Race to the Top: The Expanding Role of U.S. State Renewable Portfolio Standards
Given its historic role in fossil fuel development and use, Texas might appear to be an unlikely setting for a major RPS commitment to the development of renewable electricity. However, the RPS enacted in Austin in 1999 is widely viewed as having launched a new chapter in energy development in the Lone Star state, triggering a massive increase in the supply of renewables that is being provided at prices highly competitive with conventional sources. In fact, the program has proven so successful and so popular that the Texas Legislature overwhelmingly endorsed a major extension and expansion of the legislation, which was signed into law by Republican Governor Rick Perry on August 1, 2005 (Texas Senate Bill 2005, 20).
Electricity restructuring in the late 1990s opened a window of opportunity for Texas to reconsider all dimensions of its electricity generation and distribution system. Several factors converged to push an RPS onto the state's political agenda. First, Texas had long led all other states in the consumption of electricity and was becoming increasingly concerned about long-term supply. Texas became a net importer of fossil fuels in the mid-1990s and its relative isolation on the American electricity grid gives it little ability to import power from other states or Mexico. Second, the state was encountering mounting environmental problems. Many of Texas' urban regions were designated as having some of the worst air quality in the nation. As a proxy measure for its conventional air contaminants, its greenhouse gas emissions were staggering; if it were an independent nation, Texas would rank seventh in the world, ahead of the United Kingdom, Canada, or France. Third, the state began to recognize that it was likely home to a potentially vast set of renewable resources, particularly enormous wind capacity in Western portions of the state. An extensive series of "deliberative opinion polls" conducted across the state demonstrated unexpectedly strong public consensus for a new commitment to renewables, expanding the base of political support for including an RPS within the state's 1999 electricity restructuring legislation (Rabe 2004, 49-62).
The first piece of legislation is widely regarded as a textbook model. It established a clear and effective "renewable energy credit" program, a transparent market transaction process, and an "alternative compliance mechanism" that provides options, albeit costly ones, for electricity suppliers unable to meet standard requirements. The Texas RPS focused on total renewable generation capacity and called for an increase from 1,280 MW in January 2003 to 2,880 MW by January 2009. This included approximately 880 MW of renewable, primarily older hydro facilities, which were in operation for many decades before enactment of the RPS. While the policy did not favor any particular source, it has had the effect of tapping into the state's massive wind capacity.
As of June 2005, 1,322 MW of new wind generation had been brought on line, supplemented by some additional capacity for solar, landfill gas, and micro-hydro (see Table 3). In January 2005, the Public Utility Commission of Texas concluded that "The construction of renewable energy facilities has proceeded significantly quicker than the timelines" set forth in the legislation (Public Utility Commission of Texas 2005, 3). This new capacity, alongside renewable projects under construction or advanced stages of the approval process, indicated that Texas would easily meet-and exceed-its 2009 standard. Moreover, this capacity has been introduced at rates that are highly competitive with conventional sources when the federal production tax credit (which stood at 1.8 cents per kWh in 2005) is included (Wiser, Porter, and Grace 2004, 14).
The success of the 1999 RPS and the rapid growth in costs for other major electricity sources in the state combined to put pressure on the Legislature to consider an RPS encore of sorts. A number of proposals received serious consideration in Austin during 2005; there was relatively little debate over the merits of an expansion and most controversy focused on how high to set the bar for the standard beyond 2009. A proposal with broad support in both chambers died in conference committee, due primarily to a prolonged battle between key committee chairs over an unrelated telecommunications bill. But when Governor Perry used his Constitutional powers to call a special session of the Legislature in July 2005 to address school finance issues, RPS supporters decided to reintroduce the bill in this unusual context. When Perry agreed in mid-July to expand the session and include the RPS bill, the legislation moved very rapidly. It ultimately received overwhelming support in both chambers before going to the Governor's desk for signature on August 1.
The second RPS iteration did not tinker with the basic mechanics of the initial design. Instead, it elevated the levels of renewables required by 2007 and 2009 and specified continued expansion into the next decade. The legislation amended Section 39.905 of the Texas Utilities Code to require that "The cumulative installed renewable capacity in this state shall total 5,880 megawatts by January 1, 2015" (Texas Senate Bill 20, Section 3a, 2005). The legislation also introduced two "targets," although neither of these are necessarily binding and will have to be more carefully defined through rule-making by the Public Utility Commission of Texas. One of these called upon the Commission to establish a target, after September 1, 2005, of "having at least 500 megawatts of capacity from a renewable energy technology other than a source using wind energy." The other created a non-binding target of 10,000 megawatts of installed renewable capacity by January 1, 2025.
A potentially more important section of the 2005 bill involves a series of mechanisms designed to improve transmission capacity. The unexpectedly rapid development of wind energy in remote sections of Western Texas placed significant demands on the relatively modest transmission systems that deliver electricity to areas of high demand. This constraint is linked with a larger challenge in Texas, and many other parts of the country, to upgrade and expand transmission capacity to assure more efficient electricity distribution. "So many projects came in so quickly that we were beginning to see about twice as much capacity as the system could handle, especially in peak wind periods," noted one state official. "We soon realized that the long extension cord from West Texas was going to get overloaded pretty quickly. But now, just as the PUC begins to look at transmission, we are also seeing developers realize that there are so many possible places for renewables in this state and they are increasingly aware of the need to link new generation with transmission access." Texas faces a particularly acute challenge and the new legislation calls upon the TPUC "to construct transmission capacity necessary" to deliver anticipated expansion of renewables. Implementation of this provision may be the single most important factor in determining effectiveness of the new RPS.
All references are cited in the report, which can be downloaded here.
