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Friday, November 26, 2010

Options for a Federal Renewable Electricity Standard

Richard J. Campbell
Specialist in Energy Policy

The choice of power generation technology in the United States is heavily influenced by the cost of fuel. Historically, the use of fossil fuels has provided some of the lowest prices for generating electricity. But growing concerns over greenhouse gas emissions and other environmental costs associated with burning fossil fuels are leading some utilities and energy providers to deploy more renewable energy technologies to meet power demands.

State governments have generally led the way in encouraging deployment of renewable energy technologies. Many states are essentially picking up where federal research and development dollars left off, using a Renewable Portfolio Standard (RPS) to create a market for renewable energy via mandatory requirements. While most RPS goals are expected to be met, about 12 states have existing provisions expiring by 2015, and approximately 14 states and the District of Columbia have existing RPS or related provisions scheduled to expire by 2020.

Wide-scale deployment of renewable energy technologies is at the heart of policy discussion for a national Renewable Electricity Standard (RES), which would require certain retail electricity suppliers to provide a minimum percentage of the electricity they sell from renewable energy sources or energy efficiency. Green jobs growth from renewable and clean energy development is one of the goals of RES policy development; however, embedded energy efficiency requirements could also act to reduce the need for new renewable electricity generation facilities. An alternative Clean Energy Standard would provide incentives to certain advanced coal and nuclear facilities while also targeting retirement of older, polluting fossil fuel generation. Most of the opposition to an RES concerns the potentially higher cost to consumers of compliance using renewable electricity technologies.

The United States has traditionally relied primarily on market forces and temporary tax incentives to encourage the development and deployment of new technologies. This strategy is the “business as usual” model. However, several other forces are in play that call into question the “business as usual” model for innovation and deployment of renewable energy technologies. Even with generous tax incentives, non-hydro renewable electricity constituted approximately 4% of U.S. electric power industry capacity as of 2009. If renewable electricity is to play a larger role in the electricity future of the United States, many maintain that federal action may be necessary. As a result, some observers have argued for governmental intervention to bolster and accelerate U.S. activities relating to renewable energy.

A federal RES could offer an opportunity to drive renewable energy market growth by creating a compliance requirement nationally, bridging the gap of expiring or lower state RPS standards into future years. A Feed-in Tariff (FIT) is an alternative incentive concept to drive renewable energy growth via a mandatory purchase requirement by electric utilities. However, current U.S. law limits options for a national FIT.

The future global clean energy market has been estimated by 2020 to have sales as high as $2.3 trillion, and, as such, would be one of the world’s biggest industries. Many nations are moving to secure a share of the expected rewards. Many argue what still appears to be missing is a longterm U.S. national energy policy that fully considers the costs and benefits of paths forward. The vision and clarity of a U.S. plan of action coming out of a well-defined national energy policy could provide the transparency and regulatory certainty the investment community has long claimed as necessary to help finance the modernization of the U.S. electricity sector.

Date of Report: November 12, 2010
Number of Pages: 31
Order Number: R41493
Price: $29.95

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