State Mandates: New Opportunities for Renewables Producers

Whether by carrot or by stick, state legislatures are prodding electricity purveyors to invest in renewable energy technologies. As of November 2006, 20 states and the District of Columbia had in place Renewable Portfolio Standards (RPS)—policies that either require or encourage electricity providers to obtain a minimum percentage of their electrical generation from renewable energy resources by a certain date.

RPSs come in different strengths and styles, and the laws in place in Iowa, Minnesota and Colorado are emblematic of possible variations. This article will review RPS legislation enacted in Minnesota in early 2007, new RPS legislation under consideration in Colorado and long-standing RPS law in Iowa.

RPS Today

Minnesota. A law enacted in the opening days of the 2007 legislative session transforms what had previously been a renewable energy objective into a mandatory standard. 2007 Minn. Laws Ch. 3 (amending Minn. Stat. §216B.1691). Minnesota's new standard, in fact, positions the state as a leader in renewable energy mandates. The new law requires each electric utility in the state to achieve the following percentages of the utility's total retail electricity sales to customers in the state by the end of the year indicated:

• 2012 - 12 percent
  
  2016 - 17 percent
  
  2020 - 20 percent
  
  2025 - 25 percent

The legislation requires Xcel Energy, the largest utility operating in Minnesota, to meet even higher standards:

• 2010 - 15 percent
  
  2012 - 18 percent
  
  2016 - 25 percent
  
  2020 - 30 percent

Moreover, the 30 percent mandated for 2020 must include 25 percent from wind generation. These higher mandates are the result of legislative compromises related to Xcel's nuclear generation plants. However, having already made significant investments in wind and biomass generation, Xcel has a head start toward meeting the mandates.

The law provides utilities with a mechanism for seeking delay or modification of the RPS in certain cases by making a request to the Minnesota Public Utilities Commission (PUC). The PUC can grant the request if it is deemed "in the public interest" to do so. The PUC must consider a number of factors in determining whether a stay or modification is in the public interest, including impacts on customers, effects on reliability of the electrical system, technical issues, siting or routing issues, challenges in obtaining necessary equipment, transmission constraints and other statutory obligations on the PUC or the utility. The PUC's discretion in granting these requests is constrained by the statute depending on the basis for the request, and the PUC must always consider the preference for generation by renewable means.

Colorado. In 2004 the citizens of Colorado adopted Amendment 37, which applies to each provider of retail electrical service in the state serving more than 40,000 customers. The Colorado RPS mandates that minimum percentages of retail electricity sales in Colorado come from renewable sources: 3 percent for 2007-10; 6 percent for 2011-14; and 10 percent in 2015 and thereafter.

Iowa. The state requires that the two investor-owned utilities doing business in Iowa own or purchase 105 megawatts of power from renewable facilities. Iowa's standard is notable for the fact that it was adopted in 1983, well in advance of any other state's efforts.

Is an RPS Always Mandatory?

No. Although Colorado, Iowa and Minnesota have all adopted mandates, some states have set goals for their utilities rather than mandates. Prior to the current legislative session, the Minnesota RPS was an objective rather than a mandate.

What is "Renewable Energy?"

There is no easy answer to this seemingly simple question. Any power producer seeking to interest a utility in purchasing its product needs to make certain that its technology comes within the scope of that particular state's RPS. In Minnesota, RPSs generally address this question in terms of providing a list of eligible technologies. There, an "eligible energy technology" is defined as one that generates electricity from solar, wind, hydroelectric with a capacity of less than 100 megawatts, hydrogen or biomass, which is defined to include landfill gas, anaerobic digestive systems and certain technologies that use mixed municipal waste as fuel. (The definition is broader under the new statute than the biomass mandate, which does not include mixed municipal waste as a source of biomass.)

In Colorado, "eligible renewable energy resources" include solar, wind, geothermal, biomass, new hydroelectric of 10 or fewer megawatts, and existing hydroelectric of 30 or fewer megawatts. In Colorado, biomass includes methane produced at landfills or as a byproduct of treatment of wastewater residuals but does not include mixed municipal solid waste.

Iowa uses the term "alternate energy production facility," which is defined to include solar, wind turbine, waste management, resource recovery, refuse-derived fuel, agricultural crops or residues or woodburning facilities. Iowa utilities can also comply with the law through power generated by small hydro facilities, defined as "a hydroelectric facility at a dam."

What's Next for RPS?

The Minnesota legislature made the state's renewable energy mandate one of its first orders of business. With RPS legislation now enacted, utilities will need to make or revise their renewable energy plans to meet the mandates, and power producers will want to explore the newly expanded market for renewable energy.

The Colorado legislature is currently considering legislation that would raise the renewable energy standard applicable to qualifying retail utilities to 5 percent by 2008, 10 percent by 2011, 15 percent by 2015 and 20 percent by 2020. The bill would also establish a renewable energy standard for cooperative electric associations and certain municipally owned utilities of 1 percent by 2008, 3 percent by 2011, 6 percent by 2015 and 10 percent by 2020. The proposed legislation, House Bill 07-1281, would also include "recycled energy" as an eligible technology (i.e., energy generated by heat that would otherwise be lost from stacks or pipes.)

Other Issues Involving Renewable Energy Generation

Minnesota's new law addresses two ancillary issues that could make or break renewables as a successful alternative to traditional energy-generation technologies: transmission constraints and renewable-credits trading. In Minnesota, transmission constraints have impeded the ability of wind-generated power to reach retail customers. Existing transmission lines, primarily running from the wind-rich southwestern part of the state to the east, at times do not have sufficient capacity to move all of the wind power generated. The new law attempts to address this problem by requiring utilities to study and develop plans for transmission- system improvements necessary to achieve the standards in the law. A report is due from the utilities to the legislature by November 1, 2007.

The Minnesota law also requires the PUC to establish a program by January 1, 2008, for tradable renewable energy credits. This program has the potential to make RPS compliance more flexible by allowing electric utilities to meet their statutory obligations in the manner that makes the most economic sense. Once a PUC-approved trading system is in place, credits may be used to meet the requirements of the new law. A coalition of groups has been developing a tracking system known as the Midwest Renewable Energy Tracking System (M-RETS). M-RETS would cover the Dakotas, Illinois, Iowa, Manitoba, Minnesota and Wisconsin as well as other jurisdictions in the future. In Colorado, the proposed legislation and Amendment 37 address the use of renewable credits for compliance with Colorado's standard in some circumstances.

Conclusion

Given concerns about climate change and dependence on energy from foreign sources, it is likely that interest in renewables and alternative technologies will only increase. It is too early to tell which of these approaches will prove to be commercially viable. There is no question, however, that during the next few years, state legislatures will promote renewable energy technologies through a combination of carrots and sticks, providing opportunities for power producers in the renewable sector.