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Renewable Portfolio Standards Fact Sheet
State Policy Resources
Renewable Portfolio Standards: An Effective Policy to Support Clean Energy Supply
Last updated August 2008
A Renewable Portfolio Standard (RPS) provides states with a mechanism to increase renewable energy generation using a cost-effective, market-based approach that is administratively efficient. An RPS requires electric utilities and other retail electric providers to supply a specified minimum amount of customer load with electricity from eligible renewable energy sources. The goal of an RPS is to stimulate market and technology development so that, ultimately, renewable energy will be economically competitive with conventional forms of electric power. States create RPS programs because of the energy, environmental, and economic benefits of renewable energy and sometimes other clean energy approaches, such as energy efficiency and combined heat and power (CHP).1
How Does a Renewable Portfolio Standard Encourage Clean Energy?
An RPS creates market demand for renewable and clean energy supplies. Currently, states with RPS requirements mandate that between 4 and 30 percent of electricity be generated from renewable sources by a specified date. While RPS requirements differ across states, there are generally three ways that electricity suppliers can comply with the RPS:
- Owning a renewable energy facility and its output generation.
- Purchasing Renewable Energy Certificates (RECs).2
- Purchasing electricity from a renewable facility inclusive of all renewable attributes (sometimes called "bundled renewable electricity").
What Are the Benefits of a Renewable Portfolio Standard?
The policy benefits of an RPS are the same as those from renewable energy and CHP:
- Environmental improvement (e.g., avoided air pollution, global climate change mitigation, waste reduction, habitat preservation, conservation of valuable natural resources).
- Increased diversity and security of energy supply.
- Lower natural gas prices due to displacement of some gas-fired generation, or a more efficient use of natural gas due to significantly increased fuel conversion efficiencies.
- Reduced volatility of power prices, given stable or non-existent fuel costs for renewables.
- Local economic development resulting from new jobs, taxes, and revenue associated with new renewable capacity.
Because it is a market-based program, an RPS also has several operational benefits:
- Achieves policy objectives efficiently and at a relatively modest cost (ratepayer impacts range from less than 1 percent increases to 0.5 percent savings).
- Spreads compliance costs among all customers.
- Minimizes the need for ongoing government intervention.
- Functions in both regulated and unregulated state electricity markets.
- Provides a clear and long-term target for renewable energy generation that can increase investors' and developers' confidence in the prospects for renewable energy.
Which States Have Established Renewable Portfolio Standards?
As of August 2008, RPS requirements or goals have been established in 32 states plus the District of Columbia (see Figure 1). Twelve of these states include CHP or waste heat recovery as an eligible resource, and Arizona explicitly includes renewable fueled CHP systems. More than 2,300 megawatts (MW) of new renewable energy capacity through 2003 was attributable to RPS programs.3 As of August 2007, the Union of Concerned Scientists projects that state standards will provide support for 46,270 MW of new renewable power by 2020—an increase of 340 percent over total 1997 levels (excluding hydro).4
Tremendous diversity exists among these states with respect to the minimum requirements of renewable energy, implementation timing, and eligible technologies and resources (see Figure 2).
Source: Database of State Incentives for Renewable Energy (DSIRE) last accessed August 2008, www.dsireusa.org 
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States with RPS
States with RPS Goals
What Are the Key Features of a Renewable Portfolio Standard?
States have tailored their RPS requirements to satisfy particular policy objectives, electricity market characteristics, and renewable resource potential. Consequently, there is wide variation in RPS rules from state to state with regard to the minimum requirement of renewable energy, implementation timing, eligible technologies and resources, and other policy design details. The key features of effective RPS requirements are outlined below in the following sections.
Goals and Objectives. To produce the best RPS design for the state, it is important to articulate goals and objectives early in the process. Clear goals serve as a guide for design choices and avoid protracted rule implementation debate. There can be multiple goals for an RPS, and some states aim for a broader set of objectives than others. Examples of broader goals and objectives include local, regional, or global environmental benefits; local economic development goals; hedging fossil fuel price risks; and advancing specific technologies.
Figure 2. State RPS Requirements
| State | Target (Specific Provisions) % of electricity sales |
State | Target (Specific Provisions) % of electricity sales |
|---|---|---|---|
| AZ | 15% by 2025 (4.5% by 2012 from distributed energy resources) | NC | IOUs 12.5% by 2021; electric cooperatives 10% by 2018 (Energy efficiency measures up to 3.13%: 5% after 2021) |
| CA | 20% by 2010 | NJ | 22.5% by 2021 (2.12% from solar by 2021) |
| CO | Investor-owned utilities (IOUs) 20% by 2020; electric cooperatives and municipal utilities 10% by 2020 (IOUs: 4% solar by 2020) | NM | IOUs 20% by 2020; rural electric cooperatives 10% by 2020 (Wind: 4%; solar: 4%; biomass and geothermal: 2%; distributed renewables: 3% by 2020 [IOUs only]) |
| CT | 27% by 2020 (4% energy efficiency and CHP by 2010) | NV | 20% by 2015 (1% solar by 2015) |
| DC | 11% by 2022 (0.386% solar by 2022) | NY | 24% by 2013 (0.154% customer-sited by 2013) |
| DE | 20% by 2019 (2.005% solar by 2019) | OH | Target: 25% by 2020 - 12.5% renewable energy (1% solar by 2025) |
| HI | 20% by 2020 | OR | Large utilities (>3% state's total electricity sales) 25% by 2025; smaller utilities 5-10% by 2025 (depending on size) |
| IA | 105 MW | PA | 18% by May 31, 2021 - 8% renewable energy (0.5% solar by May 31, 2021) |
| IL | 25% by 2025 (18.75% wind by 2013) | RI | 16% by 2020 |
| MA | 4% by 2009 with 1% added per year after 2009 | SD* | Target: 10% by 2015 |
| MD | 20% by 2022 (2% solar by 2022) | TX | 5,880 MW by 2015 (At least 500 MW from renewables other than wind) |
| ME | 30% by 2000; 10% new by 2017 | UT* | 20% by 2025 |
| MN | Xcel Energy (utility) 30% by 2020; other utilities 25% by 2025 (Xcel Energy: 25% wind) | VA* | 12% of 2007 sales by 2022 |
| MO* | 11% by 2020 | VT* | 20% by 2017; total incremental energy growth between 2005 and 2012 to be met with new renewables [10% cap] |
| MT | 15% by 2015 | WA | 15% by 2020 |
| ND* | 10% by 2015 | WI | 10% by December 31, 2015 |
| NH | 23.8% by 2025 - 16.3% new (0.3% solar by 2025) |
* States with RPS goals not mandatory requirements.
Source: Database of State Incentives for Renewable Energy (DSIRE) last accessed January 2008, www.dsireusa.org .
Applicability. RPS requirements are most commonly applied to investor-owned utilities and electric service providers. It is unusual for mandatory RPS requirements to extend to municipal utilities and cooperatives, as these entities are predominately self-regulated. However, some states have included provisions for municipal utilities and cooperatives to voluntarily join the RPS program or to "self certify."
Eligibility. States are finding that defining which energy resources and technologies qualify as eligible under RPS requirements (see Figure 3) can be a complex process. Eligibility usually depends on whether or not an energy resource or technology supports the goals and objectives established for the RPS. Issues that states typically have considered include:
- What fuel sources and technologies are eligible?
- Do existing renewable sources count toward compliance?
- What geographic areas are eligible (e.g., generation within the state boundary or within a regional power pool)?
- Are central and customer-sited systems treated differently?
Figure 3: Eligible Technologies Under State RPS Requirements
| Energy Source | AZ | CA | CO | CT | DE | DC | HI | IA | IL | MA | MD | ME | MN | MOa | MT | NC | NDa | NH | NJ | NM | NV | NY | OH | OR | PA | RI | SD | TX | UT | VAa | VTa | WA | WI |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Biofuels | • | • | • | • | • | • | • | • | • | ||||||||||||||||||||||||
| Biomass | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • |
| CHP/Waste Heat | •c | • | • | • | • | • | • | • | • | • | • | • | • | ||||||||||||||||||||
| Energy Efficiency | • | • | • | • | • | • | • | • | • | ||||||||||||||||||||||||
| Fuel Cellsb | • | • | •d | • | • | • | |||||||||||||||||||||||||||
| Geothermal | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | |||||||
| Hydro | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • |
| Landfill Gas | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | |
| Municipal Waste | • | • | • | • | • | • | • | • | • | • | • | • | • | ||||||||||||||||||||
| Ocean Thermal | • | • | • | • | • | • | • | • | • | • | • | • | • | • | |||||||||||||||||||
| Photovoltaics | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • |
| Solar Thermal Electric | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | ||||
| Tidal | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | ||||||||||||||
| Waste Tire | • | ||||||||||||||||||||||||||||||||
| Wave | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | |||||||||||||||
| Wind | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • | • |
a States with RPS goals not mandatory requirements.
b Includes only those states that allow fuel cells using nonrenewable energy sources of hydrogen. Some states allow only renewable fuel cells (Arizona, California, Colorado, Delaware, Massachusetts, Maryland, Missouri, New Mexico, New York, Rhode Island, Wisconsin) as eligible technologies.
c Renewable CHP systems are eligible; fossil-fueled CHP systems are not eligible.
d After January 1, 2010, hydrogen must be generated by renewable energy sources.
Source: Database of State Incentives for Renewable Energy (DSIRE) last accessed August 2008, www.dsireusa.org .
Structure. The structure of an RPS can influence investor confidence, the ability of markets to develop, and opportunities for project developers and investors to recover capital investments. The critical structural elements include:
- Method of accounting for renewable energy (e.g., energy production versus installed capacity requirements; RECs or bundled energy only).
- Time horizons for compliance periods.
- Mandatory or voluntary participation.
- Flexible compliance mechanisms to guard against high prices or the lack of supply of renewable energy (e.g., credit for early compliance, forward compliance banking, deficit banking, establishment of true-up periods, alternative compliance payments).
- Coordination with other energy policies at the federal level (e.g., Federal Production Tax Credit) and state level (e.g., system benefit charges, interconnection standards).
- Cost recovery mechanisms for utilities.
- Enforcement mechanisms for noncompliance.
- The incorporation of "technology tiers" and/or "credit multipliers" to encourage particular technologies (e.g., solar photovoltaic).
Elements of a Successful Policy
Based on the experiences of states that have instituted an RPS, a number of best practices have emerged for designing and implementing an effective RPS. These best practices include:
- Develop broad support for an RPS, including top-level support of the governor and/or legislature.
- Hold facilitated discussions among key stakeholders regarding appropriate RPS design. Key stakeholders include:
- State legislatures.
- Public utility commissions.
- Electric utilities and competitive electric service providers.
- Developers of CHP and renewable energy systems.
- Other stakeholders such as state and local government officials, environmental organizations, ratepayer advocates, and labor unions.
- Clearly articulate all RPS goals and objectives because these will drive RPS rules and structure.
- Specify which renewable energy technologies and resources will be eligible, driven by the stated goals and objectives. Also, consider state and regional resource availability if a goal is to encourage resource diversity through a technology tier.
- Determine the mix and amount of renewable energy desired. Careful analysis and modeling of the expected impacts prior to establishing the targets are the keys to success.
- Consider using energy generation (not installed capacity) as a target; establish a long timeline to encourage private investment; make compliance mandatory for all retail sellers; allow utility cost recovery; and establish cost caps.
- Consider adopting (or improving) net metering and interconnection standards to facilitate customer-sited clean DG projects that might be eligible technologies under an RPS.
- Establish a transparent and easy-to-use accounting system for compliance.
- Make sure a credible noncompliance mechanism is in place in the form of penalties, but provide retail suppliers with some flexibility in their compliance.
- Select the most appropriate lead agency or organization to implement the RPS.
- Conduct a mid-course performance review, identify the reasons for any delay in meeting targets, and enact program modifications as needed to meet the original intent of the RPS.
EPA Assistance Available
The U.S. Environmental Protection Agency (EPA) CHP Partnership is a voluntary program that seeks to reduce the environmental impact of power generation by promoting the use of cost-effective CHP. The Partnership helps states identify opportunities for policy developments (energy, environmental, economic) to encourage energy efficiency through CHP. The Partnership can provide information and assistance to states considering including CHP or waste heat recovery in their RPS requirements.
EPA's Green Power Partnership provides assistance to renewable generators in marketing RECs and helps educate potential REC buyers about resources. The Partnership may be of assistance to states that employ RECs as a compliance measure for their RPS requirements but also allow for purchase and retirement of RECs for organizational "green power" designation.
Additional Resources
EPA has created The Clean Energy-Environment Guide to Action. The Guide provides an overview of clean energy supply technology options and, in addition to RPSs, presents a range of policies that states have adopted to encourage continued growth of clean energy technologies and energy efficiency.
The Database of State Incentives for Renewable Energy (DSIRE) is a comprehensive source of information on state, local, utility, and selected federal incentives that promote renewable energy.
The National Association of Regulatory Utility Commissioners' report, The Renewable Portfolio Standard: A Practical Guide (PDF), (139 pp, 284K, About PDF) provides detailed guidance on designing and implementing an RPS.
For more information, contact:
Katrina Pielli
U.S. Environmental Protection Agency
Climate Protection Partnerships Division
Phone: 202-343-9610
e-mail: Katrina Pielli (pielli.katrina@epa.gov)
Notes:
1 CHP is the simultaneous generation of electric and thermal energy from a single fuel source.
2 A REC is a tradable right to claim the environmental and other attributes associated with 1 megawatt-hour of renewable electricity from a specific generation facility.
3 Petersick, T. (2004). State Renewable Energy Requirements and Goals: Status Through 2003. U.S. Energy Information Administration, www.eia.doe.gov/oiaf/analysispaper/rps/index.html .
4 Union of Concerned Scientists. Renewable Electricity Standards at Work in the States (2007, August 27), www.ucsusa.org/clean_energy/clean_energy_policies/res-at-work-in-the-states.html .