National, State and Local Policy Initiatives
John Byrne and Kristen Hughes
Center for Energy and Environmental Policy, University of Delaware
At the World Summit on Sustainable Develop ment (WSSD), the European Union pressed for a global target for renewable energy to meet 15 percent of the world's energy needs by 2010. By com- parison, U.S. Secretary of State Colin Powell stated at the Summit only that the U.S. was "dedicated"
to "encourage" the use of renewable energy (U.S. Department of State, 2002, www.state.gov/secre- tary/rm/2002/13235pf .htm). It was a signal that the U.S. government would champion the adoption of voluntary, non-specific commitments by the Summit's participants and no more (Fuller, 2002).
This intent of Secretary Powell's remarks was borne out when the U.S. government opposed a specif- ic renewables goal in the final WSSD Declaration.
National Strategy since WSSD
The U.S. response to the World Summit on Sustainable Development (WSSD) has focused on a series of initiatives targeting global poverty, without specific goals for the use of renewable energy. Alongside programs to battle hunger and to enhance forest conservation and access to water (USAID, 2002a the U.S. launched the Clean Energy Initiative: Powering Sustainable Development from Village to Metropolis. This initiative's expressed aim is to help developing nations to obtain "affordable, reliable, clean, healthy, and efficient energy services" (U.S. Department of State, 2003a With an initial govern- ment commitment of $43 million, the U.S. announced a collateral effort to leverage approximately $400 million in further investments by partners in the private and nonprofit sectors (USAID, 2002b in order to support a range of energy strategies including, but not limited to, renewable energy projects.
The program set three goals:
1.) Improve energy efficiency;
U.S. Renewable Energy Strategy since WSSD:
National, State and Local Policy Initiatives
John Byrne and Kristen Hughes
Center for Energy and Environmental Policy, University of Delaware
2.) Increase access to modern energy services;
3.) Reduce preventable deaths and respiratory illnesses associated with motor vehicle and indoor air pollution.
Measures supported by the Clean Energy Initiative include efforts to eliminate lead in gasoline, reduce sulfur content in diesel and gasoline, promote the adoption of cleaner vehicle technologies, and support healthier indoor cooking and heating practices in homes and communities through the use of better designed renewable and non-renewable energy technologies (U.S. Department of State, 2003a
Increased access to modern energy services is to be accomplished through U.S. support for and participation in the "Global Village Energy Partnership" (GVEP), whose partners include governments, industrial actors, and civil society organizations from around the world. The GVEP promotes a strong role for renewable energy in the provision of new energy services to developing countries, including applications for wind, biomass, solar and other indigenous energy sources, when such resources are plentiful. As well, when the cost of power grid extension and related infrastructure is prohibitive, GVEP advocates household- and community-scale renewable energy alternatives (GVEP, 2003). Partners in the program provide workshops, consultations, financing, capacity building, out- reach, and monitoring and sharing of results (U.S. Department of State, 2003b U.S. participation in GVEP constitutes the government's only specific action in support of renewable energy as a direct response to the WSSD.
Trends in Recent U.S. Energy Policy
Over the past 12 years, policy action in the U.S. on energy issues has only infrequently involved national legislation and regulation. The comprehensive 1992 Energy Policy Act, passed at the begin- ning of the Clinton Administration, is the only specific national policy initiative in more than a decade. A series of far-reaching regulatory orders issued by the Federal Energy Regulatory
1) Regulatory authority for retail electric service - generation, transmission and distribution - is possessed by states in the U.S. intergovernmen- tal system. Federal jurisdiction in the electricity sector is limited to interstate transmission of power, the oversight of interstate power pools, the operation and sale of federal electrical generation facilities such as the Bonneville Power Administration and the Tennessee Valley Authority and regulation of specific aspects of nuclear power development (including the design and operation of nuclear generation facilities (in the case of nuclear energy, state powers exist but are limited to matters such as recovery of capital investment through electric rates set for different customer classes).
Commission (FERC Order Nos. 888 and 889) opened U.S. electricity wholesale markets to competition and established a framework for coordination of state-based initiatives to promote competition in retail markets with national efforts to create open, non-preferential access to transmission services.1) However, these orders are focused on a single sector.
While legislative and regulatory activity has been modest at the national level, renewable energy development in the U.S. remains sensitive to annual federal policy action in two key areas:2)research support for new technology; and tax treatment of new business ventures. The U.S. government is the principal source of R&D support, eclipsing industry and state and local governmental allocations for this purpose. In this regard, the national government has important influence over the agenda and priorities with respect to energy R&D generally, and renewable energy R&D specifically. Through its funding of the national laboratory system, the U.S. Department of Energy, in particular, affects the scope, comprehensiveness and pace of new technology development in the sector.
Another major area of influence is the national government's tax credit and treatment policies regarding energy investment. Domestic fossil fuels have long received tax incentives and allowances that have lowered investment risk (for example, in exploratory drilling) and provided income benefits to companies conducting business in the sector (as an example, the accelerated depreciation schedule applied to energy facilities offered favorable tax treatment of capital costs in the initial years of investment, thereby often creating conditions of early profitability for these commitments).
Preferential tax treatment has recently been adopted at the national level on a limited basis. Thus, wind energy developers have received production-based tax credits and residential buyers of solar and certain other renewable energy technologies have been able to deduct a percentage of system costs from their federal tax returns. The tax policies for renewable energy have typically included 'sunset' provisions that retire the tax privileges on specific dates unless the U.S. Congress votes specifically to renew them. In some cases, this has resulted in a hiatus of policy support for renew- ables (especially, wind and solar) until Congressional action restored provisions (with adjustments) after they had lapsed.
Thus, national policy has and continues to affect renewable energy development in the U.S. But its influence tends to be either in the form of setting a broad framework of goals for renewables (as EPACT did in 1992) or in shaping specific matters such as R&D focus and tax treatment.
2) Of course, ongoing federal oversight of electricity deregulation remains highly important, but it involves implementation of the regulatory orders cited above.
In contrast (as described below), individual states and localities in the U.S. have shown an active and sustained interest in energy policy over the same period. Tackling issues ranging from competi- tive energy markets (notably, electricity and natural gas) to environmental impacts of energy use (especially, air and water quality issues, but recently including broader concerns such as climate change planning and the design of 'solar cities' - both are discussed below), governmental authority is being deployed by states and localities to shape the energy sector and its impacts and transactions.
This includes the role of renewable energy. Indeed, states and localities have arguably been the prin- cipal innovators in renewable energy policy in the U.S. in the last decade. Action at this level contin- ues to evolve and is comparatively frequent. Unlike federal policy, where action tends to occur only after several years of discussion, states and localities are adopting policies and then modifying them or embracing new approaches with greater speed and innovativeness. In fact, new federal policy often represents a distillation and nationalization of successful state and local renewable energy poli- cy experiments. In this respect, policy leadership can be said to occur at the state and local level as or more often than at the federal level in the case of renewable energy in the U.S.
A variety of policy tools have been introduced at the state and local levels. These include:
* mandating 'net metering' policies to compensate renewable energy generators at 'reasonable' rates for the sale of surplus electricity to the grid;
* assessing 'public benefits' charges3)to support energy transactions that embody social and envi- ronmental benefits of interest to a jurisdiction;
* adopting renewable energy portfolio standards in which energy providers (mainly, but not only, electricity, marketers and suppliers) are required to utilize or acquire from third parties a per- centage of their energy production from renewable energy sources;
* preparing state and local energy plans that include public sector use or purchase of renewable energy systems to demonstrate the viability of new technologies and which link energy and envi- ronmental trends in order to capture synergistic effects between the two (e.g., the promotion of alternative fuels in public transit vehicles which simultaneously reduces pollution and sprawl
3) In the U.S., these charges are usually called 'system benefit' charges in recognition of certain benefits that accrue to all grid users when renewable energy is used (e.g., air quality benefits) but which are not reflected in market prices and often cannot be readily included in regu- lated prices for energy services. Internationally, the term 'public benefits' charge is in wider use and is adopted here.
patterns of land use; and
* incentivizing private sector use of renewable energy through additional state and local tax cred- its, rebates and expedited regulatory treatment for permitting of certain facilities.
These tools are described below with some indication of their aggregate impacts on renewable ener- gy development. While data on impacts are limited, some argue that state and local policy is currently having the greatest impact on the U.S. renewables market (see, e.g., UCS, 2003).
A Review of Recent State Renewable Energy Policy in the U.S.
Several policies have been important to post-WSSD growth in renewable energy development in the U.S. One of the earliest tools used at the state level has been net metering, which dates to before the 1992 EPACT legislation (EPACT stipulated investigation of this policy option for states without provision for its use as of 1992). As of December 2003, 36 U.S. states have net metering requirements (see Figure 1). This tool mainly benefits small to medium scale renewable energy systems, with many states adopting restrictions on the size of qualifying systems.
Another key policy tool widely used by state and local governments in the U.S. is the public bene- fits charge (PBC), which assesses a small fee per kWh sold by utilities (usually $0.001-$0.003 per kWh). Accrued funds from PBCs are then auctioned in a competitive bidding process to companies
Figure 1. Net Metering Policies by State in the U.S.
and non-profit organizations for the promotion of energy efficiency and renewable energy projects.
As of December 2003, 31 states employ these charges. Examples of state pioneers in this policy tool are given in Table 1. While renewable energy projects are usually eligible to apply for use of funds from public benefits charges, they normally must compete with energy efficiency alternatives, there- by limiting the scale of benefit received from this source. In some states, set asides from public bene- fits charges are designated for renewables.
In addition to public benefits charges, states (and some localities - see below) have also authorized public funds exclusively for the promotion of renewable energy projects. Often taking the form of rebates, these funds 'buy down' the initial cost of renewables through state expenditures to cover a
Table 1. Selected State Public Benefits Charges
Figure 2. State Funds for Renewables
Note : 31 states have adopted Public Benefits Charges (typical range is 0.1~0.3￠/kWh)
portion of system capital costs. Another common approach, which has special relevance to wind energy projects, is the payment of premiums for renewable energy production sold to public or regu- lated utilities. So far, 14 states, led by California, have specific set asides, for renewable energy development (Figure 2). Through 2012, these 14 states are obliged to spend at least $4.3 billion for qualifying renewables (see UCS, 2003).4)
The policy mechanism providing the greatest potential for future growth of renewable energy capacity in the U.S. is the renewable energy portfolio standard (RPS). An RPS requires that a certain percentage of all electricity generated in a jurisdiction is provided from qualified renewable sources (typically, solar thermal and electric, wind, some forms of biomass, and geothermal). A total of 15 states have adopted renewable portfolio standards, and policy action is pending in an additional 15 states (Figure 3). Aggregating the commitments of the 15 states with RPS policies, 14 GW of new renewables will come on line by 2012 (Figure 4).
One further notable source of state creativity in renewable energy policy can be found in the man- ner in which several jurisdictions are using their energy planning function to encourage the use of renewables, especially by the public sector. There are no national statistics available on aggregate impacts, but the proliferation of state alternative fuel vehicle initiatives and renewable energy pur-
4) The information for New York has been updated based on discussions with state and local officials conducted by the authors.
Figure 3. State Renewable Portfolio Standards in the U.S.
chase programs indicates that public sector commitments are increasingly important as mechanisms of new technology incubation. Additionally, state energy planners' growing interest in the broad environmental impacts of energy production use promise that these governments will continue their leadership in the renewable energy field. With the assistance of the U.S. Environmental Protection Agency (EPA - which has provided methodological and communications support), 25 states have ini- tiated Climate Change Action Plans and 19 have completed them. These plans offer states a portrait of the pervasive environmental impacts of the energy system and have created for participants in the EPA-sponsored program a global standard for benchmarking policy impacts. Recommendations flowing from these plans are now being used to prioritize state action generally and typically include specific proposals for renewable energy development.
A Review of Recent Local Renewable Energy Policy in the U.S.
Local governments have also proved to be renewable energy policy innovators in the U.S. While their collective efforts have not been catalogued in a systematic manner, important evidence can be gleaned from the local policy infrastructures they have established. Illustrative of the trend of local renewable energy policy in the U.S. are programs and policies of the Sacramento Municipal Utility
Figure 4. Renewables from State Standards and Funds in the U.S.
5) Residential users account for 46% of SMUD's customer base and businesses comprise the remaining 54%.
District (SMUD) and the City of San Francisco in California, and the Long Island Power Authority in New York.
Sacramento's municipally owned utility is an acknowledged renewable energy policy leader in the U.S., as well as among international urban energy experts. SMUD serves 1.3 million households and businesses5)with a peak demand of 2.8 GW and annually receives approximately $1.5 billion in rev- enues from its customer-owners.
After a referendum in the late 1980s when citizens voted to close the Rancho Seco nuclear energy complex, SMUD's managers conceived an aggressive policy of energy efficiency improvements, cogeneration development and rapid scale-up of renewable energy projects to replace energy supply from the nuclear facility and meet new energy demand. The principal renewable energy initiatives have been:
●
'Greenergy'
- a program that has attracted 20,000 residential subscribers who agree to pay an additional $6 per month for the guarantee that 100% of their electricity supply is from qualifying renewables (for a $3 per month 'green' premium, a residential user is assured that 50% of their electricity needs are met by renewables and the remainder by conventional non-renewables;●
'PV Pioneers' - using a mix of city-provided subsidies and residential customer premiums, this
program has resulted in 10 MW of small solar electric systems (less than 2.5 kW) installed on the rooftops of 3,100 participating customers;●
'Sacramento Shade'
- to date, the program has meant 312,000 free trees planted to reduce par- ticipant residential cooling costs by 40% and significant reduction in the utility's peak load;●
PV-powered Electric Vehicle Charging Stations
- solar electric panels have been installed on selected municipal parking lots providing shade to users and battery charging for the City's small fleet of electric vehicles used for public business in the metropolitan area;●
Wind Power Purchase Program
- with the consent of its citizen-owners, SMUD has purchased the power of 17 wind turbines providing 10 MW of clean energy to its system.In energy units, the utility's energy efficiency and cogeneration programs have accounted for the bulk of the post-Rancho Seco energy services from its 'soft path' policy initiative. But the renewable energy programs have had symbolic and practical significance to SMUD as residents identify these innovations with a long-term commitment to develop the city's energy system in an environmentally
sustainable manner.
It is worth noting that since the city's referendum vote, regional output has grown at a healthy rate (increasing by $124 million) and real wages have risen (by $22 million), while electricity consumption has been reduced by 563 GWh (saving customers $43 million in lower bills) and peak demand by nearly 4 GW (a 12 percent decline).
The City of San Francisco recently embraced an energy policy that contains impressive renewable energy commitments. With nearly 800,000 residents and three times as many commercial and indus- trial energy users, the city's annual electricity consumption is approaching 5.3 TWh. To address the social and environmental impacts of this sizable energy demand, San Francisco has adopted several energy efficiency and renewable energy development strategies.
Regarding renewables, the city has announced four goals:
●
City Solar Goal
- the city has set a target of 50 MW of installed solar power by 2012;●
Wind Initiative
- it has set an even more ambitious target of 150 MW of new wind generation to be installed also by 2012;●
Biogas Project
- the city is adding a 2 MW biogas plant at its Southeast Water Treatment Control Facility, showing that it intends to change public sector energy impacts;●
Climate Policy
- residents have endorsed a carbon emissions reduction target of 20% below 1990 levels by 2012, which will further catalyze development of renewable energy.To meet these ambitious aims, the city has created a 'Solar Bond' to provide $100 million in partial financing of renewable energy projects. It has also implemented a city-state partnership to provide rebates of $4.50 per Wp of qualifying solar electric systems installed by residents. And it recently opened the impressive Moscone Convention Center, which includes 670 kW of PV capacity on its roof and shaded parking lot. The $8.5 million investment in 'green' energy technology at the convention center (including $4.3 million in PV and $3.2 million in high efficiency technologies) will save the city nearly $650,000 annually in operating costs.
To showcase its commitments and to build alliances with other cities in the U.S. who are commit- ted to changing the energy and related environmental impacts of urban development, San Francisco held the country's first ever Solar Cities Summit.
A third example of local creativity in the development of renewable energy is the Long Island