[BETA] Fortnightly

Most policymakers consider renewable energy incentives as a cost-competitive approach to reduce fossil-fuel generation and reduce future greenhouse-gas (GHG) emissions from the utility sector. Because of renewable’s much higher production costs, 29 states have adopted renewable energy standards (RES) that close a portion of their retail electricity markets to only qualifying renewable energy generation sources—namely biomass, wind, solar, geothermal and in some cases new hydro (see Figure 1) . These state standards have triggered the rapid expansion in non-hydro renewable generation that has grown by more than 50 percent from 81 TWh in 2000 to 123 TWh in 2008. Non-hydro renewable sources now account for 3 percent of U.S. power generation.

The full cost and impact of these state standards have yet to be felt since they are initially set at low market shares and are gradually increased over time. By 2020, the state renewable set-aside market is anticipated to reach 335 GWh (see Figure 2) . This protected market will represent 7.9 percent of the 2020 U.S. retail power market.

Congress has taken interest to adopt a national RES as a strategic element in its efforts to control future GHG emissions. In June 2009, the House of Representative passed the American Clean Energy and Security Act, which contained a national RES. Starting in 2012, this standard would require 6 percent of qualifying retail sales to come from a combination of renewable sources and incremental energy efficiency measures, with the standard steadily increased to reach 20 percent by 2020. Given the exemptions for small utility systems ( i.e., those with less than 4 TWh of annual retail sales, representing 26 percent of the U.S. market and totally eliminating five states—Alaska, Hawaii, North Dakota, South Dakota and Vermont) and baseline exclusions (hydroelectric and new nuclear generation), the net effect of this provision is to require between 335 and 560 TWh of non-hydro renewable generation by 2020 (see Figure 3) . Since utilities can use incremental energy-efficiency programs to meet up to 40 percent of the bill’s renewable requirements, the generation number will fall within this range, depending on the savings gained from energy-efficiency programs. In essence, Waxman-Markey would set aside an additional 135 GWh of new retail power demand by 2020 (beyond current state requirements) that must be met through qualifying renewable generation or incremental energy-efficiency measures.

Where, within this range, the final requirement falls depends upon the incremental energy-efficiency savings utilities can gain, since certified energy savings can be used to meet up to 40 percent of the bill’s renewable requirements.

These state and national renewable electricity standards likely will pose a significant challenge to the electric utility industry and have significantly different regional impacts. Based upon current DOE-EIA and EVA studies, the vast majority (80 to 90 percent) of the expanded renewable energy requirements will come from biomass and wind resources. Each renewable option faces significant technical, economic and