A Birthday Celebration for RPS Policies

Nevada and Massachusetts, two of the first adopters of modern-day renewable portfolio standards (RPS), just celebrated their policies’ 20th birthdays.

Aug 29, 2018
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The paper in Nature Energy is here: https://go.nature.com/2LFYq2k

Well, if they did not celebrate, I wish they had. Twenty is a big year, and one that calls for reflection.  For an individual, the first 20 years of one’s life is an evolution of learning to crawl, then walk, run, then drive; learning to think on one’s own; and becoming aware of one’s place in the world. It is a particularly appropriate time to stop and reflect on one’s experiences—and to think about what the future might hold. The same is true for state RPS policies. This turning of an era was part of what motivated my coauthors and me to write “Empirical evaluation of the stringency and design of renewable portfolio standards,” published in Nature Energy.

An RPS is a mandate that specifies a percentage of total electricity that must come from renewable energy in a terminal year (e.g., 20% renewables by 2020). They are incredibly important in U.S. renewable energy policy, since roughly two-thirds of states have adopted them. In implementation, most utility commissions break the RPS percentage targets down into annual estimates of renewable energy generation, which a utility must then achieve either through developing renewable generation itself or by purchasing renewable electricity certificates. RPSs are always the favored topic of my energy students because it is such a seemingly bizarre policy instrument: a command-and-control regulation with an embedded market-based tradable permit system, and a diverse set of design features that offer extra credit for some energy resources, introduce escape clauses, and apply penalties for non-compliance.

As the U.S. delays progress on federal climate goals, the role of state RPSs in national energy and climate policy becomes increasingly important. Meanwhile, states have now accumulated years of experience with their RPS policies. In the process, they have continually refined not only these laws’ policy design but also the markets in which RPS-induced renewables operate. There is an opportunity here to learn from these aggregate, amassed, and divergent experiences. The lessons should provide key insights for policymakers, practitioners, and market players.

Our study on RPS policies, their design, and their varied effects on electricity markets was the result of a collaboration. Our group of scholars spanned the social science disciplines: policy, law, economics, and business. Each discipline had different insights to offer: for example, on the intricacies of RPS legislation; how renewable electricity operates within wholesale power markets; how to code design features; and how to ensure statistical validity when dealing with a policy that was adopted by states not at random.

Our eclectic group began with an enthusiasm about RPSs’ 20-year birthday and a deep appreciation of both the sophistication and heterogeneity of RPS design. We ended our study with an even deeper appreciation of these laws’ design, and the main finding that policy design matters. Writing stringent RPSs is the most important decision that policymakers can make. But they can also improve their state’s chances of developing new wind, solar, and other renewables if they are careful about which resources they designate as eligible, require frequent planning processes, and ensure some degree of cost recovery.

Sanya Carley

Associate Professor, Indiana University

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