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Repowering our nation’s energy future: The Waxman-Markey Renewable Energy Standard

Pierre Bull

Posted April 7, 2009 in Moving Beyond Oil, Solving Global Warming, U.S. Law and Policy

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"A wise [nation] will make more opportunities than [it] finds." Francis Bacon

The Waxman-Markey renewable electricity standard (RES)  will put us on a path to achieve 25% renewable energy by 2025 in our nationwide electricity supply.  It offers an ambitious challenge to guide a new era of American innovation for the 21st Century that benefits our economy and environment.  For example:

  • Nearly 300,000 new jobs from renewable energy development
  • $263 billion in new capital investment
  • $64 billion consumer savings
  • 277 million metric tons of avoided CO2 emissions (45.3 million cars worth!)

In the remainder of this post I have laid out further background and discussion on the structural and functional policy underpinnings of the national renewable energy standard (RES) provision in the Markey-Waxman discussion draft bill (a.k.a the American Clean Energy and Security Act).

Key takeaway: the RES in the draft bill requires an increasing percentage of electricity sold by utilities to come from renewable sources, reaching 25 percent by 2025.  This goal is reached through incremental compliance targets per the schedule below:

 RES schedule to 2025

  • Broad coverage. Includes retail electric utility service providers -investor-owned, municipals, rural cooperatives - who sell at least 1 million megawatt-hours of electricity each year. 

Past RES provisions have excluded publicly-owned utilities (municipals and rural cooperatives) and set too high of a minimum utility size, which would effectively exempt as much as 20 percent of all electric utility service providers.

  • Compliance flexibility. Allows utilities to meet their obligations by buying, selling, trading and banking federal Renewable Energy Credits (RECs). 
  • Reasonable REC price ceiling. An "alternative compliance payment" (ACP) is set at $50 per megawatt-hour ($0.05 per kilowatt-hour). 

Previous RES provisions have set the ACP as low as $30 per megawatt-hour, which greatly diminishes the effective financial leverage of REC's and REC trading.

  • REC revenue distribution rewards renewable expansion. A "renewable electricity deployment fund" would be established based on the revenue received by the primary auction of REC's from DOE (as well as any revenues from ACP's) to utilities.  At the end of each year, this fund will distribute funds in proportion to the percentage of utility-claimed REC's generated from the production of renewable energy from eligible facilities. 
  • Extra credit for distributed resources. Provides three times the amount of RECs for electricity generated by distributed renewable sources such as solar photovoltaics. 

Depending on the given location - often within urban locales - clean, distributed renewable energy sources offer superb benefits to both the local electrical grid (e.g. voltage support) and local air quality by forgoing the potential for dirty, oil-fired back-up or emergency power generators to run in response to peak electrical demand.

  • Protects state RPS's. The bill provides that the federal RES will not interfere with individual states RPSs and associated policies.  Absent federal leadership and funding for over a decade, 28 states plus the District of Columbia have set their own RPS goals and accompanying renewable energy development mechanisms to realize the vast economic and environmental benefits afforded by home grown renewable energy development.
  • Critical lands and habitat protections on eligible biomass. Certain resources, such as old-growth and mature forests, are excluded in order to protect critical lands and habitats.

All previous RES provisions would have allowed harvesting of biomass and biofuels resources from protected federal and state lands. NRDC continues to do extensive work on the issue of renewable energy development and critical lands protection.  As my colleague Johanna Wald blogged earlier this week, we cannot simply trade-off critical wildlife habitat and sensitive lands for cheap or easy access to certain renewable energy resources. 

  • Governor's petition. Governors may petition to reduce a utility's RES requirement by up to 20 percent in any given year if all entities in the state subject to the Energy Efficiency Resource Standard (EERS) established by Title II of the draft bill are in compliance that year.

Although the instant "20% off 'coupon' for utilities" may be overly generous, we think this is a novel idea to reward states and utilities who are meeting EERS compliance targets. It provides corrective utility behavior.  Specifically, utilities must work cooperatively together to effectively administer and evaluate energy efficiency delivery so that no single utility falls out of EERS compliance, thus causing all utility entities within the state to forgo the "20% off 'coupon' on each utility's annual RES compliance."    

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Comments

Jean-Philippe DenruyterApr 8 2009 11:20 AM

Thanks for this overview Pierre.
Experience in Europe has shown that, next to targets, carefully designed support policies are crucial to achieve those targets. We can see that Germany and Spain, that implemented a feed-in tariff, are way ahead of the UK with a certificate scheme.
Which leads to the following question: is it really preferable to leave support policies at State level? What about a federal feed-in tariff?
I have also some concerns regarding the certificate scheme. It seems it is used as a tracking system, to demonstrate that each electricity supplier supplies 25% of renewable electricity. But then it is also used as a support scheme, through the deployment fund. Using the same certificates for tracking and for support is a dangerous exercise. For example, giving extra credit (certificates) to distributed power would mean that the 25% target is somehow relaxed, as 3 certificates would be available per MWh. In thre extreme case where only distributed capacity would be installed, the 25% target would be divided by 3.

Or did I miss something?
jp

Pierre BullApr 8 2009 03:48 PM

Jean Philippe,

Very much appreciate your comment and brief analysis. To your first question: we remain skeptical of a federal level Feed-in-Tariff under two main auspices: (1) in the political arena it's conceived as "tax" on utility system customers to pay for more expensive renewables, and (2) without somewhat complicated 'micro' management policy mechanisms an FIT runs the risk of not cost-effectively deploying renewables, which leads to very costly risks of market over- or under-stimulation on a national scale. We think that improving net metering policies (now in several states) to become more uniform around the nation, along with a nationally recognized interconnection standard will greatly clear many of the existing administrative (transaction cost) barriers that impede renewables deployment.

Your second question:
We, too, are not necessarily big fans of the 3x REC multiplier for distributed renewables. However when the idea of REC mulitplier or specific technology carve-out gets discussed in a political context, we run the risk of carving up the RES with too many hand-outs to specific technology types or applications.

Comments are closed for this post.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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