. Therefore, it would permissible for a state to require utilities operating within its jurisdiction to purchase a certain portion of the RECs it issues as long as the RPS does not discriminate based on the geographic location of the renewable source of the electricity. Promotes renewables, but doesn’t guarantee that a state’s grid will reflect its goal because a utility can still trade the REC by selling the renewable energy to another state. Federal Legislation Congress could expressly permit states to implement RPS provisions or implement a Federal RPS. In his 2011 State of the Union Address, President Obama encouraged Congress to establish a national “clean energy standard” of 80% by While national RPS-like laws have had success in a number of other countries, it would likely better to allow states to continue to shape their own renewable energy policy, thereby avoiding the potentially serious hurdles that shaping and implementing a Federal RPS would face. The Federal Power Act already recognizes a qualified state authority over exportation of electric energy from its jurisdiction. 16 U.S.C. § 824(b)(2). Why not expand?