February 03, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Renewable energy is making a gradual presence in this country. But the key question facing U.S. lawmakers is whether to mandate broad portfolio standards or whether to continue giving the states the authority to determine such measures.
The greening of America has a permanent place in the mindset of most citizens. And policymakers are keenly aware of this sentiment despite some concerns over rising costs and the creation of unrealistic goals. Through cooperative efforts that have involved all participants, state officials were first to require a certain percentage of utility portfolios to come from green fuels. Now, though, federal lawmakers are considering the same.
"The goal of a national renewable portfolio standard is to up the ante," says Mary Anne Sullivan, former general counsel to the U.S. Department of Energy in the Clinton administration. "You don't do that by leaving it up to the states."
At least 28 states now have those mandates on the books, all of which have set ambitious long-term goals. The goal of any such standard is to create demand, which in turn attracts providers to the field and ultimately leads to the development of newer and better products and services. The end result would produce a cleaner environment and more jobs without causing electric rates to fluctuate.
Congress has grappled with this issue in the past. But it has chosen not to act largely because of regional differences and the ability of the various states to meet strict targets. In other words, the southwest is endowed with lots of sunshine while Texas has ample wind resources. But the southeast says that it lacks such blessings and it would therefore have difficulty complying with any national mandates.
When the Obama administration took over Washington, a movement took root to enact national renewable portfolio standards. The most notable bill would establish a 15 percent threshold by 2021 -- a number that has been reduced from 20 percent because of utility concerns. Three percent of this amount could come in the form of implementing energy efficiency measures.
Some conservatives in Congress want to defeat the legislation, arguing that it will cause energy prices to escalate and make the country less competitive. Others acknowledge the momentum and as such want to influence its outcome. Therein lay the potential for a more flexible renewable portfolio standard. States with limited sustainable resources, under pending proposals, could adopt renewable portfolio standards of 12 percent as long as they require eight-percent efficiency gains.
"When Congress looks at renewables, it should recognize regional differences and not enact a one-size-fits-all solution," says Glenn McCullough, former chair of the Tennessee Valley Authority. "These decisions are made better at the state level by public service commissioners or voters than at the federal level."
State Leadership
The southeast, for example, has lush forests that the nearby manufacturing facilities process and use. The result is lots of sawdust -- a form of bio-fuel -- that could be used a substitute fuel or as a supplement to fossil-fired generation. Public service commissioners recognize such assets and would more than likely be amenable to credit them in the effort to meet any standards.
If the goal is to move steadily toward a low-carbon society, then any form of renewable mandates should be accompanied by the proper financial incentives and well-considered federal regulations, says Greg Unruh, professor at the Thunderbird School of Management in Arizona. One way to create more renewable franchises and fewer emissions is to continue to allow the states to set their own standards while also giving the federal government the right to oversee a cap-and-trade system, he says.
"If you set up a market place and mandate reductions, then one must ask if it is cheaper to build solar plants or install advanced coal with sequestration," says Unruh. "Once markets start telling the truth, then we can find the most cost effective solutions."
While resistant at first, the utility industry has come to the table. Its interests vary. But generally it recognizes that the nation is trending green and that it is expected to offer solutions. Regulators and electric companies, in many corners, are rising to the market challenges by building the foundations for robust energy enterprises, according to the Center for American Progress.
Take New Mexico: In 2004 it adopted a 10-percent standard by 2011. But three years later it doubled that to 20 percent by 2020 for large utilities and 10 percent by 2010 for electric co-ops or private, independent electric utilities, the center says. That, in turn, has attracted major solar manufacturers that have invested millions and employed thousands in the process.
A number of other states have also increased their stakes. Beyond the built-in regulatory flexibility, they all expect advancing technologies to propel their long-term goals forward. That is, as an increasing number of enterprises get involved in the renewable sector, more products and services will come to market in a more cost effective way.
Wind turbine and solar panel prices, for instance, have fallen dramatically. With subsidies, the resulting energy sources are becoming more and more competitive. As a result, their market penetration rates have gone up.
"What seems uneconomic now will become increasingly cost competitive," says Sullivan, who is now a partner in Hogan & Hartson's energy practice. "It will make it easier to comply with national standards. Companies would not have to meet the percentage changes tomorrow. They would get phased in over time."
The fate of national energy legislation is unknown. Regardless, the country is embracing green technologies and the states will continue to act in the absence of federal rules. To some, that is preferable. Others, though, say the results will be inadequate.
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