Fast-changing RPS Rules Create New Opportunities for Renewable Energy

by John A. Pirko, LeClairRyan

State governments continue to adopt new renewable portfolio standards (RPS) or expand existing ones. These changes in RPS programs create opportunities for some newer producers even as they restrict more traditional producers.

In Michigan, a pro-RPS coalition had the required number of signatures to put an RPS referendum on the November ballot. Under the current standard, Michigan utilities are required to source 10 percent of their electricity from renewables by 2015. The referendum, if it succeeds, will boost that number to 25 percent by 2025. The coalition—Michigan Energy, Michigan Jobs—reportedly garnered nearly 530,000 signatures more than the required 322,609. Supporters offer projections of the economic growth and jobs these standards will generate for Michigan. Opponents, however, including the Michigan Chamber of Commerce, express concern about the costs to ratepayers.

The Massachusetts Department of Energy Resources might toughen its renerwable portfolio standard by regulating the efficiency and materials at biomass facilities.  A proposal would stop biomass facilities from using whole tree to produce renewable energy.

The Massachusetts Department of Energy Resources (DOER) might toughen its RPS by regulating the efficiency and materials at biomass facilities. Generation resources fueled by biomass would be required to operate at 60 percent efficiency to qualify for a full renewable energy certificate and at 50 percent for a half certificate. The biomass industry argues the standards are impossible for pure biomass-to-electricity plants. According to the National Alliance of Forest Owners (NAFO), the proposal eliminates biomass as a renewable energy source and is out-of-step with the rest of the country.

“Massachusetts stands alone in effectively eliminating biomass as a carbon-beneficial source of renewable domestic energy in its proposed rule,” said Dave Tenny, NAFO president and CEO.

The regulations would stop biomass facilities from using whole trees to produce renewable energy. To meet the RPS, such facilities would have to rely on logging residue such as limbs and branches. The controversial proposal remains under consideration by the state.

Livia Gershon, who writes for the Revmodo clean energy blog, summed up the issue.

“Ultimately, the main issue being debated is whether burning trees can be considered carbon neutral,” Gershon said. “The biomass industry argues that, because trees absorb carbon as they grow, burning them remains carbon-neutral as long as more trees are planted and forests are managed sustainably.

“But some environmentalists point to studies reporting that, under some scenarios, wood-burning biomass plants can increase carbon emissions for decades even if they replace fossil fuels.”

At the end of June, New Hampshire became the first state to grant renewable heat energy the same incentive as renewable energy. Unlike the controversy in Massachusetts, this change, which added thermal to the state’s RPS program, won applause from biomass advocates such as the Biomass Thermal Energy Council (BTEC).

The legislation “grants incentives to biomass, solar and geothermal project developers that are equivalent in value to those for developers of renewable electricity projects,” BTEC noted in a press release. “Renewable energy certificates (RECs) will be worth up to $29/MWh of useful thermal energy produced by qualified thermal projects, and the program is authorized at least through the year 2025.”

In states without renewable portfolio standards, the pressure to adopt one is mounting.  The Energy Information Administration predicts the share of U.S. electric power generation from renewable energy will grow to 16 percent by 2035.

Qualified residential, commercial and industrial applicants will be able to sell RECs to help cover the high cost of the renewable technologies, reducing the payback time on their initial investments. BTEC cites examples such as wood or wood-pellet boilers, solar hot water arrays and geothermal heating and cooling systems. BTEC also noted that eight other states have limited thermal provisions in their RPS programs.

Meanwhile, in states without an RPS program, the pressure to adopt one is mounting. Earlier this summer, for example, the Florida Renewable Energy Association (FREA) announced recent survey results. The poll of Florida voters highlighted “a noticeable disparity between public interest in renewable energy development and Florida’s current legislative policy,” according to a FREA press release. Sixty-nine percent of registered voters said they support RPS legislation that requires utilities to produce a greater percentage of electricity from renewable sources, according to FREA.

The share of U.S. electric power generation from renewable energy will grow to 16 percent by 2035, in part because of new and more ambitious RPS programs, according to the Energy Information Administration’s “Annual Energy Outlook 2012.” EPA data shows 37 states, the District of Columbia and Puerto Rico have enacted some form of RPS. All of this activity is expected to continue as more states adopt or enhance and expand their RPS programs. It is a measure of the status that alternative energy generation enjoys in the U.S., despite the sluggish economy—or in some cases because of it, as states such as Michigan search for ways to compensate for auto industry and other economic losses.

For renewable energy companies, part of the challenge will be to stay apprised of fast-changing RPS programs and to take maximum advantage of emerging incentives, such as feed-in tariffs, that can help companies overcome the high cost of their initial investments. Keeping track of new developments internationally and domestically presents challenges, but for the renewable energy industry, it is a good problem to have.

Author

Energy attorney John A. Pirko is a shareholder in LeClairRyan. He is based in the national law firm’s Washington, D.C., and Glen Allen, Va., offices.

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