Highlights:

  1. State level Renewable Portfolio Standards (RPSs) are likely to drive renewable generation to at least 11% of U.S. power supply by 2030.
  2. While wind energy historically contributes the most RPS compliant generation, solar is poised to meet increasing portions of RPS demand in the next 5-10 years.
  3. Ongoing renewable energy deployments to meet RPS mandates could drive further cost innovation in the wind and solar industries.
  4. Renewal of federal tax credits and implementation of the Clean Power Plan could lead to a further strengthening of state RPS policies, driving further growth.

Introduction

State renewable portfolio standards are widely recognized for their critical role in driving renewable energy growth. However, their full impacts on future renewable energy development have not been fully recognized, even by key government agencies.

In a recent study, Benjamin Sovacool and I found that the Energy Information Administration has consistently under-projected renewable energy growth, due in part to improper modelling of state RPS mandates. Last year, the Union of Concerned Scientists similarly found that EPA’s modelling for the proposed Clean Power Plan did not fully account for state RPS policies in several states.

These forecasts are critical to shaping perspectives about renewable energy and are major inputs in developing policy, particularly at the federal level. To develop a better idea of the future impact of state RPS policies, this analysis develops quantitative estimates of how much renewable is mandated by existing state policies. Although state RPSs are only part of a picture, this bottom-up approach is a first step in assessing how the future of renewable energy in the U.S.

State RPS Policies Likely to Drive Continuing Gains in Renewable Energy

To date, state renewable policies have been critical in driving renewable energy growth. By 2013, RPS-compliant renewable energy comprised almost 5% of total U.S. electricity generation, bringing in billions in economic and environmental benefits at limit cost.

As states ramp up their RPS requirements in the next fifteen years, state RPS policies are likely to become even more important.

Data from Lawrence Berkeley National Laboratory provides an initial indication of why. In addition to tracking compliance, LBNL provides estimates of how much renewable energy will be needed to meet current renewable mandates during the next twenty years.

Past and Projected Renewable Energy Generation for RPS Compliance

RPS compliance to grow greatly by 2030

Source: Spark Library, based on data from LBNL

These projections indicate that at least 359,474 GWh of eligible renewables will be needed to comply with state standards by 2030. This nears 9% of total U.S. electricity generation and is more than double the amount of renewable energy required by RPS mandates in 2013.

Notably, RPS-compliant renewable is not expected to grow uniformly between 2015 and 2030. Instead we see a rapid ramp up in RPS requirements between 2015 and 2021, with an annualized growth above 9% per year. This is a result of many state RPSs having final goals around 2020.

Geographically, RPS-compliant energy to date has been very concentrated. Over the next fifteen years, RPS-compliant will become somewhat less concentrated. California is likely to remain a major RPS state – LBNL’s projections for 2030 indicate California would be responsible for around 26% of total RPS-compliant renewable energy in the U.S, near 2013 levels.

However, the share of RPS-compliant energy from Texas, New Jersey, New York, and Pennsylvania would shrink from 26% in 2013 to less than 11% in 2030. The remaining share of RPS-compliant renewable energy (63%) will become more geographically diverse, coming from the remaining 24 states with mandatory RPS policies.

State Policy Environment is Dynamic

Critically, the above estimates from LBNL were last updated in July 2015 and hence do not include several major changes in state policies since then.

Most dramatically, they do not include California increasing its RPS goals from 33% by 2020 to 50% by 2030. Similarly, New York Governor Andrew Cuomo has directed the New York Public Service Commission to increase the state’s RPS to 50% by 2030 from its current 30% in 2015 level. Hawaii has also increased its RPS to 100% by 2045.

One of the key findings in Benjamin Sovacool and I’s recent paper was that a dynamic policy environment is a challenge to estimating future levels of renewable energy. These new policies are prime examples.

My ball park estimates indicate that the revisions in California and New York alone could increase the amount of renewable energy required for state RPS policies in 2030 by 70,000-80,000 GWh, depending on load growth. Thus, current state RPS policies would lead to around 11% of U.S. generation coming from RPS-compliant renewable electricity in 2030, up from less than 3% in 2010.

This is more than a 20% increase from what RPS mandates would have required six months ago. Clearly, our expectations regarding the future of energy must be continuously updated as policies and technology change.

(update 3/23/2016LBNL has just updated its RPS compliance projections which are now available under the title “Data Files and Analysis” at this link. While the new projections do include California’s RPS revision, they do not yet include New York’s RPS changes – New York’s RPS increase has not yet been finalized by the state PSC so is not yet included by LBNL. Similarly, LBNL’s estimates do not likely reflect Oregon’s recent increase of its RPS as that has only just occured. Nevertheless, the revised numbers are in line with estimates here (particularly for California) and are the best resource for anyone interested in RPS demand projections.)

Solar Could Become Dominant RPS Compliance Method

Wind generation has been the primary compliance option for utilities to meet RPS goals in the last decade, primarily due to the relatively low cost of wind generation and federal tax credit support. Long term contracts and continued wind installations mean that wind will continue to play a major role in meeting RPS requirements moving forward.

However, solar is likely to become a major compliance method for renewable standards for the next fifteen years. The primary reason are massive and rapid decreases in solar PV costs.

Levelized PV PPA Prices for Utility-Scale Solar by Contract Vintage

Solarpricesdeclinerapidly

Source: LBNL

In the past year, the rapid decreases in solar costs and corresponding increase in installations have been pretty thoroughly covered, so I’ll keep the discussion brief. For a more in-depth discussion of these pricing changes and underlying dynamics, see here.

Again, LBNL provides great in-depth analysis for utility-scale solar and distributed solar. In LBNL’s sample, the average price for power purchase agreements for utility solar have dropped from more than $100/MWh in 2011 to less than $50/MWh in 2015.

These major cost decreases are driving solar installations to new levels. Installation levels in 2015 set new records, with as much as 3 GW installed in Q4 2015 alone. More dramatically, EIA data indicates that more than 8.3 GW of large-scale solar PV are planned for 2016. That’s excluding distributed generation less than 1.0 MW in capacity, which is likely to drive several more gigawatts of new solar.

In many ways, solar is more attractive than wind. While wind generation is primarily concentrated in the Great Plains, solar PV resources are pretty good across most of the country.

Further, most solar generation occurs during peak, daylight hours when wholesale electricity prices are higher. Even if solar costs somewhat more than wind on a per MWh basis, it usually offsets higher- cost electricity, making it more financially attractive. As solar reaches full maturity and commercialization nationwide, we are likely to see it be adopted even quicker than wind, with RPS policies providing major demand support. Over time, solar is likely to increasingly impact wholesale electricity prices, with major consequences for most power markets.

Already, solar is beginning to dominate new builds for RPS-compliance. Between 2013 and 2014, LBNL and NREL estimate that solar was responsible for 76% of new capacity installations to meet RPS requirements.

RPS Policies to Provide a Base Level of Renewable Generation

RPS policies have been critical policy mechanisms to incentivize the development of wind and, increasingly, solar markets across the United States. This analysis indicates that existing RPS policies are likely to drive non-hydro renewables to more than 11% of total U.S. electricity generation by 2030, more than double current levels. Voluntary renewable markets, boosted by cost innovation from renewable deployment in RPS states, could lead to at least an additional 2-4% of U.S. generation coming from renewables by 2030.

This provides a solid base from which renewables can become a central electricity source in the U.S.

However, the recent extension of federal renewable energy tax credits only makes the future more bullish for both wind and solar. The 30% investment tax credit for solar has been extended in full for another three years before ramping down to a permanent 10% in 2022. Meanwhile, the wind production tax credit will be ramped down through 2020.

This additional financial support, coming at a time when many state RPSs began to ramp up, will drive a major boom in both solar and wind installations. Critically, the new tax credits providing support through the beginning of Clean Power Plan implementation.

Existing state RPS mandates, renewed federal tax credits, continuation of net metering, and the Clean Power Plan mean further cost reductions in both industries are likely in the next few years. Federal and state policies promise to be even more complementary in the future, with significant economic and environmental ramifications.

As it becomes cheaper and cheaper to implement a RPS, more states may create mandatory standards or significantly strengthen existing ones. The recent moves by California, New York, and Hawaii could signal the beginnings of a new wave of RPS policies.

For more information

  1. How these standards directly impact carbon emissions: http://www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-14-10.pdf
  2. What impacts a federal RPS might have: https://www.fas.org/sgp/crs/misc/R42522.pdf
  3. As renewable energy grows and cost go down, the voluntary market will become more prominent. Good overview of current voluntary market: http://www.nrel.gov/docs/fy16osti/65252.pdf