Costs and Benefits of Renewables Portfolio Standards in the United States

LBNL-XXXX Costs and Benefits of Renewables Portfolio Standards in the United States by Galen Barbose, 1 Jenny Heeter, 2 Lori Bird, 2 Samantha Weaver, 1 Francisco Flores-Espino 2 , and Ryan Wiser 1 Lawrence Berkeley National Laboratory National Renewable Energy Laboratory Corresponding Author Galen Barbose, Research Scientist Electricity Markets and Policy Group Environmental Energy Technologies Division Lawrence Berkeley National Laboratory 1 Cyclotron Road, MS 90R4000 Berkeley, CA 94720 Phone: (510) 984-3453/Email: GLBarbose@lbl.gov Abstract As state-level renewable portfolio standards (RPS) have driven large increases in U.S. renewable generation capacity, states have sought to quantify the costs and benefits of these policies. This paper examines recent costs and benefits of RPS implementation, focusing on the net (or incremental) cost to utilities of renewables used for compliance with RPS targets during the years 2010-2012. Incremental RPS cost estimates are developed using a wide variety of methods and assumptions, which makes comparisons among states imperfect. For states with restructured electricity markets, we use a standardized method to calculate incremental costs based on renewable energy certificate prices, alternative compliance payment levels, and compliance obligations. For states with traditionally regulated electricity markets, we rely on estimates produced by utilities and regulators, whose methods and underlying assumptions vary widely. We find that recent estimated incremental RPS costs were equivalent to less than 2% of retail rates in 17 states and about 2%–4% in eight states, or -$4/MWh to $48/MWh of renewable energy required across all states (for the most recent year available in each state). Estimated RPS costs in most states were well below the respective cost caps, although a few states are currently operating at or near their cap. 1. Introduction Twenty-nine states, Washington DC, and Puerto Rico have adopted renewables portfolio standards (RPS), helping drive a roughly eight-fold increase in U.S. renewable generation capacity over the past decade. Concern over the impact of these policies on electricity prices and economic growth, however, has spurred recent legislation in at least a dozen states to repeal, reduce, or freeze existing RPS requirements. At the same time, other recent legislative proposals have sought to expand state RPS policies. Understanding the actual historical costs—and benefits—of RPS policies is critical to informing these legislative debates, but the subject is inadequately understood. This paper examines historical costs of RPS implementation, drawing on a recent joint report by Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory, Estimating the Costs and Benefits of Complying with Renewable Portfolio Standards: Reviewing Experience to Date (Heeter et al. 2014). 1 We summarize the methods state agencies and utilities have used to assess RPS costs, compare incremental RPS compliance costs to date, and evaluate the potential for increases in RPS compliance costs as legislative targets rise and cost caps in some states potentially become binding. The aforementioned report also synthesizes recent estimates of broader societal benefits from formal state-agency evaluations— including estimates of health and emission reduction benefits, economic development benefits, and wholesale electricity market price reductions—though those findings are not included in the present paper. Compared to the summary of estimated RPS costs, the summary of RPS benefits is more limited, as relatively few states have undertaken detailed benefits estimates, and then only for a few types of potential policy impacts. In some cases, the same impacts may be captured in the assessment of costs. For these reasons, and because methodologies and level of rigor vary widely, direct comparisons between the estimates of benefits and costs are challenging. 2. Methods and Data Sources for Estimating Incremental RPS Compliance Costs RPS compliance costs may be defined as either “gross costs” or “incremental costs.” Gross costs consist of the total cost of procuring renewables to meet the RPS, while incremental costs (also referred to as “net” or “above market” costs) represent This report is publically available at http://emp.lbl.gov/publications. Participation by Lawrence Berkeley National Laboratory was supported by the Office of Energy Efficiency and Renewable Energy (Solar Technologies Office) of the U.S. Department of Energy under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH1131.