The U.S. electric power industry has been going above and beyond in investing in renewable resources past states’ renewable portfolio standards (RPS) and targets, according to a new report from The Brattle Group.
The report says the majority of these “beyond-RPS” investments have occurred in regions that offer access to low-cost wind or solar potential and regions that have organized regional electricity markets.
According to Brattle, this facilitation of renewable generation development by regional markets should be considered by western U.S. states as they contemplate the future of their electricity industry and its impact on the environment.
The firm has reviewed a number of industry statistics and practices to show how regions with regional transmission operators and independent system operators (RTO/ISO markets) have been facilitating development of renewable generation.
Specifically, the group says RTO/ISO markets are leading the growth in U.S. renewable generation. They have achieved this growth through ready-made markets for real-time energy; lower-cost integration, balance and congestion management over large regions that provide diversity benefits; and improved regional transmission planning and generation interconnection processes.
In addition, about half of all U.S. renewable generation investments in the last five years have been in excess of state RPS requirements. The report says these beyond-RPS renewable generation investments are driven by voluntary purchases by utilities, public power entities, and commercial and industrial customers, as well as by merchant renewable developments with spot sales (or short-term contracts) and financial hedges.
However, according to the firm, very few arrangements take place in non-market regions – even if those non-market regions are endowed with locations suitable to constructing low-cost renewable generation.
Looking ahead, power purchase arrangements and green tariffs with commercial and industrial customers are expected to grow rapidly, the report says. In fact, many large corporate users of electricity have already committed to purchasing 600 GW of new renewable generation by 2025.
Brattle notes that RTO/ISO markets provide an effective platform to support this activity and facilitate the development of the resources that customers seek.
Additionally, according to the report, renewable generation investments beyond RPS are already reducing annual carbon-dioxide emissions by approximately 100 million tons per year nationwide. This corresponds to about 5% of total U.S. electric sector CO2 emissions (or twice the entire electricity sector emissions of California).
“While the successful growth of renewable generation is well documented, we were surprised that half of all renewable generation development has moved beyond RPS mandates and that most of this beyond-RPS activity is contained to RTO/ISO markets,” notes Johannes Pfeifenberger, a Brattle principal and co-author of the firm’s presentation. “You may see very little of it in the adjoining non-market region even if the quality of renewable resources is just as high.”
The authors note that the effectiveness of regional markets in facilitating renewable development beyond regulatory mandates will likely be a significant driver of additional emission reductions in the U.S. electric power industry.
“The opportunity for forming or joining regional RTO/ISO markets that facilitate renewable generation development beyond RPS mandates needs to be considered, particularly now that western states actively contemplate how they can cost-effectively reduce the environmental footprint of the electricity industry and their economies,” Pfeifenberger adds.
The firm’s presentation, “The Role of RTO/ISO Markets in Facilitating Renewable Generation Development,” is available for download here.
