As this is a new blog, I thought it would be a good idea to have the first few posts give a broad overview of some of the big concepts in renewable energy law before diving into the more nuanced issues that are dominating the current conversation. With that in mind, it seemed appropriate to start with one of the biggest forces driving the current renewable energy boom in the United States, Renewable Energy Standards.
While it may seem that governmental renewable energy incentives have gained an increasing amount of momentum in our national discourse in recent years, it may surprise you to know that some states have been on the cutting-edge of renewable energy promotion for just shy of three decades. In fact, in 1983 Iowa became the first state to implement a program known as Renewable Energy Standards (“RESs”) to encourage the development of alternative energy projects within its borders.
Though today RES programs come in many varieties, they are essentially state legislative initiatives that require a certain threshold percentage of a utility’s total energy portfolio be generated from renewable sources (such as wind, solar, biomass, geothermal or other sources) by a certain date in the future. For example, the state of Kansas requires all public utilities within the state to derive 10 percent of their total energy from renewable sources by the year 2011, 15 percent by the year 2016 and 20 percent by the year 2020.
Though this is a reasonably simple concept on paper, under most state RES programs, each utility does not necessarily have to construct renewable projects to meet these threshold amounts. To account for utilities that do not currently have sufficient access to a renewable resource, or that have not yet developed renewable energy projects to take advantage of the resources that are available, most RES programs allow an alternative path to compliance through Renewable Energy Credits (“RECs”). It is perhaps easiest to think of a REC as a piece of paper which states that the holder has generated 1 MW of renewable energy that can be counted toward satisfying the state RES. If Utility A cannot generate enough renewable energy to meet the RES, they may purchase RECs from Utility B who has generated more than enough renewable energy to meet its RES threshold.
If the laws and regulations are drafted carefully, creating a market for these RECs allows states to exert additional pressure on utilities to build their own renewable projects, as this will inevitably be cheaper than purchasing RECs on the open market. There are numerous issues that can strengthen or weaken the total impact of a RES standard as it is being drafted (such as rate caps, geographic sourcing, etc.), and I am planning on getting into these issues in more detail in an upcoming post.
With that background, you may be wondering how common these Renewable Energy Standards have become in the United States. Currently, 36 states plus the District of Columbia and Puerto Rico have enacted some form of RES. Because these RESs were implemented independently of one another, they vary significantly from state-to-state, with goals ranging from Hawaii’s 40% by 2030 to Arizona’s 15% by 2025. Similarly, the penalties for not meeting the standards range significantly, from mandatory fines (the most common result) to no fines at all (as in North Dakota).
The wide-spread adoption of RES by the states has not gone unnoticed by the lawmakers in Washington. However, though there have been several bills introduced by this and the previous Congress which would enact a federal RPS that must be followed by each state, as of this writing, it does not appear that any action will be taken any time soon.