What Is A Renewable Portfolio Standard?
A renewable portfolio standard, commonly known as an RPS, is a state government mandate that requires a certain amount of the energy generated within a state to come from renewable power sources. This usually comes in the form of a percentage that slowly escalates every year until a renewable energy generation target is met. For example, the renewable portfolio standard of New Jersey mandates that 24.5% of the state’s energy come from renewable sources by the year 2020. An RPS is something that can be changed at any time. The only stipulation is that an amended bill must pass the state legislature so that it can then be made law. There are many environmental groups who strongly advocate for their adoption as they can be a huge net benefit to renewable energy advocates. Conversely, state legislatures can either stop, or put a momentary freeze on the renewable portfolio standard. This can be crushing to the renewable energy industry of that step and have many other long lasting negative effects in regards to future investment.
What Is A Solar Carve Out?
A solar carve out can be thought of as a subset of an RPS that mandates specifically solar energy generation. The solar carve out of the New Jersey RPS mandates that by the end of 2027, 4.1 percent of the state’s energy must come exclusively from solar power. A solar carve out usually creates what is called an SREC market. An SREC can be thought of as a digital receipt that is worth one megawatt-hour of solar generation. Utilities in a state with a solar carve out are required to purchase SREC’s to meet the state mandate. This creates an exchange for the SREC’s much like how there is an exchange for stocks to be traded. What keeps utilities in compliance is the what is called a Solar Alternative Compliance Requirement (SACP). This is the price per megawatt hour that a utility who falls short of the state mandate must pay to the state. Because the price of SREC’s will always be lower than the SACP, it is always in the best interest for them to purchase SREC’s from solar generator owners.
How Can An RPS Influence Renewable Energy Development?
An RPS, almost overnight, creates a highly competitive market for renewable energy. Paired properly with government incentives, these projects can not only be environmentally friendly, but also highly profitable. States that have implemented an RPS paired with a solar carve out have seen investment in their state, as well as job growth, explode. Developers of renewable energy projects will quickly move their focus to states that either implement an RPS for the first time or who decide to raise their RPS mandate to utilities.
This bill that will soon work its way through the New Jersey legislature will be very interesting for a variety of stakeholders in the energy industry. It is the hope of many clean energy advocates that New Jersey will become a leader in renewable energy development and be a role model of what a solid RPS program can do for a state.