Renewable energy standards need updating

The Conservative Energy Network recently issued my paper, “Renewable Energy Standards Need Reform to Sustainably Support an Energy Transition.” My main point: typical state policies supporting renewable power generation tends to support quantity over quality, and that can create problems. Fortunately there is a straightforward fix.

This paper began because I did not really understand something about Renewable Portfolio Standard (RPS) policies. As I use to tell my students, one of the best ways to learn something is by explaining it to someone else. If you do that explaining in writing, that enhances the effect. One view in the climate/clean energy/transition policy space is that the way to achieve 80 percent or 100 percent clean energy is just to keep ramping up RPS policies (and make then nationwide, and expand to include all zero-carbon power). That approach did not seem politically sustainable to me.

As RPS creep up from 5 or 10 percent to 30 or 40 or 50 percent, the quantity-over-quality approach leads to greater price volatility and reliability worries. Such developments may not be serious threats to either wholesale power markets or the electric grid–financial hedges can handle wholesale price volatility, and grid operators are pretty good at what they do–but they would create political problems for the policies. (The recent NERC summer assessment and subsequent political murmurings in Washington, DC and other state capitals may be relevant, though no one is pointing fingers at RPS policies specifically.)

Fortunately there is an easy fix: change the rules to require hourly REC matching instead of annual REC matching, at least for a large part of the RPS obligation. To explain the point I’ll have to first explain a bit about how RPS laws work.

Most RPS laws use a compliance system based on Renewable Energy Credits (RECs). Assume electric retailers are obligated by their state government to procure RECs equivalent to 10 percent of its annual sales of power. Typically RECs need only match the year of the retail power sale that created the obligation, meaning a REC generated in January could be used to satisfy an obligation incurred in December.

It is the mismatch allowed by RPS rules that gives rise to a “quantity-over-quality” problem. Quantity-over-quality incentives leads to investment in wind power wherever it is windiest and solar power wherever it is sunniest. Sounds fine, but such investments do not necessarily produce power where and when consumers want to use it.

As more and more high-quantity renewables are put on the system, prices will fall when the wind or solar resource is strong but shoot up when wind or solar drop off. Prices in California can sink to near nothing midday, but rise sharply in the evening as the sun sets. High winds in West Texas can drive power prices in the region negative.

Shifting to 24/7 REC obligation requires support for clean energy resources capable of delivering power when consumers want to use it. Once REC-prompted demand in the low-cost windy or sunny times and places is satisfied, investment will be induced to tackle the harder problem of filling in the gaps when the sun goes down or wind resources fall below normal for days. There is a little more subtlety in the paper itself, so go download it, read it, share it with your friends, post your complaints below, etc.

As the reference to “24/7 resources” suggests, I see my explanation as consistent with Google’s analytical work in support of their own carbon-free energy goals. Learned a lot from them, e.g., “24/7 by 2030: Realizing a Carbon-free Future.” (And see also Google’s recent policy scoping paper, “A policy roadmap for 24/7 carbon-free energy.”) I also gained a lot the M-RETS whitepaper “A Path to Supporting Data-Driven Renewable Energy Markets.” Both recommended reading, particularly if you are interested in the voluntary clean energy market.