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Renewing America: The Case for Federal Leadership on a National RPS: Executive Summary

In a little over the last decade, at least 21 states have passed renewable portfolio standards (RPS) -- laws requiring electricity suppliers to employ a certain percentage of renewable energy to meet growing energy demands. In that same time, Congress has considered (and rejected) at least 17 different proposals for a national RPS.

Each time a national RPS is debated, opponents argue that a federal mandate will increase electricity rates and cost utilities billions of dollars by forcing investments in expensive renewable technologies. The Bush Administration officially rejects a national RPS on the grounds that it would create "winners and losers" among regions of the country and increase electricity prices in places where renewable resources are less abundant or harder to cultivate.

This summer, Congress will again take up the issue of a national RPS and this report is designed to ensure that the debate moves beyond repetition of the war-torn canards that have plagued past discussions. "Renewing America" is designed as a comprehensive briefing book on RPS issues.

This report moves beyond past evaluations in a very important way. Instead of analyzing how a federal RPS would affect ratepayers, utilities and the environment relative to a world without any RPS policy, "Renewing America" evaluates the efficacy of a national standard given the existing (and expanding) universe of state-based RPS laws. "Renewing America" is unique from other reports by answering a question most have not yet tackled: Is a national RPS better or worse than a patchwork of state-based standards?

Cost:

A National RPS Lowers Energy Costs

• Consumers in every region save billions, a total of $49.1 billion nationwide.

A 20 percent by 2020 federal RPS would decrease consumer energy bills by an average of 1.5 percent per year, and save consumers in ever region billions of dollars:

• Larger economies of scale decrease costs 20% to 60%.

A national RPS by 2020 could lower construction costs for wind turbines by more than 20 percent and decrease the cost of biomass generators by nearly 60 percent.

• Lower natural gas prices save consumers $10 to $40 billion.

Renewable generation offsets natural gas combustion. A 1 percent decrease in natural gas demand can reduce the price of natural gas by up to 2.5 percent. Nine of fifteen studies found that a national RPS would save consumers $10 to $40 billion in natural gas expenditures.

• Higher RPS targets save utilities 0.4 to 0.6 cents per kWh.

Renewable resources can serve as a "hedge" against the financial risks associated with volatility in the natural gas market. The value of this "hedge benefit" increases as the percent of the RPS mandate increases.

• Uniform rules for trading renewable energy credits (RECs) save utilities $14 billion.

By eliminating geographical barriers, a national REC trading system would increase market volume and provide a predictable rate of return for investors. A federal RPS with a nationwide REC trading system saves utilities $14 billion compared to an RPS without national REC trading.

• Renewables generate 80% more jobs than equal investment in fossil fuels.

A 20% RPS by 2020 would create as many as 240,000 new jobs -- in manufacturing, construction, operations, maintenance, shipping, sales and finance -- versus 75,000 jobs if the energy were provided by fossil fuels.

• A national RPS creates new jobs in states with the greatest manufacturing losses.

The 20 states that would gain the most manufacturing jobs from a national investment in wind energy, for example, represent more than 2/3 of the manufacturing jobs lost in the U.S. between 2001 and 2004.

• Quicker lead times minimize expensive construction cost overruns.

Renewable technologies have quicker lead times (2 to 5 years) than conventional or nuclear plants (10 to 15 years), decreasing the financial risk associated with borrowing millions of dollars to finance generators that take10 to 15 years before they start producing a single kilowatt of electricity.

Industry:

A National RPS will jump-start U.S. materials and manufacturing sectors

• American companies have enough materials for major expansions in wind energy.

American composite manufacturers say they can provide enough fiberglass at competitive prices in the next three years to power 100,000 MW of new wind energy (nearly 6 percent of the country's entire electricity supply).

• Increased demand for wind components creates new American industries.

Increased demand for wind turbine materials and components will allow more than 16,000 companies (with over 1 million employees) to enter the turbine manufacturing market.

• A national RPS will improve manufacturing efficiency.

More domestic renewable energy manufacturing facilities will save utilities money by decreasing reliance on overseas shipments of materials, which suffer from unfavorable exchange rates.

Transmission:

A National RPS Speeds Investment in Critical Infrastructure

• Utilities benefit from congestion pricing

When transmission is saturated, prices increase because there is not enough electricity to meet demand. Market forces create perverse incentives for some utilities to profit from congestion prices, delaying new transmission until the system is at risk of catastrophic failure.

• A national RPS forces critical transmission system upgrades

Maintaining adequate transmission will require the construction of 26,600 miles of new transmission in the next decade, quadrupling planned expenditures to $56 billion by 2011.

• Renewable energy overcomes public objection to new transmission lines

Case studies show that public opposition to transmission lines turns into widespread support when utilities justify the infrastructure with the need to interconnect new renewable generation.

• A national RPS speeds recovery of transmission investments

Because of their quicker lead-times, renewable energy systems can start providing revenue to help pay down debt on transmission investments while conventional plants are waiting to come online. Expedited debt repayment decreases capital costs and lowers electricity rates.

• Increased deployment of renewables improves system reliability

The variability of renewable resources becomes easier to manage the more they are deployed. When energy is not available in one area, it is made up by larger outputs of renewable energy in other areas.

• More renewable energy decreases the need for reserve capacity

Modern wind turbines have a technical reliability of 97.5 percent, compared to coal and natural gas plants with a reliability of 85 to 90 percent. Higher technical reliability lowers the probability of unexpected outages and requires less short-term operating reserve.

Fairness:

A National RPS Creates a Level Playing Field for States

• Uniform rules avoid "free riders"

Some states enjoy artificially deflated electricity prices from cheap, dirty sources of energy, while ratepayers in RPS states pick up the tab for cleaning the air and water and diversifying the nation's electricity generation.

• A national RPS prevents utilities from profiting off of inconsistencies

Because Washington's RPS excludes hydropower, for example, Washington's low-cost renewable energy is sold to consumers in neighboring states, while Washington ratepayers are forced to buy higher-cost renewable energy credits from generators outside the state. In effect, Washington consumers are subsidizing cheaper renewable energy for surrounding states. A national RPS prevents these kinds of predatory trade-offs by creating a uniform definition of eligible renewable fuels.

• All states have renewable resources

The Southeast has the potential to add 2,941 MW of electricity from additions to existing hydroelectric facilities. The Tennessee Valley Authority has documented nearly 900 MW of "cost competitive" renewable energy from wind, biomass, solar and incremental hydropower just in TVA's service territory. And researchers at the University of Georgia have found commercially significant wind resources off the coast of Georgia and South Carolina.

• A national RPS allows utilities to develop resources anywhere
• Federal REC trading rules create a uniform price for renewable energy credits (RECs)

A national renewable energy market allows regulated utilities to invest in renewable resources wherever their development is most cost competitive.

A national REC trading market would allow generators to sell their RECs at a uniform price to retail suppliers anywhere in the nation. An expanded REC market generates more investment capital for renewable technologies by guaranteeing a more stable and predictable rate of return.

Litigation:

A National RPS Avoids Costly Court Battles

• Ambiguous state mandates invite law suits.

Utilities have gone to court over vague state RPS laws in Connecticut, Iowa, Massachusetts and New Mexico. New legal battles could be waged in Oregon and Washington.

• State RPS laws are vulnerable to Constitutional challenge.

California, Washington, DC, Maryland, Nevada, New Jersey, Pennsylvania and Texas have all adopted restrictions on out-of-state renewable energy that many scholars agree violate the Commerce Clause of the U.S. Constitution.

• A Constitutional challenge is inevitable.

Growing tension between state and federal utility regulators has engendered a kind of "Commerce Clause brinksmanship," that invites interstate utilities to challenge the constitutionality of state RPS mandates.

• The Supreme Court has already given FERC the authority to intervene.

The practical affect of the Supreme Court's 2002 decision in New York v. FERC is that "the federal government could assert jurisdiction all the way to the consumer's toaster if it so chose."

• A successful federal lawsuit could destroy state RPS programs.

One successful Commerce Clause challenge risks a cascade of copy-cat litigation, collapsing the entire state-based RPS structure and destroying the emerging interstate renewable energy market.

Environment:

A National RPS Better Conserves Water, Air and Land

• A national RPS would displace coal and natural gas.

In a 2002 assessment of a 10% national RPS, the Department f Energy determined that "the imposition of a national RPS would lead to lower generation from natural gas and coal facilities." Analysts have confirmed this trade-off in RPS states like Michigan, New York, Virginia, and Texas.

• Renewable energy offsets nuclear power.

Studies from Michigan, North Carolina, and Oregon found that renewable generation displaces new nuclear reactors and decreases the mining of uranium.

• A national RPS saves billions of gallons of water.

Conventional and nuclear power plants will soon be withdrawing more water for electricity production than America's farmers use for all the irrigated agriculture in the entire nation (over 3.3 billion gallons each day).

A nuclear reactor requires 600 times as much water to generate the same amount of electricity as a wind farm. A coal-fired plant uses 500 times as much water as a wind farm; A gas-fired plant uses 250 times as much.

A single 100-watt solar panel saves up to 3,000 gallons of water over its lifetime.

• A national RPS reduces air pollution.

Air pollution from conventional power plants kills between 50,000 and 70,000 Americans each year. A single 1 MW wind turbine (operating at only 30% capacity) displaces 96 tons of nitrous oxides, 69 tons of sulfur dioxide and 1800 pounds of toxic mercury during its 30-year lifespan.

• A national RPS reduces greenhouse gas emissions.

Renewable energies could offset almost ½ ton of carbon dioxide for every MW generated. A 20% by 2020 national RPS could reduce as much carbon dioxide as taking 71 million cars off the nation's roads.

• Renewable energies require less land then conventional power plants.

Including the land used for mining, transportation and generation, conventional coal-fired power plants use as much as 100 square kilometers of land for every GW of electricity generated.

Wind farms use up to 75% less land.

Over 95% of the land used for wind farms remains free for other uses like ranching and farming. Less than 40 square miles could support 38,000 wind turbines producing up to 4% of the nation's electricity demand each year.

Solar PV uses up to 90% less land.

America's entire current electricity demand could be generated by installing PV panels on only 7% of the country's available roofs, parking lots, and highway retaining walls.

Conclusion:

Now is the Time for Federal RPS

It is time that federal policymakers engage in an informed, comprehensive and rational debate about the few remaining objections to a federal RPS mandate. America faces serious and mounting energy problems:

• continued dependence on dwindling foreign sources of fossil fuels and uranium
• an undiversified electricity fuel mixture that leaves the nation vulnerable to serious national security threats
• reliance on an ancient and overwhelmed transmission grid that risks more common, more pronounced, and more expensive catastrophic system failures
• an impending climate crisis that will require massive and expensive emissions controls costing billions of dollars and substantially reducing U.S. GDP
• loss of American economic competitiveness as Europe and Japan become the major manufacturing center for new clean energy technologies

It is time to decide. By establishing a consistent, national mandate and uniform trading rules, a national RPS can create a more just and more predictable regulatory environment for utilities while jump-starting a robust national renewable energy technology sector. By offsetting electricity that utilities would otherwise generate with conventional and nuclear power, a national RPS would decrease electricity prices for American consumers while protecting human health and the environment.

There is a time for accepting the quirks and foibles of state experimentation in national energy policy; and there is a time to look to the states as laboratories for policy innovation. Now is the time to model the best state RPS programs and craft a coherent national policy that protects the interests of regulated utilities and American consumers.

Now is the time for federal leadership.