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States Trump Feds on Green Energy Policy

While there is a lot of environment-friendly talk in Washington, much of the real greening of America is taking place at the state level.

Driving the action are mandates – known ‘renewable portfolio standards’ (RPS) and adopted by 30 states, as well as D.C. - that set targets, and timelines, for reaching a certain percent of overall power generation from renewable energy sources.

For many states these obligations – which fall on utilities to carry out - are just beginning to take effect but they are already a significant factor in the explosive growth of renewable energy.

“You certainly would not have had 16,000 MW of wind without the states [RPS], for sure,” says George Sterzinger, executive director of Renewable Energy Policy Project.

Renewable energy remains more costly than conventional source of energy but that equation is quickly shifting in favor of renewables, and state mandates are accelerating that trend by driving adoption in the market, at initially moderate rates.

“We view renewables as the right choice for the future, it is just not quite economic, even in today’s markets with $140 a barrel of oil, but I do see a day, when renewables will in fact be cheaper than conventional sources,” says Philip Giudice, the commissioner of Massachusetts’ Division of Energy Resources.

North To South

Massachusetts recently stepped up its commitment to renewable energy--doubling its adoption rate--and it now aiming to reach 15 percent by 2020.

“I think ten years from now we might be looking at [what we are doing now] and saying, ‘Boy weren’t we lucky,’ it sure is a lot cheaper than that expensive LNG coming in from Venezuela or Trinidad or Algeria,” adds Giudice, a former senior vice-president of EnerNOC.

For some states that time has already come. Take wind-blessed Texas, for instance.

The state initially committed to installing 3,000 megawatts (MW) of wind, but as the price of natural gas has risen, wind's become more attractive. Now 44,000 MW of wind are planned.

Since 2001, city-owned utility, Austin Electric, has offered customers wind power in long-term (10-15 year) fixed contracts.

In each of five offerings of wind power customers paid a slight premium to the prevailing grid power price, which is currently 3.65 cents per kilowatt-hour (kWh), but over time the investment has paid off for most of them.

Those in the first batch, for instance, are still paying 1.70 cents per kWh – and will continue to do so until March 2011. “Those customers are laughing all the way to the bank,” says company spokesman Ed Clark.

More than 500 businesses have signed up for the company’s GreenChoice program. The bulk of them will derive 100 percent of their electrocute from it, more than any other city in the country.

Demand is so intense – even at the current wind price of 5.5 cents per kWh - the company has had to reserve 25 percent for residences and small businesses.

The strong public support in Austin has been matched in many other states, where renewable standards started being introduced in the early 1990s, partly in response to energy industry deregulation. (See this Department of Energy-funded map of states' RPS.)

Iowa, for instance, adopted a target of 105 megawatts of wind in 1990 and now has 1,400 megawatts installed, supplying about 10 percent of total demand.

The state has also attracted six wind component manufacturers now employing 1,300, according to Roya Stanley, director of the state’s office of energy independence.

Companies Buying In

Advanced Micro Devices , which made a major move into solar energy, is the top purchaser locally.

Countrywide, Intel is the largest corporate purchaser of certified green power. It recently committed to buying 1.8 MW hours, at $10 million over what commodity or grid energy would have cost, according to Arthur O’Donnell, Executive Director of San Francisco-based Center for Resource Solutions, which certifies 70 percent of renewable energy in the country througyh its Green-e program.

The lion’s share of country’s renewable (non-hydro) energy is from wind but at least a half a dozen states have solar ’carve-outs’ (sub-sector targets) and these have become the focus of attention for big-box stores, such as Staples, that are in the process of adopting renewable energy.

Staples has rooftop solar installations in just 14 locations but dozens more are under consideration.

“If we can farm the rooftops [with more solar] we get a carbon benefit ... and a long-term hedge against fuel costs," says Mark Buckley, Staples’ VP for environmental affairs.

Buckey says the the model "works financially in those states where the cost per KW is high and where there is a reasonable portfolio standard typically with a solar carve out; I think it fair to say we are going to be sharing significantly amount of money over the next 20 years.”

Similar mandates at the federal level have met opposition, primarily from southeastern states, which faced the prospect of having to import from other states because of a dearth of renewable resources.

Although renewables can cost significantly more per kilowatt unit – 5 cents per kilowatt more or a 30-40 percent premium, in Massachusetts, for example – the state mandates are modest enough such that retail prices have only risen only one percent on average, according to Ryan Wiser, a national authority on RPS, at the Lawrence Berkeley National Laboratory, who recently did a major study on the subject.

New Utility for Utilities

State mandates are also changing how utilities view renewable energy.

Since renewable energy remains a fairly specialized business in which most utilities do not have direct experience, but as technology scales up, utilities are likely to enter the business themselves rather than leave it to independent producers, says O’Donnell.

Utilities prefer owning because they can collect on rate base customers indefinitely (also because power purchase contracts are considered liabilities by credit rating agencies) and swelling demand for green power outstrips current supply.

Even municipally-owned utlities, which are often unbound by state mandates, are going far beyond state targets. Los Angeles Water & Power, for instance, has committed to going 35 percent renewable by 2020, while the current California state target is 20 percent by 2013.

“All of sudden the utility industry is paying attention to [owning] renewables,” says O’Donnnell. “Why? Because people want it and they can make it make economic sense.”