The utility’s role is changing, and regulation must change along with it – to spur innovation and respond to evolving customer needs. Modernizing the industry will require a dynamic approach.
Aligning renewable energy incentives with RPS compliance.
According to the Database of State Incentives for Renewables and Efficiency, 1 all 50 states have adopted some form of financial incentive program to encourage the development of renewable energy. Incentives may take the form of tax breaks, rebates, grants, low-cost loans, expedited siting and similar measures, and in many cases, all of the above. Most states have adopted a combination of such programs targeting renewable projects.
In parallel with financial incentives, 29 states have adopted renewable portfolio standards (RPS), which over time are requiring more substantial percentages of electric load to be served from renewable resources. As RPS mandates escalate, however, questions emerge regarding whether the goals of renewable incentive programs to promote local resources and in-state economic development are consistent with the idea of achieving RPS compliance in the most cost-effective manner. As the cost of RPS compliance also increases, there should be a greater focus on the relative costs and benefits of current incentive programs and the sufficiency of resources expected to be available through the renewable energy credit (REC) markets.
The state of Connecticut provides an example of an all-of-the-above approach to incentives for renewable energy. The state has aggressive RPS requirements, and has a variety of programs in place to encourage the development of local resources, including utility-backed contracts to qualifying projects, and customer grants for distributed generation projects utilizing renewable technologies, among other financial incentives. Programs are funded by a line-item charge on electric bills.
Recent proceedings before the state public utilities commission have highlighted the emerging struggle to balance program objectives of promoting in-state resources and economic development, with consideration of the substantial above-market costs and ratepayer impact of those programs, and the cost of RPS compliance generally. To date, most of the state’s RPS requirements have been met through market purchases of RECs from out-of-state resources, with costs embedded in utility standard-service contracts or retail-supply contracts. While this likely will continue to be the model for most of the state’s RPS compliance, Connecticut now has authorized electric distribution companies to seek proposals for long-term REC contracts. This effort could serve the dual purposes of providing an incentive to the regional REC market while mitigating the cost of RPS compliance, aligning these thus-far competing objectives.
Connecticut is among the 29 states and the District of Columbia that have adopted RPS. As of 2009, the state’s RPS requirement requires that 12 percent of load be served from renewable resources, increasing to 27 percent by 2020. The percentages are shared among three categories of resources, with the predominant amount designated for class-I resources, which include solar, wind, landfill gas, ocean thermal, wave or tidal power, low-emission advanced renewable energy conversion technologies, certain run-of-the-river hydro and sustainable biomass facilities. Connecticut also classifies fuel cells as a class-I resource. Suppliers meet the RPS requirements by purchasing RECs created through the New England Power