New CESA Report – “Designing the Right RPS”

The renewable portfolio standard (RPS) has become the most important policy mechanism for advancing renewable energy in the United States. A new report from the Clean Energy States Alliance (CESA) summarizes key lessons learned to-date about RPS program design, including best practices to emulate and pitfalls to avoid.

The report, titled “Designing the Right RPS: A Guide to Selecting Goals and Program Options for a Renewable Portfolio Standard,” benefits from CESA’s decade of experience working with clean energy innovators in states that have not waited for federal policymakers to set the clean energy agenda. Currently, 29 states plus the District of Columbia and Puerto Rico have a mandatory RPS, and eight other states have a nonbinding goal. These programs have created an effective learning laboratory, providing insight into which program design features are important to consider when setting up or modifying an efficient, cost-effective RPS.

Among the report’s insights:

• Be clear and specific about goals. An RPS can help meet a variety of different environmental, economic, and political goals. For an RPS to be successful, states should be clear up front about what specifically they wish to accomplish.
• Be aware of how an RPS relates to and interacts with the RPSs of nearby states. The electricity grid in most states is part of a regional system and often part of a single regional wholesale market. Markets will be more robust and procurement costs will be lower if nearby states have similar resource eligibility definitions, compliance mechanisms, compliance periods, and other RPS features.
• Don’t neglect companion policies to help renewable energy projects secure financing and/or long-term contracts. RPSs are often not enough to guarantee that a project developer can secure financing for a cost-effective renewable energy project. There are a variety of ways for policymakers to address financing and long-term contracts issues within the context of an RPS or with related policies.

Although CESA’s new report was written primarily to help state policymakers who are seeking to design a new RPS or modify an existing one, it can also be used by anyone who wants to understand the strengths and weaknesses of different RPSs, or who wants to know how and why the RPSs in various states differ.

An RPS works by requiring electricity suppliers to get a certain percentage of their electricity from renewable energy or other clean energy sources. To stimulate the gradual but continued development of new renewable energy facilities, the percentage generally increases over time.

Because an RPS does not set a specific price that electricity suppliers must pay for renewable energy generation, there is competition among generators to sell to electricity suppliers and that competition theoretically ensures that renewable energy is secured at the least cost. A variety of alternative terms are used somewhat interchangeably to describe a “renewable portfolio standard.” These include renewable electricity standard, renewable energy standard, clean energy standard, and clean energy portfolio standard.

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For more information about renewable portfolio standards, including reports, webinars, and free monthly newsletters, visit the State-Federal RPS Collaborative webpage. The RPS Collaborative is a project of the Clean Energy States Alliance (CESA).