Cost and benefit of U.S. renewable portfolio standards

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Posted on: 7 Jun 2014

Among the 24 U.S. states, the incremental renewable portfolio standards (RPS) cost over the 2010-2012 period was less than 1 percent of retail electricity rates on average.

7 June 2014 Cost and benefit of U.S. renewable portfolio standards Among the 24 U.S. states for which the requisite data were available, the incremental renewable portfolio standards (RPS) cost over the 2010-2012 period was less than 1 percent of retail electricity rates on average. This is well below the cost caps that most state legislatures have adopted as part of their RPS, according to estimations of a new NREL report. Photo: NREL A renewable portfolio standard (RPS) is a regulatory mandate to increase production of energy from renewable sources. It's also known as a renewable electricity standard. The report, prepared by analysts from the Energy Department’s National Renewable Energy Laboratory (NREL) and Lawrence Berkeley National Laboratory (LBNL), reviews estimates of the costs and benefits of compliance with renewable portfolio standards (RPS) in the United States and explores how costs and benefits may evolve over time. Such estimates can inform policymaker assessments of existing RPS policies, modifications to existing policies, and potential new policies. Renewable portfolio standard policies are in place in more than half of all U.S. states and have played a critical role in driving renewable energy deployment over the past decade. In many states, however, fierce debates have recently arisen regarding the cost of RPS policies, and proposals have been introduced to repeal, reduce, or freeze existing requirements. The study “A Survey of State-Level Cost and Benefit Estimates of Renewable Portfolio Standards” seeks to inform these debates by summarizing available data on the costs and benefits of RPS policies to-date and by highlighting key methodological issues that must be considered. States with RPS deployed 46 gigawatts through 2012 The report draws upon a variety of data sources, including estimates developed by utilities and public utility commissions (PUCs) as well renewable energy certificate pricing, to summarize the net (or “incremental”) costs incurred by utilities to comply with RPS requirements. With RPS policies in 29 states and with most policies in effect for more than five years, we now have a sufficient experience base with which to examine policy impacts, said NREL’s Lori Bird. States that have implemented RPS policies have collectively deployed approximately 46,000 megawatts of new renewable energy capacity through 2012. Based on a review and analysis of data from state compliance filings and other sources, the report finds that the estimated incremental RPS cost over the 2010-2012 period — the cost above and beyond what would have been incurred absent the RPS — was less than 1 percent of retail electricity rates on average. This is well below the cost caps that most state legislatures have adopted as part of their RPS. Quatitative assessments of benefits vary widely The report includes a review of published quantitative assessments of RPS benefits. A limited number of states have developed quantitative benefits estimates, which vary widely in both methodology and magnitude. Approaches to calculating RPS costs and benefits vary within and across states, which limits the ability to make comparisons. “Differences in methodologies and assumptions used by utilities to estimate RPS costs are leading some states to engage in processes to develop standardized methods,” said NREL’s Jenny Heeter. “In future years, the costs as well as the benefits of RPS compliance will be influenced by a variety of factors including technology costs, fuel costs, and increasing RPS target levels, but RPS costs are generally limited by existing policy mechanisms that cap costs, typically at less than 10 percent, and in many cases less than 5 percent, of retail rates,” said LBNL’s Galen Barbose. Key findings from the report The report draws upon a variety of data sources, including estimates developed by utilities and public utility commissions (PUCs) as well renewable energy certificate pricing, to summarize the net (or “incremental”) costs incurred by utilities to comply with RPS requirements. Key findings include: * Among the 24 states for which the requisite data were available, estimated RPS compliance costs over the 2010-2012 period were equivalent to, on average, roughly 1 percent of retail electricity rates, though substantial variation exists across states and years. * Expressed in terms of the incremental (or “above-market”) cost per unit of renewable generation, average RPS compliance costs during 2010-2012 ranged from USD4/MWh (i.e., a net savings) to USD44/MWh across states. * Methodologies for estimating RPS compliance costs vary considerably among utilities and states, though a number of states are in the process of refining and standardizing their methods. * Utilities in eight states assess surcharges on customer bills to recoup RPS compliance costs, which in 2012, ranged from about USD0.50/month to USD4.00/month for average residential customers. * Cost containment mechanisms incorporated into current RPS policies will limit future compliance costs, in the worst case, to no more than 5 percent of average retail rates in many states and to 10 percent or less in most others. * Although typically not considered within utilities’ estimates of net compliance costs, a number of states have separately estimated the value of RPS benefits associated with avoided emissions (ranging from USD4-23/MWh of renewable generation), economic development (USD22-30/MWh), and/or wholesale electricity price suppression (USD2-50/MWh). The report also surveys recent studies that have assessed the magnitude of potential broader societal benefits, though for a variety of reasons, those benefits estimates cannot be directly compared to RPS compliance costs. Sources: NREL LBNL
Posted: 07 June 2014

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