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RPS Race

As green mandates tighten, utilities scramble to comply.

Fortnightly Magazine - September 2008

RECs also depends on the utility regulatory structure in a given state. “Where retail choice is allowed, unbundled REC trade has been a fairly common form of compliance,” Wiser says. In states where utilities still are regulated by their utility commissions, most of the compliance has occurred through long-term bundled renewable electricity contracts, but RECs are used on occasion.

CESA’s Sinclair sees additional challenges. “It’s not clear what the future value of RECs will be, because of political issues in various states related to how strongly their RPS laws will be enforced,” he states. “In addition, RECs differ in each of the 26 states, which prevents a liquid market and makes it more difficult to finance around RECs.”

There are efforts underway to address some of these challenges. For example, the Clean Energy States Alliance is collaborating with several states in a DOE-funded program to harmonize and coordinate RPS programs, toward the goal of creating a national, or at least regional, REC market.

“Some parts of the country are better suited for certain kinds of renewables than others,” says Karen Hyde, vice president of resource planning and acquisition for Xcel Energy. “Over the long term, a vibrant REC market will help the United States meet renewable energy standards, because there are parts of the country that are better suited for certain kinds of renewables than others.”

But political challenges likely will persist, because many states have tied economic development goals to their RPS programs, and aren’t eager to have their ratepayers finance development in other states. “They would rather see their RPS requirements met through generation in their own back yards,” Sinclair says.

Greening America

Would a Federal RPS solve all, most, or even some of the challenges utilities face meeting state-mandated RPS requirements?

Federal RPS legislation has passed the U.S. Senate on three occasions since 2002. In August 2007, the House passed a federal RPS for the first time, as an amendment to a larger energy bill. The Senate, however, was unable to break a filibuster to include the RPS in the final energy bill.

According to Lawrence Berkeley’s Wiser, lawmakers have proposed seven different options for a federal RPS. However, most discussions these days revolve around two. The first is to establish a federal RPS that simultaneously pre-empts state RPS policies. The second—generally considered more politically viable—is to establish a federal RPS that also allows states to develop and maintain different and more stringent requirements.

Whether either of these will come to fruition remains uncertain, and depends on the future direction of national politics. Competing priorities might push federal RPS legislation to the back burner. “The prospect for a federal RPS may dim if legislators focus more attention on the overarching carbon problem,” Wiser says.

However, because states have proven that RPS are significant drivers of new renewable energy, Sinclair says Congress eventually will enact a federal RPS. “A federal RPS could go a long way to creating a national renewable energy market and a national REC market, which would provide a lot more stability for financing renewable projects,” he