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Navigating U.S. Renewable Energy Mandates, Rebates and Incentives

published: 2011-09-19 10:12

In the United States, 30 individual states have set "renewable portfolio standards" (RPS) which mandate that a certain percentage of that state’s investor-owned utility’s power come from a renewable energy source by a specific deadline. These patchwork standards range from 2 percent in Iowa to 40 percent in Maine, with deadlines varying in the next 5 to 10 years. For example, California requires each of the state’s electric utility companies to get 33 percent of their electricity from renewable sources by 2020.

As the deadlines for these mandates approach, utilities are examining the costs of replacing older, fossil-fuel plants with solar (and wind) to meet these mandates. And that means a continually expanding renewable energy market.

Another aspect of the U.S. market is that over half the states, as well as the federal government, offer various rebates and tax initiatives for PV installations. But many of those rebates are set to expire soon, sending solar developers scrambling to launch projects before the deadlines.

Mandate Leaders

The California Public Utilities Commission recently took steps toward implementing its new RPS law, requiring the state to generate 33 percent renewable energy by 2020. California has to meet the country’s most ambitious benchmarks for green energy: the state has set itself a goal of having 33 percent of all energy it uses be generated from renewable sources by 2020, including wind, solar, geothermal and biofuels.

Utilities in Texas and Colorado are already close to meeting the requirements mandated for those states, which demonstrates how quickly renewable energy developers can respond. Some U.S. developers are hoping that states will continually adjust their targets upward in order to keep adding more renewable energy projects. 

Xcel Energy, the largest utility in Colorado, says it is 8 years ahead of schedule in meeting their state's mandate requiring 30 percent of its electricity come from renewable sources by 2020. Xcel, which buys 27.2 MW from two solar plants in the state and has signed contracts to buy power from two 30 MW solar plants that start operations this year, believes it will achieve the mandate by mid-2012.

Texasis also way ahead of its mandate which, unlike Colorado's, is pretty low. Mandated in 2005, Texas requires 10 percent of its energy to come from renewables by 2025. In 2010, renewable energy rose 30 percent in Texas, which now has 515 MW more than its 2025 target, of which 97 percent comes from wind energy making Texas the leading wind producing state in the U.S.

Other states worth noting are: Nevada (20 percent by 2015), Illinoisrequires (25 percent by 2025), New York State(24 percent by 2013) and Arizona(15 percent by 2025).

Mandates’ Effect on Electric Rates

Those states having renewable-energy mandates are forcing utilities to examine the costs of replacing older, fossil-fuel plants to meet the states' mandates. The fossil fuel replacement for dirty coal plants is natural gas, the least-expensive fossil fuel generation in cost studies. The U.S. Energy Information Administration (EIA) put the average cost at 6.6 cents a kilowatt-hour by 2016 for a conventional natural gas plant. But the biggest concern with natural gas has been the cost of fuel because that fuel cost is passed on directly to consumers

Some recent studies suggest that renewable energy mandates haven't had a significant impact on customers' bills, though there remains relatively little data about ratepayer impacts. In fact, there are several studies that actually support both critics and supporters of renewable energy mandates in the U.S.

One of the larger reviews of renewable mandates was a 2008 report by the Lawrence Berkeley National Laboratory, which looked at data on a dozen state renewable policies enacted before 2007. The estimated impact on electricity rates varied from a fraction of a percent in most cases to about 1 percent in Connecticut and Massachusetts. "There is little evidence of a sizable impact on average retail electricity rates so far," the report concluded. The report's authors are collecting data for an updated version of the report.

A 2009 study by the EIA looked at the potential impact of a 25 percent nationwide renewable energy mandate and projected no impact on rates through 2020, followed by a less than 3 percent increase by 2025.

But the Minnesota Free Market Institute and the American Tradition Institute reached a very different conclusion. Their April 2011 report concluded that Minnesota's renewable electricity standard will cause rates in the state to rise as much as 37 percent by 2025.

U.S. Incentives Ending

This year, a 30 percent federal cash rebate is scheduled to end while a 30 percent federal tax credit program will continue through the end of 2016.The solar industry is lobbying the government to continue the cash rebate program, but there's not much hope for an extension considering the current political climate in Washington. Along with the federal program, 29 states also offer incentives. Many of those state programs are also becoming victims of budget cuts, but some states are actually increasing the incentives. About two dozen states have approved a new program that allows people to obtain funding to install solar systems with no upfront investment and pay the loan back through their property taxes with a program known as “Property Assessment Clean Energy” bond financing.

In New Mexico, Public Service Company of New Mexico and other utilities reward homeowners in two ways. The utility pays 8 cents per kilowatt for 12 years as a renewable-energy credit because it helps the company meet the state renewable energy mandate. The company’s net metering also only charges customers for power if they use more than their PV panels. Currently, 187 homes and businesses served by PNM have installed a total of 11.9 MWs of PVs. The company also has 22 megawatts of utility-scale PV production.

In June 2011, California passed a law expanding state tax incentives for solar power projects to make sure creative ways of paying for them are protected from property tax rate reassessment, including systems sold in a “sale-leaseback” arrangement and PV systems “that are constructed as freestanding or parking lot canopies.”

“Voluntary” Clean Energy Standards

Meanwhile, some states – mostly due to political considerations – are actually backing down on their original renewable energy mandates. In these states, renewable energy “mandates” are being replaced by more modest, voluntary “goals,” called voluntary Clean Energy Portfolio Standard (CPS), with target deadlines stretching out past 10 to 15 years:

  • In Maine, a battle is emerging over a bill introduced in May 2011 that scales back the law requiring 10 percent of Maine's electricity by 2017 to come from renewable energy, to be replaced only a 4 percent requirement.
  • In Indiana, a voluntary Clean Energy Portfolio Standard was signed into law in May 2011 which sets a goal of 10 percent of the state’s electric generation to come from clean energy sources by 2025.
  • In Missouri, the state is backing away from the requirements of a 2008 ballot initiative and their Renewable Energy Act to require utilities to make a good faith effort to get 15 percent by 2021 with no penalties if they fail to meet the deadline.
  • In August 2011, theNew JerseyGovernor proposed a 10-year energy master plan that calls for a 17 percent reduction in energy use by 2021and calls for 22.5 percent of the state's energy to come from renewable sources by 2021. That's down from the former 30 percent target. For more than a decade state residents have paid a utility surcharge of about $2 per month that provides about $240 million a year for green energy programs like rebates for buying energy efficient products. That money has consistently been diverted for other purposes.


While they last, these U.S. state mandates, tax incentives and rebates continue to spur new markets and funding opportunities for solar companies. Some supporters of solar power, including utilities like Xcel, believe state officials should raise the bar beyond the current mandates, which were considered a “minimum standard” when they were established. This would open the solar (and wind energy) market even wider.

But even when they do meet their mandated standards, some utilities are looking beyond to yet a newer electricity market: Exporting electric power to other states, particularly in the western states.

For example, Nevada has long regarded its growing renewable energy sector as a chance to become an energy exporter and is competing with California for the potential export market to other, growing western states. Nevada has a bit of a leg up over its neighbors because of the close working cooperation the state has with the federal Bureau of Land Management. In Nevada, like California and much of the western U.S. states, the land that has the most potential for utility-scale solar projects is federally owned and controlled by the Bureau of Land Management.

The key to Nevada’s – or any state’s domination of these potential western export power markets - are the large-scale PV and CSP power plants that have, thus far, relied on government loan guarantees to underwrite private investors. Those loan guarantees may also disappear very soon, leaving an open niche for outside investors and developers not dependant on such financing safety nets.

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