Renewable Energy Policy Toolkit: Part 1

By Will Nissen, Fellow, June 26, 2012 at 12:30 pm

With the lack of a cohesive national energy plan, much of the guidance, leadership and action on energy issues have occurred at the state level. And when it comes to fostering renewable energy generation, a big part of states’ plans are Renewable Portfolio Standards (RPS): 31 states have mandated percentages of energy generated from renewable or alternative energy sources by a certain year, and seven more have established renewable energy goals.

RPS have been invaluable in jumpstarting large amounts of investments in renewable energy sources at the early stages of these industries, but they don’t create direct economic incentives to invest in renewable energy projects. Here in Minnesota, state law mandates that 25% of our power come from renewable energy sources by 2025. But what happens when we reach the 25% mark, or after 2025 when the mandate expires?

There are other options available to policymakers that create economic incentives from investment and deployment of renewable energy sources. One is a production tax credit (PTC), which gives a ¢/kWh tax break on energy produced by renewables. A federal PTC for wind for 2.2 ¢/kWh is set to expire at the end of this year, and PTCs for other renewables go through the end of next year. While Minnesota does not have a state-level renewable PTC, Iowa gives renewables a 1.0 ¢/kWh or 1.5 ¢/kWh break on top of the federal credit to qualifying projects.

The federal wind PTC debate has caused uncertainty in the wind industry and led to predictions that thousands of jobs will be shed this year and in 2013. So the prospect of a phased-out wind PTC over several years has surfaced at the federal level. This would give the industry the stability to plan and implement long-term developments, while putting a horizon on the credit to appease its opponents.

Feed-in tariffs have resulted in booming renewable industries in places like Germany and Japan. This mechanism can function in many different ways, Minnesota has an early form of one in its Community-Based Energy Development (CBED) legislation, but it essentially contracts renewable energy between the supplier and a utility for an extended period of time (usually 15-20 years) at a fixed price. This gives developers and investors more economic certainty to build renewable projects, and the price is usually based on the cost of generation associated with each type of renewable.

Any of these options would provide economic incentives that would help spur investment in renewable energies with or without RPS in place. More options and details to come in another post.

Posted in Economic Development | Related Topics: Energy