7 Ways to Switch America to Renewable Energy
Excerpted from the Executive Summary of Powerful Solutions: Seven Ways to Switch America to Renewable Electricity, UCS, 1999
Over the years, state and federal governments have taken a number of policy actions to encourage renewable energy production. In states committed to seeing them through, the policies have been very successful. New policies are needed if renewables are to compete successfully in deregulated electricity generation markets.
We identify seven effective ways to encourage the wider use of renewable energy:
- Renewables Portfolio Standard
- Public Benefits Funding
- Net Metering
- Fair Transmission and Distribution Rules
- Fair Pollution Rules
- Customer Information
- Putting Green Customer Demand to Work
Renewables Portfolio Standard
The renewables portfolio standard (RPS) would use market mechanisms to ensure that a growing percentage of electricity is produced from renewable sources. By establishing tradable "renewable energy credits," the RPS would function much like the Clean Air Act emissions allowance trading system. Five states have enacted minimum renewables requirements during restructuring; three others have set pre-restructuring state minimums. Together these bills are likely to preserve 1,500 MW of existing renewables and lead to development of 1,700 MW of new renewables. Connecticut has the highest overall state target; Arizona the highest solar support. Six 1998 federal bills contain RPS provisions.
An RPS can ensure steady, predictable growth of the renewable energy industry. That would enable the industry to obtain lower-cost financing and achieve economies of scale and production that would make the technologies more competitive. The RPS would ensure that the lowest cost renewables are developed by creating competition among renewable developers. The RPS would have low administrative costs, since the market would decide what kinds of renewable energy would be produced.
Public Benefits Funding
Another way of encouraging a switch to renewable sources is to fund renewable energy development with a small charge on all electricity sold. Such a charge could fund specific activities to overcome market barriers and help commercialize new technologies. Seven states have adopted renewables funds totaling about $1 billion over ten years. California has the highest level of total funding; Connecticut the highest per customer.
Public benefits funds can be allocated where they are most needed. For example, they can be directed toward technologies that have great long-run potential, like solar photovoltaics, but are not competitive today even with other renewables. They can also be used for other purposes, including funding programs to increase energy efficiency, public benefits research and development and to ensure electricity service to low-income customers. Moreover, public benefits funds, unlike tax credits and other incentives, allow the level of funding to be precisely defined.
Net metering is an important way to eliminate penalties for households and small businesses that elect to generate their own power from renewable sources (with, for instance, small wind turbines or rooftop solar systems). It allows customers who produce more electricity than they are using at a given moment to feed the surplus back to the utility and only pay for net electricity used over an entire billing period or year. As of November 1998, at least 21 states required net metering, with utilities in two other states also using net metering.
Fair Transmission and Distribution Rules
Some renewables can be sited in or around customer buildings where they can not only replace conventional generation, but help avoid transmission and distribution costs. An important issue is whether these technologies are credited for these savings. In some cases, distributed renewables generation can become cost-effective when these transmission and distribution savings are counted.
New regulations or incentives are needed to encourage distributed generation where it is economic. Options include integrated resource planning for distribution systems and performance-based ratemaking. Massachusetts and Connecticut have required consideration of distributed technologies.
Renewable energy producers, like other generators, need access to the transmission grid and the ability to sell power whenever it is available. New federal rules and regional independent system operators (ISOs) could increase access to customers for renewable generators, and reduce transmission costs for remote facilities. Some proposals for transmission service pricing, however, could unfairly penalize intermittent renewables like wind and solar, by requiring generators to specify sales a day or more in advance and pay penalties for deviating from the amount purchased. Other transmission pricing issues could also affect renewables adversely. An analysis by the Lawrence Berkeley Laboratory shows that charging only for energy transmitted by renewables will produce the least-cost electricity system.
Fair Pollution Rules
Under the Clean Air Act, older power plants are allowed to emit more pollutants than newer plants and, therefore, do not have to spend as much money on pollution controls. On average, these rules save older plants nearly one cent per kilowatt hour compared to new plants, giving them an unfair competitive advantage. Northeast states are especially concerned that deregulation could increase electricity imports from these dirtier, less expensive plants in the Midwest, unless older plants are required to clean up to new plant standards.
Several proposals have been made to reduce the disparity in emissions allowed at different plants. Connecticut and Massachusetts directed their environmental regulators to develop emission performance standards for retail supplier portfolios. Another approach is to develop an overall emission cap in the area affected by a specific pollutant, and to allow trading among companies to meet the cap. The US Environmental Protection Agency has proposed a nitrogen oxides trading scheme for Eastern states. Several federal proposals would create caps for multiple pollutants. A third approach would be to tax emissions, a policy that has gained some favor in other countries.
To exercise their preference for clean energy sources, customers need reliable information about products they are offered. To address this issue, electricity suppliers can be required to label their products. These disclosure labels for fuel sources and emissions would be analogous to nutrition labels on food. A number of states have required disclosure, and others are considering it. In addition, education programs about environmental impacts and choices available in the marketplace, as well as certification of renewable electricity services by an independent organization, can provide important information.
Putting Green Customer Demand to Work
Many surveys have shown that customers are willing to pay more for electricity from clean and renewable sources. At least 40 programs offering customers renewable energy choices were available by mid-1998. Results from initial pilot and marketing experiments are mixed, with low initial participation rates but some signs of long-term promise.
Supportive market rules are important for allowing effective customer choice. Electricity customers who switch suppliers need to receive a shopping credit that includes avoided retail overhead costs, as enacted in Pennsylvania.
Aggregation of small customers can reduce overhead and marketing costs, and facilitate choice of green products. Municipal aggregation, authorized by Massachusetts law, where a city or town votes to purchase electricity for all its residents and businesses, may be especially promising. Government purchases of renewable electricity is another approach to stimulate development.