Current state of U.S. renewable energy policy

Posted on Mar 1, 2016 in Blog | 0 comments

The U.S. Energy Information Administration (EIA) recently released its projections for the U.S. energy sector in their Annual Short-term Energy Outlook report.  As of 2014, renewable energy sources (hydropower, wind energy, biomass wood, biomass waste, geothermal, and solar energy) made up about 13% of the U.S. energy sources, with nearly half of that percentage (48%) coming from hydro.  According to the Outlook report, EIA expects total renewable useage by the power sector to increase by 8.1% in 2016.

The development of renewable energy technologies, particularly solar and wind energy technologies, have been aided by federal policy incentives aimed at integrating renewables into the U.S. electric grid.  Currently, California leads the country in installed solar capacity (solar photovoltaic – PV – panels and solar thermal technology), while Texas leads in generated wind power.  

Federal initiatives aimed at developing and deploying renewable technologies are integrated in the Energy Policy Act of 2005, the Energy Independence and Security Act of 2007, and the American Recovery and Reinvestment Act of 2009.  A recent addition to the Clean Air Act under Section 111(d), known as the Clean Power Plan, provides a policy framework for states to increase their power production from renewable sources.

The Energy Policy Act of 2005 authorized loan guarantees for the innovation and development of clean power technologies, and increased the required percentage of biofuels  used in ethanol production.  The Energy Independence and Security Act established a Renewable Fuel Standard, directing the Environmental Protection Agency to monitor that fuel used for domestic transportation contained a specified volume of renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel.

The federal policies above allow for individual states to choose how to implement them.  These policies include:

  • Renewable portfolio standards (RPS) are the minimum amount of renewable energy sources electricity producers can use for power production.  These standards can be either mandated or voluntary.  Renewable sources can include wind, solar, geothermal, biomass, and some types of hydroelectricity, but may include landfill gas, municipal solid waste, and tidal energy.  There is no national RPS implementation program, but 30 states and the District of Columbia have mandated RPS using their own, state-level, implementation programs, and seven states have voluntary policies.
  • The renewable energy credit (REC) trading system, which allows producers who generate more than their required amount of renewable electricity, or RPS, to sell or trade credits to other suppliers who may not be able to meet their required amount.  This trading scheme accommodates producers that may still be under construction and development, and aims to minimize the cost of compliance.
  • The feed-in-tariff (FiT), which financially compensates customers owning renewable electricity generation facilities (such as a roof-top solar photovoltaic system). Customers are compensated for the amount of electricity they provide from renewable facilities to the electric grid.  The amount of the compensation is set by their utilities.  This policy tool aims to encourage the use of renewable technologies, and thus make them more marketable.  FiT is mandated by 6 U.S. states, and is voluntary for some utilities.
  • Net metering tariffs allow customers owning renewable technologies (such as roof-top solar panels) to use the electricity generated from their technologies in place of electricity coming from the central electric grid.  This reduces their overall consumption from the grid and encourages renewable energy generation.  Programs for implementing these tariffs, vary state to state, but can include: capacity limits, eligibility by fuel, type of compensation, etc.  44 states and D.C. have authorized net metering programs.  The Database of State Incentives for Renewables & Efficiency (DSIRE) provides details on each State’s net metering policies.
  • Federal production tax credits (PTC), which were first established as part of the 1992 Energy Policy Act to incentivize wind production.  A PTC is based on annual production of electricity from approved power sources.  It was through the combination of PTCs and RPSs that wind power was developed.  Between 1992 and 2011, wind power capacity (large-scale wind turbines) in the U.S. increased from 1.5 GW to 45 GW – amounting to about 4% of total U.S. generating capacity.  PTCs have assisted in reducing the cost of contracted wind prices by 25%-50%.

The tax credits for solar and wind producers have been consistently renewed prior to their expiration dates. In December 2015, an extension of these federal tax credits was re-approved by Congress for solar and wind technology.  Production tax credits for wind plants starting construction were extended until 2019, with credit value declining over a ten year time period.  Investment tax credits are at 30% for solar plants starting construction, and are eligible until 2019.  (See DOE’s page on Renewable Electricity PTCs.)

The policy incentives currently in place at the state and federal levels aim to increase long-run competitiveness of renewable energy technologies.  While the Short-term Energy Outlook projects an increase in electricity generated from renewable sources, uncertainty lingers on the effect of clean energy policies on carbon emissions in the upcoming years.  Hopefully, the extension of the tax credits give the emerging technologies the time they need to successfully enter the energy market.

 

 

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