Three Republican governors recently strengthened the renewable portfolio standards in their states in a sign that the link between job growth and renewable energy incentives may be trumping traditional partisan affiliations.
That connection could be tested in the coming months as more states re-examine their RPS targets and federal clean energy policies come under scrutiny in the Trump administration.
The president-elect, set to take office Jan. 20, has expressed skepticism over wind and solar energy, but many power sector insiders are hopeful federal support for many renewable energy programs will continue on the grounds of economic development.
That argument is already catching on at the state level, analysts note, with a number of states with Republican leadership embracing renewable energy mandates.
“We expect several states to consider and possibly strengthen their RPS programs this year,” Timothy Fox, a vice president at Clearview Energy Partners told Utility Dive. He says Maryland legislators may override the governor's veto of a bill to modestly raise the state's existing RPS program as early as this month.
In Arizona regulators are considering changes to their RPS programs and, Fox notes, the chairman of the Arizona Corporation Commission has argued that the state's utilities could achieve a 30% mandate "without undue impacts on ratepayers."
Fox also says that Massachusetts lawmakers may propose an energy package that, among other things, could raise the state's existing renewable power mandate.
If those states do strengthen their targets, it would add to a string of recent wins for RPS programs.
In Ohio Gov. John Kasich (R) went against Republican opponents of the state’s RPS – Sen. Bill Seitz and Rep. Ron Amstutz – when he vetoed a bill that would have effectively extended a freeze on the state’s RPS.
Ohio is a state hard hit by the loss of jobs from closed coal plants, but, as Kasich noted when signing the veto, the state has also benefited from the job growth associated with renewable energy.
Kasich said extending the freeze on the RPS would “undermine the progress” renewable energy companies have made in creating jobs in Ohio. He also said that extending the RPS freeze would be the equivalent of “arbitrarily limiting Ohio’s energy generation options” and amount to “self-inflicted damage to both our state’s near- and long-term economic competitiveness.”
In Michigan, Gov. Rick Snyder (R) struck an 11th hour compromise to overhaul the state's energy marketplace, raising the renewable energy standard from 10% to 15% by 2021 and protecting retail net metering.
In December, Illinois Gov. Bruce Rauner (R) brokered a deal that resulted in the passage of a massive energy bill that provides an annual $235 million subsidy to keep two Exelon nuclear plants in the state alive but also strengthened the state’s RPS and is expected to spur the construction of as much as 4,000 MW of new wind and solar power plants.
In addition, Phil Scott, Vermont’s new Republican governor, earlier this month said he supports the state’s 90%-by-2050 RPS put in place by his Democratic predecessor.
A total of 29 states and the District of Columbia now have RPS goals and another eight states have voluntary targets, according to the National Conference of State Legislatures.
While no states are instituting new RPS mandates, Fox says he expects more states with existing programs to raise their targets this year. “The RPS trend can generally be regarded as green states getting greener,” he says.
And, because of state primacy over RPS program, it is a trend that is insulated from federal policy initiatives “irrespective of who is in the White House,” Fox argues.
While he still sees some risks that Republican gains in state legislatures could translate into increased risks to existing RPS program, “numerous Republican lawmakers support renewable energy and policies that favor its deployment.”
RPS policies and beyond
“It is encouraging that wind power has Republican support,” particularly in light of the fact that the “wind asset corridor runs through some very red states,” said Amy Francetic, senior vice president of public affairs and new business ventures at Invenergy, a power developer.
It is an indication that the debate over renewable energy has become more of a debate about economic development than about climate change, she said. Governors in those states want to be part of an industry that is growing and, in addition, the benefits that renewable energy development can bring to a local economy is “the kind of stuff you can’t undo.”
Wind turbine technician is one of the fastest growing segments in the U.S. labor market, according to the Department of Labor.
But whether or not a state has an RPS is only one factor involved in the development process. For Invenergy, more important than an RPS is demand for power, says Francetic. The company looks first for a good wind resource, then at the demand for the power that would be produced and then at the state and local siting rules. Some states, such as Vermont, may have an RPS, but siting is really tough.
If all those other factors don’t line up, an RPS can give “a false sense of confidence,” Francetic said. “It is a misconception to think an RPS is going to be the golden ticket.”
For a developer, one of the key drivers is transmission, she said. “You can’t compete on price if you can’t move the resource to the load.”
Francetic said the growth of corporate renewable energy purchases will continue to push growth along with RPS policies.
“It’s an increasing part of our business,” she said, noting that over 600 companies have committed to reducing their greenhouse gas emissions. She also notes that big utilities such as MidAmerican Energy and Xcel are beginning to buy up renewable energy projects, not just sign power purchase agreements, which can open up a market for project developers like Invenergy.
For utilities, policymakers and the Fortune 500 alike, the case for renewable energy has also been made easier by declining prices. Recent levelized cost analysis from the investment firm Lazard shows wind energy to be cheaper than natural gas and competitive with coal on an unsubsidized basis, with utility-scale solar not far behind.
And county-level LCOE research from the University of Texas-Austin shows that the renewable resources are most competitive across some of the most conservative parts of the U.S. heartland:
Uday Varadarajan, a principal at the Climate Policy Initiative, agrees that “utilities are changing their tune on renewables.” They are beginning to want to put the assets on their balance sheet so they can earn a return on their investment, he said.
In fact, the proliferation and declining cost of renewable energy has caused a “flip” in attitudes and in the roles of some of the traditional parties. “An RPS used to be something you paid for, now it is an opportunity to get savings,” Varadarajan said.
Utilities and ratepayers alike are now looking to take advantage of the federal support of the production tax credit to lock in low cost renewable resources and lower rates, Varadarajan said. “But in a regulatory context, who should be getting those benefits,” he asks?”
The growing popularity of RPS mandates would seem to indicate that many parties, and many states, are benefiting from low cost renewables. And while Republican governors in some states are breaking with national interests and going in the opposite direction when it comes to renewables, Varadarajan says there is still a lot of hostility toward renewables, especially in states where mining is a mainstay of the economy.
Lawmakers in Wyoming, which has never had an RPS, recently proposed that states be allowed to share some of funds received from federal renewable energy incentives. Last year state lawmakers there mounted a failed effort to impose a tax on wind power production as a way to offset lost revenues from the declining use of fuels such as coal. A new bill in the legislature would limit the amount wind energy Wyoming utilities can use in favor of in-state coal power.
Wyoming produces about 40% of the nation’s coal.
“These are serious and difficult issues,” Varadarajan said. And there are serious discussions under way about finding a way to provide some form of cost recovery for the shuttering of coal plants.
One of the mechanisms the Climate Policy Initiative is looking at would be some form of securitization that would capture some of the cost savings that are realized from renewable resources.
Such a mechanism might capture a stream of income from renewable energy assets, perhaps under utility ownership, and isolate that stream from the utility’s balance sheet and investment rating. That stream of income from ratepayers could then be used to back bonds that could be used to compensate parties hurt by the proliferation of renewable resources, such as coal miners, in much the same way that utilities were compensated for stranded assets when many states deregulated their electric power sectors in the 1990s.
It is not something that could be done unilaterally, Varadarajan said; it would likely require legislative authority. Right now, there is a window to capture the savings generated by renewable energy projects, but that window will begin to close as the PTC is phased out over the next three or four years.
But there is a strong case to be made for acting now, Varadarajan says. “They are not just stranded assets, they are stranded people.”