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Solar News

Renewable Portfolio Standards and Solar Carve-Outs: Focus on Maryland


On the last day of their 2010 legislative session, Maryland lawmakers finalized a bill that will step up Maryland's adoption of solar energy. When the bill goes into effect, it will strengthen Maryland's solar energy industry by accelerating the percentage of solar energy that Maryland utility companies will need to obtain and increasing the penalty for non-compliance. The bill is expected to be signed by Governor O'Malley in May.

SolarTown has previously reported on the recent activity in both the House of Delegates and the Maryland State Senate regarding solar energy provisions in the state's renewable portfolio standards (RPS). Currently, Maryland utility companies are required to obtain 2 percent of their power from solar energy sources by 2022. Last week, both chambers of the General Assembly passed different versions of a bill that would shorten the timetable for adopting solar energy by doubling early year requirements and increasing the penalty that utility companies would pay for not complying with the RPS.

In reconciling the two versions of the bill (Senate Bill 277), conservative members of the House of Delegates struck a compromise with state senators and agreed to increase the solar energy requirement to 0.5% of Maryland's total energy consumption by 2016. Prior to the compromise, the Senate version of the bill stipulated that 0.7% of Maryland's energy would come from solar energy in over the same period. The final bill makes Maryland one of a few forward-looking states to adopt and strengthen standards to implement solar energy.

What are renewable portfolio standards?

A renewable portfolio standard (RPS), also referred to as a renewable electricity standard (RES), is a state law requiring energy suppliers to purchase a specific quantity of electricity from renewable generating sources. There are three important components to a RPS law: a renewable energy target (usually given as a percentage of total energy consumption), a goal year, and a cost penalty for choosing not to comply. For example, Delaware's RPS stipulates that electricity generated by renewable resources must compose 20% of Delaware's total energy consumption by 2019. Companies that fail to meet these standards must pay a fine of 5¢/kWh. The fine is called an Alternative Compliance Payment (ACP) and can range from 1.0¢/kWh to 45¢/kWh. They are designed to be high enough to discourage non-compliance.

The goals of renewable portfolio programs are simple. RPS laws are enacted to encourage energy independence, reduce fuel and electricity prices, and promote clean generating technologies. Additionally, portfolio standards seek to increase competition among renewable energy technologies to reduce costs over the long term. In the United States, a total of 29 states and the District of Columbia have enacted renewable portfolio standards, accounting for nearly 40% of the nation's total electricity load.

How do RPS programs work?

When a qualifying renewable energy source generates a megawatt-hour of electricity, it creates a financial product called a Renewable Energy Credit (REC). Like stocks, bonds, and other financial products, RECs can be bought, sold, or traded among utility companies and energy producers through brokering intermediaries. Utilities can accumulate enough RECs through this trading system to satisfy a state's renewable portfolio standard. Over time, the renewable portfolio standard promotes the development of clean energy by increasing the amount of RECs that a company must purchase every year. A law may stipulate for example that 10% of electricity must come from renewable sources by 2015, 13% by 2017, 20% by 2020, et cetera.

What are solar energy carve outs?

Within the structure of a RPS, an additional provision is sometimes included to promote the development of solar energy systems. Since photovoltaic and solar thermal technologies are fairly new to the American energy market, law makers can protect the solar energy industry against cost competition from more mature renewable energy technologies by including a solar energy carve out. These solar energy carve outs can take various forms. Some solar carve outs, like the RPSs that they are a part of, are laws that require utility companies to purchase a percentage of their electricity specifically from solar energy sources. For example, Delaware's RPS law states that 2% of its electricity must come from solar energy by 2020.

State governments can also incentivize solar energy technologies in RPS programs through the use of a credit multiplier. Credit multipliers encourage utility companies to purchase energy from specific generating sources by giving these sources more weight towards meeting renewable energy standards. Delaware's RPS has a specific provision to incentivize the use of distributed solar energy projects through this type of credit multiplier. The law gives a 300% credit to energy that is generated by customer-based photovoltaic panels installed within the state.

Why should states establish renewable portfolio standards and solar energy carve outs?

Enacting a strong RPS is a great way to develop the vast reserves of renewable energy resources that exist in the United States. An ambitious standard can help to create thousands of new green jobs, spur economic development, reduce air pollution, and save consumers money on their electric bills.

Map of Renewable Energy Standards 

Figure 1: This map from the Solar Energy Industries Association shows which states have Renewable Portfolio Standards in place. The map also shows which programs have specific requirements to promote the adoption of solar energy technologies within their RPS laws.

The reconciliation bill in Maryland to spur solar energy

According to a report in the Washington Post, the new legislation in Maryland will increase 2011 electricity bills by 5 cents per month for residential rate payers and 66 cents per month for commercial rate payers. As solar energy gradually accounts for a greater percentage of electricity generation each year, the total increase in monthly electricity bills by 2016 will be 77 cents for residential consumers and $9.57 for commercial consumers. Although approved by both houses of the General Assembly in Maryland, the bill still awaits the signature of Governor O'Malley to become law. The signing is scheduled for May of this year.