Designing a National Renewable

Electricity Standard November 2, 2010

Five Key Components
Therese Miranda

Summary
A national renewable electricity standard (RES) offers many advantages over the current patchwork system
of state standards—a system that leads to unique regulatory requirements in each state. The advantages of
a national standard stem primarily from the creation of a large, standardized market for renewable energy
credits (RECs), which reduces complexity and allows the market to operate more efficiently, thereby reducing
the overall cost of compliance.

Creating a national RES also presents many challenges, however, given the prevalence of state programs. To
operate successfully, a national RES must be carefully designed and include five key components:

•• Clarity and consistency: The requirements and regulation under the national RES must be easy
to understand and consistent over time. Clarity alleviates excessive confusion and litigation, and
minimizes the intellectual capital necessary to understand the system. Additionally, the RES should
provide assurance that the requirements and market for RECs will exist in a consistent manner over
time—specific requirements may change over time, but this change should take place in a predictable
fashion. Consistency allows renewable generators, utilities, and investors to make long-term business
decisions with greater confidence. Both factors are essential to minimizing barriers to investment in
and development of renewable energy capacity.

•• Treatment of pre-existing systems: In 26 states, an operational RES is already in place, and many
renewable facilities currently operate in the United States. A national RES must address how these
pre-existing state systems will be incorporated into the new national plan. Federal preemption of
state standards combined with some form of grandfathering for RECs would address the need for
standardization while avoiding punishing early-adopter states, as would occur if renewable capacity
installed under the state RES were ineligible for federal RECs.

•• Harmonization with complementary policies: Renewable energy policies should be designed in

a holistic manner to minimize disruption to the industry during periods of transition. This approach
will help create consistency and prevent competition between policy tools, but is near-impossible to
 achieve in stand-alone bills dealing with only a single aspect of energy
policy.

•• Range of eligible technologies: The RES should support the broad-

est possible range of technologies while still retaining the integrity of
the term renewable—technologies not based on renewable fuel sources,
such as carbon capture and sequestration or nuclear power, should not
be included under a renewable energy standard. These technologies may
be viable options to include in an alternative or clean energy standard.
Depending on the primary goals of regulation, an RES, AES (Alternative
Energy Standard), or CES (Clean Energy Standard) may be the optimal
policy choice. Additionally, the system should be flexible enough to adapt
to evolving technologies. In its most basic form, an RES promotes the
development of lowest-cost installations first. However, by adjusting the
details of regulation, other goals, such as local job creation, diversifica-
tion of energy sources, or increased energy security can also be achieved,
making the RES a remarkably versatile policy tool. These secondary goals
are generally achieved through the use of carve-outs or multipliers. Of the
two options, multipliers offer greater simplicity.

•• Grid integration: Without provisions to clarify responsibility for trans-

mission construction and to ensure that new renewable construction can
be successfully connected to the grid and transported to demand centers,
the RES is unlikely to succeed. These issues must be addressed in a na-
tional system to speed the permitting process and minimize litigation.

To address these issues and create a successful national standard, policy makers
should pass legislation quickly. The proposed federal RES introduced by Sena-
tors Bingaman and Brownback in September 2010 addresses some of these issues
adeptly, but falls short on others. Although passage this year appears increasingly
unlikely, the bill represents the best example of bipartisan legislation thus far, and is
likely to serve as the starting point for legislation next year. Comparing Bingaman-
Brownback to the ideal features of RES legislation therefore provides a useful
starting point for understanding how these concepts will play out in legislation.

Introduction
A renewable electricity standard (RES)—also known as a renewable portfolio
standard (RPS)—is a form of regulation requiring electricity distributors to
obtain a specified percentage of the electricity they sell from renewable sources.
Under a basic RES, the state sets an annual requirement, which gradually in-
creases until the overall target is reached. Distributors can meet requirements

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by submitting renewable energy credits (RECs)—also referred to as renewable
energy certificates—or, in many systems, by making an alternative compliance
payment (ACP) to the governing body in lieu of submitting RECs. Most systems
also include non-compliance penalties, which are assessed on entities that neither
submit RECs nor make ACPs.

Under an RES, each unit of electricity generated creates two distinct commodi-
ties that can be sold: the electricity itself, and the renewable attributes of its
generation. Because the renewable attribute is separated from the actual electric- While
ity, the entity purchasing the REC is not also required to purchase the electricity,
reducing delivery challenges. The REC can be sold to the buyer of the electricity many state
or to another entity, unless ownership of the REC is specified within an existing programs have
contract. The market for RECs used to meet RES requirements is known as the
compliance market. successfully

In most systems, RECs can be traded after being purchased from the renewable increased
generator, creating a market and the associated cost efficiencies. ACPs essentially renewable
act as a price ceiling on the market, and the money they generate is often used
to fund further promotion of renewable energy. RECs may also be purchased deployment
by entities other than electricity distributors that are interested in supporting
renewable energy development, on the voluntary market. RECs purchased on within their
the voluntary market generally represent additional capacity beyond the RES borders, a
requirements, and voluntary purchasers who hold and retire RECs can claim
to use renewable energy equal to the volume of RECs purchased. Companies national system
interested in increasing their sustainability profile and individuals who support
renewable energy are common purchasers on the voluntary market. offers many
advantages.
An RES may be implemented for many reasons; therefore, understanding the
policy’s goals is critical to ensuring it is designed effectively. In addition to the
primary goal of promoting renewable energy deployment, an RES can also be
used to increase energy security, diversify fuel sources, create green jobs, and en-
courage energy efficiency, depending on the eligible technologies and the details
of implementation.

Twenty-six states and the District of Columbia have enacted

statewide RES, four states have alternative electricity standards
covering a wider range of technologies that may reduce green-
house gas emissions or increase energy security, but do not use
renewable fuel sources, and five states have voluntary renewable
or alternative energy goals (Figure 1).1 Understanding the moti-
vation for implementing an RES can also help policy makers de-
termine whether they should adopt a broader alternative energy
standard or clean energy standard.2 While many state programs
have successfully increased renewable deployment within their
borders, a national system offers many advantages. The cur- Figure 1: Renewable and Alternative Energy
rent patchwork system of state RES regulation divides the U.S. ­Portfolio Standards

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market into many smaller markets—potentially one or more per state, depend-
ing on how state laws are written—and requires regulated entities to understand
the intricacies of the policy regulating each market in order to participate in the
market and comply with regulation. Adding further complications, REC prices
can vary greatly across states based on compliance mechanisms and the price of
ACPs, creating inefficiencies and increasing compliance costs.

In addition, state programs generally accept RECs from only their state or the
surrounding region, limiting the renewable resources available to meet the RES
requirements. This approach can increase costs in areas with poor resource
potential by causing renewable capacity to be developed on sites that would be
considered poor candidates due to a relatively low rate of return if geographic
restrictions were eliminated.

A national system that preempts state programs would standardize regulation

across the country, thus eliminating the need for participants to invest valuable
time and resources in learning multiple sets of complex regulations in order to
operate across the U.S. market. National regulation also creates a much larger
market for REC sales, increasing competition and encouraging a more economi-
cally efficient allocation of resources among the renewable industry. In an opti-
mal market, low-cost installations are built first, minimizing the cost incurred by
utilities and passed on to ratepayers. Based on limited precedent and language Without
appearing in previously proposed RES bills, oversight of a federal RES would
likely reside with the Department of Energy. consistent and
transparent
Key Components policy,
To achieve these goals, a national RES must contain provisions addressing five renewable
key components: clarity and consistency, pre-existing systems, complemen-
energy projects
tary policies, eligible renewable technologies, and grid integration. All five are
­essential for crafting an efficient and functional national RES. may not receive
financing.
Clarity and Consistency

Both clarity and consistency are necessary to enable the markets that finance re-
newable energy construction and trade RECs to function in a smooth, efficient,
and sustainable manner, in turn reducing the cost to both renewable energy
­producers and utilities, and by extension, ratepayers.

Without consistent and transparent policy, renewable energy projects may not
receive financing. Most renewable energy technologies are not yet economically
competitive with conventional energy sources in the current energy market. As
a result, public policy and support play a central role in determining whether
a renewable energy project is deemed financially viable, a condition generally
­necessary for construction.

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Currently, Congress authorizes the majority of federal renewable energy support
mechanisms on an annual basis. This timetable creates uncertainty about proj-
ects’ ability to generate a sustained revenue stream over time, resulting in reluc-
tance by banks to finance renewable energy projects. Additionally, the timeframe
authorized in renewable energy supports often does not correspond to the period
of time it truly takes to construct a renewable energy installation in the United
States. Renewable energy projects require large upfront investments of capital,
necessitating reliance on debt rather than equity. To effectively promote renew-
able energy, a national RES must assure investors that the REC revenue stream it While
creates is durable and will enable them to repay their loans.
renewable
While renewable energy policies must be flexible enough to adapt to new tech- energy policies
nologies, the RES must be stable enough for investors to make long-term finan-
cial decisions with payback periods of several years. The RES should also pro- must be
vide some level of assurance to investors that a market for RECs will exist in the ­
long run. flexible enough
to adapt to
Additionally, once the policy is adopted, it should be modified unexpectedly
only if absolutely unavoidable. Periodic reviews should be built in to address the technologies,
development of technologies and the optimal level of support needed, ensuring
that renewable energy is economically feasible. Frequent or unpredictable tinker- the RES must
ing with the rules can throw the markets into chaos. Connecticut experienced be stable
this effect in 2003, when an increase in the state’s RES requirement was followed
by a sharp upturn in REC prices because the REC supply was not expected to enough for
increase rapidly enough to meet demand under the new targets. Repeated rule
changes to a national RES would substantially diminish participants’ ability to investors to
engage in the business planning necessary to ensure effective resource use. make long-
The current state RES system further compounds long-term business planning term financial
efforts by creating uncertainty about what form federal renewable policy will
take going forward, and how such policy would impact existing state policies. As decisions
a result, renewable installations may be delayed as market participants wait for with payback
additional clarity about the trajectory of energy policy and demand for renewable
energy. Enacting a national RES with long-term targets would send a clear signal periods of
about the future demand for renewable energy, enabling investors, utilities, and
producers to create long-term plans regarding the deployment of renewables. several years.

Clarity is essential in the definition of renewable sources. Both technologies and

construction time frames should be expressed in detail, ensuring that standards
are met in the intended ways, although the RES must also contain enough
­flexibility to adapt to the development of new technologies.

In Connecticut, confusion over the eligibility of biomass facilities led experts

to under-predict the supply of RECs in the market. This conclusion contrib-
uted to skyrocketing REC prices in 2003, and then a crash in 2005 when it was
discovered that re-tooled facilities could qualify for RECs and a large number

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of qualifying facilities came online in Maine, flooding the Connecticut market
with cheap RECs.3 Excessively high REC prices increase the cost to utilities and
ratepayers unnecessarily, while price volatility exacerbates financing challenges.

Clarity also decreases the likelihood of legal disputes regarding qualification for
REC generation. The permitting process currently adds substantial time and cost
to the development of renewable installations in the United States. Unnecessary
ambiguity in the definition of qualifying technologies creates additional grounds
for dispute, potentially adding avoidable legal fees to the cost of implementing
the RES. While the permitting process is likely to remain contentious because
of the structure of the American legal system, policy makers should strive to
minimize opportunities for litigation wherever possible, thereby mitigating costs
for all involved parties.

Treatment of Pre-Existing Systems

Given the current uncertainty about how federal and state renewable energy
policy will interact, the national RES should explicitly address its impact on
preexisting policies, particularly state RESs. REC ownership, integration of
multiple existing REC tracking systems, preemption of state laws, and grand- Specifying
fathering of existing state RECs are among the issues that must be addressed by
a national RES. ownership
of RECs
Issues regarding the ownership of RECs generated from facilities that pre-date
enactment of an RES have arisen under state programs. Generally, REC own- from existing
ership has been granted to the utility for installations under the Public Utility
Regulatory Policies Act (PURPA) of 1978 that pre-date state RES requirements, facilities in the
unless the contract otherwise specifies ownership of the renewable attribute of national RES
the power.
could alleviate
However, for new installations, REC ownership has generally been given to
the generator, not the purchasing utility, and for customer-sited net-metered ­confusion
installations, most states have granted ownership to the customer.4 Specifying and help to
ownership of RECs from existing facilities in the national RES could alleviate
­confusion and help to standardize ownership rights across the country. standardize

Seven separate REC tracking systems currently operate in conjunction with state ownership
RES. While it is possible to harmonize and expand the existing systems to cover rights across
all 50 states, a national tracking system would provide significant economies of
scale and reduce overhead costs. Decisions will need to be made about whether the country.
to adapt an existing state or regional tracking system for national use or to de-
velop a new system based on past experiences. In either case, the system should
be accurate and easy to use, providing maximum access to useful information.

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Implementing a national RES will be complicated by the existence of state
RESs, which could potentially result in overlapping jurisdiction and require-
ments. The national RES should clearly state whether, and if so how, it preempts
state requirements. Given that many of the benefits of transitioning to a national
RES stem from the standardization of regulation and the expansion of mar-
kets, complete preemption for REC eligibility and tracking is likely. States could
potentially be allowed to set higher targets if desired, to allow more ambitious or Going from
first-adopter states to continue showing leadership in the field, but the range of
technologies eligible for RECs must be kept consistent across the country. incentives to
an RES shifts
If the national system preempts state efforts, provisions will need to be included
about the conversion from state REC generation to federal REC generation. the burden of
Unless the national RES covers a range of technologies broader than any exist-
ing state RES, there will likely be facilities that qualified for state RECs, but do supporting
not meet federal requirements. One option to help these facilities cope with the renewable
policy change would be to grandfather them into the new system, allowing them
to generate credits during the period for which they were eligible under the state energy
system or some other specified time period.
development

Harmonization With Complementary Policies from taxpayers

via the
To date, multiple policy tools have been utilized to support the development and
deployment of renewable energy technologies. When multiple policies attempt to government to
achieve similar goals, it is important to ensure that they amplify rather than com-
pete with one another. Transitions between policies should occur as ­seamlessly ratepayers via
as possible. the utilities.
Traditionally, governments first use incentives to encourage desired behaviors.
For renewable energy, this generally takes the form of tax credits, grants, loan
guarantees, or other similar programs that distribute public-sector money to
individuals or organizations that use renewable technologies to meet energy
needs, including renewable electricity generation, solar water heating, and
energy efficiency.

Government subsidies represent an effective tool for promoting emerging tech-

nologies and helping them gain market viability, as well as developing human
knowledge and installation capacity for the technologies. However, they are gen-
erally costly to governments. With budgets at all levels of government strained,
officials are searching for programs to cut. Transitioning from incentives for
renewable energy to regulation such as an RES would provide one method for
mitigating government expenditures. Essentially, going from incentives to an
RES shifts the burden of supporting renewable energy development from tax-
payers via the government to ratepayers via the utilities.

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Incentives—particularly direct subsidies to favored technologies—have pre-
sented logistical challenges for many governments. Generally, a sum of money
is allocated to the incentive program for use over a set time period. However,
actual demand for these subsidies has consistently exceeded the expected level,
meaning that funding pools are routinely depleted well ahead of schedule. This
result leaves renewable developers and government administrators struggling to
determine whether and when additional funding will be available, making the
market less attractive. An incentive system is also likely to allocate resources less
efficiently than market-based regulation such as an RES, because the advantage
may go to first filers, rather than projects with the best economics.

In Connecticut, the exhaustion of clean energy funds, with no plan in sight to

replenish the pot, combined with a discussion of rolling back RES targets has
created massive uncertainty and instability in the market. As a result, renewable
energy developers are looking to other states with stable, market-based supports,
such as Massachusetts and New Jersey, as sites for future investment. Once
seen as the next hot renewable energy market because of its generous support
­programs, Connecticut is now shunned by the industry.

By contrast, New Jersey appears to have negotiated this transition successfully

within the solar carve-out of its RES, albeit not perfectly. Initially, small-scale
solar installations were supported by the Customer On-site Renewable Energy
(CORE) program, which provided rebates to qualified behind-the-meter installa-
tions. Participants in the CORE program were also eligible to participate in the
solar REC (SREC) market. The availability of rebates made solar installations The less
economically appealing and installations accelerated rapidly. New Jersey became
the second-largest solar market in the country and gained a reputation as an noticeable the
excellent incubation environment for solar energy.5 However, that reputation fal- transition from
tered amid uncertainty about the program’s longevity and the ability of allocated
funds to meet demand. incentives to
In 2008, New Jersey piloted an SREC-only program, in part as an attempt to regulation is to
address these concerns. The SREC-only pilot eliminated subsidies for solar in- the renewable
stallations, but raised the price of alternate compliance payments (ACPs) for the
solar carve-out from $300 to $711, more than doubling the ceiling on the SREC energy
market in a single year. The combination of an existing knowledge base and high
SREC prices has allowed the solar market to flourish once again in New Jersey, industry, the
and the success of the pilot program spurred state-wide adoption of an REC- more efficiently
only approach. However, New Jersey’s market may have blossomed more rapidly
if the rocky transition period had been minimized or eliminated. the industry will
If a national RES is enacted, policy makers should make a conscious effort to function.
coordinate, or perhaps even explicitly link, the exhaustion of incentive funding
with the increase of RES targets. ACP levels should also be set in conjunction
with incentives. The less noticeable the transition from incentives to regulation is
to the renewable energy industry, the more efficiently the industry will function.

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Range of Eligible Technologies

One of the biggest challenges in designing any policy to promote renewable

energy is determining which technologies qualify as renewable. While consis-
tent policy is important to creating market stability, energy policy must also
have sufficient flexibility to adapt to the rapid development of technologies and While
subsequent changes in market viability. Specifically, the governing body should
establish a panel of experts to conduct periodic technology reviews on a sched- consistent
uled basis and ensure that the RES is providing a sufficient, but not excessive, policy is
level of support to technologies based on their current maturity. As technolo-
gies mature, costs fall and electricity from these sources requires less support to important
compete with conventional energy sources. In the interest of minimizing cost to
ratepayers while maximizing energy security, a national RES should promote the to creating
broadest range of technologies possible while still retaining the integrity of the market stability,
term “renewable.”
energy policy
Including a broad range of renewable technologies also allows different regions
of the country to focus on the options best suited for their unique resource must also
profile. In other words, the Southwest could focus on utility-scale solar energy, have sufficient
the Midwest on wind, and the coasts on off-shore wind or ocean technologies.
Allowing a broad range of technologies helps minimize cost by ensuring that flexibility
installations are built in areas with high resource potential, maximizing the
amount of energy they can generate. to adapt to
the rapid
A diversity of technologies also helps to address concerns about redistribution of
wealth by increasing the likelihood that a state or region will have high potential development of
for at least one of the technologies. Including provisions to issue some form of
credit for energy efficiency would also aid states with limited renewable resource technologies
profiles and dense urban areas that have few opportunities to install utility-scale and subsequent
renewable generation. Finding ways to include combined heat and power, geo-
thermal heating or cooling, and non-electric solar uses such as water heating changes in
would also help these areas, while still serving the goal of reducing overall use of
non-renewable energy sources through either substitution or increased efficiency. market viability.
Allowing RECs to be traded across the country can also minimize the cost to
ratepayers, although there may be a premium added to RECs purchased on the
open market rather than through set contracts with utilities or from utility-
owned generation.

The goals of the RES are also important to consider when determining tech-
nology eligibility. Because an RES with REC trading relies on a market-based
system, the installations constructed will be those that generate renewable energy
at the lowest cost. However, to optimize other goals of an RES such as diversifi-
cation of energy sources or green jobs, the system must be adjusted to change its
natural bias towards lowest-cost options. Existing RES generally address these
issues in one of two ways:

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 •• Carve-outs: The RES contains a target within a target for a specific
energy source. RECs are categorized based on the generation technology
and ACPs may be priced differently for each category. New Jersey has
used this technique to promote solar energy development, and has used a
reverse version that limits the portion of the overall target that can be met
through resource recovery or hydropower.

•• Multipliers: RECs generated from certain sources are multiplied by a

set amount, effectively increasing the revenue available to the renewable
energy generator. Multipliers vary across technologies based on the stage
of development and relative cost. Once issued, there is no difference
between RECs from different technologies. This approach has been used
extensively in the United Kingdom, particularly to support the develop-
ment of offshore wind.

Each method offers advantages and disadvantages. Carve-outs give certainty

about the amount of electricity generated from specified technologies. However,
they can be unnecessarily expensive to implement because they divide the market
into smaller categories and set specific requirements rather than letting the
market determine the optimum level of deployment. Carve-outs also complicate
the RES by creating multiple classes of RECs with their own rules and require-
ments, which increases the learning curve and can contribute to confusion.

Multipliers are easy to understand, but provide less certainty about actual levels
of deployment for each technology because of their reliance on the market.
Additionally, the use of multipliers can overstate renewable energy generation
because 1 MWh of electricity generates more than 1 MWh of RECs. There is
also no guarantee that growth will occur in the intended technologies, and over-
all targets may need to be set higher to result in the same level of deployment,
which could ultimately mean the cost under either approach is similar.

From an ease-of-use perspective, multipliers easily win. They also provide an

advantage in terms of emphasizing market-based solutions and maximizing
potential market participants. In either case, carve-outs or multipliers must be set
with great care in consultation with market experts—both will have a substantial
impact on market operation.

If multipliers are used, they should be revised regularly in consultation with

experts to keep pace with the development of technologies and changing costs.
Carve-out targets, however, work best when unchanged, as they provide market
clarity to investors and developers. As a result, a carve-out system offers less
flexibility to incorporate new technologies.

Multipliers are not limited to supporting generation technologies. In the interest

of supporting local job development, multipliers could be used for distributed
generation, net-metered installations, community-based generation facilities,

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or energy efficiency, all of which necessitate local-level implementation. Other
aspects of green jobs may be addressed through complementary national or state
policies, although policy makers should remember that geographic restrictions
on installations detract from the RES’s economic efficiency. The intermittent
nature of many
Grid Integration
renewables
Lastly, it is essential that grid integration issues be addressed—either within the presents an
RES itself or in concurrent regulation—if a national RES is implemented. The
level of renewable penetration achievable in various regions depends on renew- additional
able potential, grid infrastructure, and electricity demand patterns.6 The intermit-
tent nature of many renewables presents an additional integration challenge as
integration
their share of the country’s energy portfolio grows. Furthermore, renewables are challenge as
often located far from demand centers, meaning transmission capacity must be
increased and transmission losses minimized: renewable electricity that cannot their share of
easily be transported to demand centers is essentially useless.
the country’s
Energy storage systems can increase penetration and ease grid integration chal- energy portfolio
lenges by storing excess energy for use in peak load shaving.7 Additionally, a
more advanced transmission infrastructure that incorporates digital technologies grows.
and a web-like structure—a smart-grid—could better handle distributed power
generation and the integration of intermittent renewables, thus alleviating many
of the current concerns.8

However, these approaches are just beginning to enter the market and are gen-
erally categorized as emerging, not commercialized, technologies. Challenges
related to renewable integration have been compounded by debate about which
parties are responsible for covering the cost of grid expansion and updates.

These challenges must be addressed to effectively and efficiently integrate re-

newables into the U.S. electricity system. New transmission lines will need to be
built, smart-grid concepts deployed, net-metering expanded, and storage capacity
developed. Without a clear indication of who is responsible for these costs and
what form of support government will provide for technologies that are not yet
commercially viable, a national RES will become bogged down. A failure to ad-
dress the technical challenges associated with increasing the share of renewable
energy would greatly increase the cost and effort of meeting RES targets due to
grid instability, unnecessary litigation and delays, and excess generation capacity,
among others.

The Bingaman-Brownback Federal RES

Senators Jeff Bingaman, a Democrat from New Mexico, and Sam Brownback,
a Republican from Kansas, recently introduced a bill that, if passed, would

11
establish a Federal RES. On some fronts, the bill is highly successful in incorpo-
rating the elements described above, but in other areas it falls short.

The Federal RES would require all utilities with annual sales greater than 4 mil-
lion MWh to obtain 3 percent of their base quantity of electricity from renew-
able sources in 2012, increasing incrementally to 15 percent by 2021. The ACP is
set at $0.21 per kWh, and the penalty for non-compliance is 200 percent of the
ACP. A provision of the bill effectively limits the incremental cost of compli-
ance to ratepayers to no more than 4 percent annually. The secretary of energy is
responsible for implementing and overseeing the RES under the bill.

Clarity and Consistency

The Bingaman-Brownback RES defines a range of eligible renewable technolo-

gies, drawing upon both new definitions and those from existing legislation
to provide an acceptable level of clarity around qualifying technologies. How-
ever, the target year of 2021 leaves something to be desired on the consistency
front—it is unclear whether eleven years is sufficient to support the financing of
renewable energy, especially given the lengthy permitting process and uncertain
economic climate. Provisions allowing utilities and state public utility commis-
sions to petition for a waiver or variance of the requirement under certain condi-
tions help limit costs to ratepayers, but may introduce additional uncertainty for
renewable producers and investors.

Treatment of Pre-Existing Systems

The proposed Federal RES does not pre-empt state systems. Instead, it creates a
new class of Federal RECs. Under the bill, “the Secretary, in consultation with
States having such renewable energy and energy efficiency programs, shall, to
the maximum extent practicable, facilitate coordination between the Federal
program and State programs.”9 Allowing states to retain the power to imple-
ment individual RES simplifies the policy writing process at the Federal level
by eliminating the need to address issues such as grandfathering and varying
requirements.

However, leaving the existing patchwork of state RES regulations in place

and adding a Federal requirement adds an additional layer of complexity to an
already confusing field. Perhaps Bingaman and Brownback believe states will
eliminate their RES given the new Federal policy, or revise their definitions
of qualifying renewables to match federal definitions. However, as written,
the Bingaman-Brownback bill fails to take advantage of the potentially huge
economies of scale and simplification that a single, national regulatory system
would provide.

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The bill does provide clarity on ownership of Federal RECs under purchase
agreements pre-dating the bill’s enactment: unless the allocation of Federal
RECs is specified in the contract, ownership goes to the purchaser of the elec-
tricity for the duration of the contract. This explicit statement provides much-
needed guidance on a historically contentious issue.

Harmonization With Complementary Policies

It is unclear how, if at all, the proposed Federal RES would interact with other
policy elements. Some provisions indicate consideration of certain interests, such
as algae and biomass. Additionally, 75 percent of the revenue generated through
ACPs would flow back to state governments for (1) increasing renewable energy
in the state, including nuclear and advanced coal carbon capture and sequestra-
tion; (2) promoting the deployment and use of electric drive vehicles within the
state, including the development of vehicles and batteries; and (3) offsetting the
cost of implementing the RES to electric consumers in the state through direct In essence,
grants to consumers or energy efficiency investments.
Bingaman and
This provision represents a start to harmonizing different energy policies, but Brownback
the current stand-alone approach to energy legislation in the Senate makes policy
increasingly challenging to develop. Comprehensive energy legislation would have opted
offer far greater opportunities, but is considered highly unlikely in the current
political environment. for a system
that picks
Range of Eligible Technologies winners based
The proposed RES supports a fairly wide range of renewable technologies. In on cost of
addition, it would give the secretary of energy the ability to qualify additional re-
newable sources based on innovative technology through the federal rulemaking implementation
process, providing the flexibility needed to incorporate technological advances. rather than
Utilities may use energy efficiency credits to meet up to 26.67 percent of their
requirement each year. specific

The RES also opts for multipliers over carve-outs, a triumph for clarity, but only technologies.
a handful of instances qualify for multiple RECs, including electricity genera-
tion on Indian land, distributed renewable installations of 1 MW or less, gen-
eration from algae, and biomass with an efficiency of 50 percent or more. The
limited number of multipliers offered helps create certainty about the quantity of
­renewable energy generated and adds simplicity to the system.

In essence, Bingaman and Brownback have opted for a system that picks win-
ners based on cost of implementation rather than specific technologies, an ap-
proach with both pros and cons depending on the motivation for enacting the

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RES. If properly combined with incentives to encourage the commercialization
of high-cost, emerging technologies, this system could prove highly efficient.

At this point, the RES is strictly renewable. However, as the bill makes its way
through the political process, it seems likely that it will be broadened to become
an alternative energy standard or a clean energy standard in order to obtain the
requisite 60 votes. Whether broadening the standard is viewed positively or nega-
tively again depends on the motivation for enacting the RES.

Grid Integration

Grid integration challenges are addressed only obliquely, in a provision allow-

ing state public utility commissions to petition for a variance in the form of a
suspension or reduction of the requirement if transmission constraints prevent
the delivery of service. However, given that the RES does not require renewable
electricity to be delivered to the utility purchasing the REC, it is unclear how
exactly this would play out in influencing current transmission challenges.

Transmission and grid integration remain vital issues that the Bingaman-Brown-
back RES does not sufficiently address. To succeed, the proposed federal RES
would need to include or be accompanied by additional legislation addressing
these challenges.

Conclusion
In designing a national RES, policy makers must craft a mechanism that in-
cludes these five components. Without clarity and consistency, industry must
divine the future based on murky signals and uncertain markets. Providing clear
signals about the eligibility of technologies and the longevity of the REC market
does not guarantee the renewable industry a profit, but rather aids all players in
deploying renewable capacity quickly and efficiently. Provisions addressing pre-
existing systems again provide clarity about eligibility. In addition, these provi-
sions can be used to ensure that early adopters are not punished via disqualifica-
tion from REC production under a national system.

A national RES would not exist in a void: therefore, it should work with other
policies focused on similar goals to ensure smooth transitions and minimal
overlap or conflict. Qualifying technologies should be clearly defined, eliminat-
ing the potential for confusion and litigation, but the system should also provide
sufficient flexibility to adapt to the development of new technologies and the
evolving competitiveness of existing technologies. Lastly, provisions addressing
grid integration and responsibility should be included in order to minimize

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costs during the permitting process and speed installation. Without these provi-
sions, a national RES would likely suffer from the same problems experienced by
state systems.

In its current state, the Bingaman-Brownback RES bill largely succeeds in clearly
incorporating a broad range of renewable technologies and providing sufficient
flexibility to adapt to changing technology. However, the continued existence
of patchwork state regulation, the lack of comprehensive complementary poli-
cies, and especially the failure to address grid integration challenges are potential
weak spots. By learning from the experiences of the states, a more effective and
efficient national RES can be created.

Notes
1 Pew Center on Global Climate Change, “Renewable & Alternative Energy Portfolio
Standards.” December 14, 2009, http://www.pewclimate.org/what_s_being_done/
in_the_states/rps.cfm.
2 Generally, an AES defines all non-fossil fuels as alternative, while a CES can include clean
coal, carbon capture and sequestration, and in some cases natural gas. However, the choice
between RES, AES, and CES is often one of semantics—the definition of renewable,
­a lternative, and clean is both highly subjective and contentious.
3 Mondaq Ltd., “REC Market Update,” May 2006, http://www.mondaq.com/unitedstates/
article.asp?articleid=40142.
4 E. Holt, R. Wiser, and M. Bolinger, “Who Owns Renewable Energy Certificates? An
Exploration of Policy Options and Practice,” April 2006, Berkeley National Laboratory,
http://eetd.lbl.gov/ea/emp/reports/59965.pdf.
5 Mid-Atlantic Solar Energy Industries Association, “Solar PV Industry Survey: CORE Pro-
gram Impacts,” December 2006.
6 J. K. Kaldellis, “The Wind Potential Impact on the Maximum Wind Energy Penetration in
Autonomous Electrical Grids,” Renewable Energ y: An International Journal 33, (7) (07) 2008:
1665–77. E. Tsioliaridou, G. C. Bakos, and M. Stadler, “A New Energy Planning Methodol-
ogy for the Penetration of Renewable Energy Technologies in Electricity Sector—Applica-
tion for the Island of Crete,” Energ y Policy 34, (18) (12) 2006: 3757–64.
7 J. S. Anagnostopoulos and D. E. Papantonis, “Simulation and Size Optimization of a
Pumped-Storage Power Plant for the Recovery of Wind-Farms Rejected Energy,” Renewable
Energ y 33, (7) (7) 2008: 1685–94.
8 T. J. Hammons, “Integrating Renewable Energy Sources Into European Grids,” International
Journal of Electrical Power & Energ y Systems, 30, (8) (10) 2008: 462–75.
9 S. 3813, Bingaman and Brownback. 2010. http://www.eenews.net/assets/2010/09/21/
document_pm_01.pdf.

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THERESE MIRANDA was a junior fellow in the Carnegie Endowment’s
Energy and Climate Program from 2009 to 2010.

CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE

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