Renewable Energy: Toward A Portfolio Standard?

Fortnightly Magazine - August 1998
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DEREGULATION PRESENTS WHAT IS PERHAPS THE BEST opportunity yet for renewables to stake a lasting claim in the electricity market.

Since most energy from renewable sources still isn't priced competitively with fossil-fueled technologies, many restructuring proposals at state and federal levels include various support mechanisms intended to drive down the renewable generation costs. The initial added expense is a necessary trade-off, advocates say, for the resulting reductions in emissions and energy price volatility.

One idea that has gained much credence is the renewable portfolio standard. Largely the brainchild of the American Wind Energy Association, the RPS would establish an across-the-board minimum of electricity that must be generated from renewables. Depending on how it is set up, the RPS would require either electricity generating companies or retailers to prove they've supported a level of renewable energy generation equal to a set percentage of annual kilowatt-hour sales. This target level of renewables would be phased in, then phased out once renewables become price-competitive.

What makes a mandatory RPS palatable to many regulators and utility officials is its market-based approach. Modeled after the federal sulfur-dioxide allowance trading program, the RPS would allow energy companies to buy and sell renewable energy credits to meet the standard in the most cost-effective way. One credit would be issued for every kilowatt-hour of electricity generated by a renewable operation. An energy generator could choose to meet the RPS by investing in a renewable operation and producing its own RECs, buying power from an outside renewable source, or simply purchasing RECs.

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