Powerful Solutions

Powerful Solutions7 Ways to Switch America to

Renewable Electricity

Alan Nogee

Steven Clemmer

Bentham Paulos

Brent Haddad

Union of Concerned Scientists

January 1999

Acknowledgments

The authors would liketo thank Warren Leon, MichaelBrower, and Anita Spiess for ex-tensive editorial assistance andJonathan Howland for researchassistance and production work.We are grateful to the EnergyFoundation, the Joyce Founda-tion, the McKnight Foundation,the Carolyn Foundation, and tothe US Department of EnergyOffice of Utility Technologiesunder grant number DE-FG41-95R110853 for support of thiswork. The Union of ConcernedScientists is solely responsible forits contents.

NOTICE

This report was prepared in partas an account of work sponsoredby an agency of the United Statesgovernment. Neither the UnitedStates government nor anyagency thereof, nor any of theiremployees, makes any warranty,express or implied, or assumesany legal liability or responsibilityfor the accuracy, completeness,or usefulness of any information,apparatus, product, or processdisclosed, or represents that itsuse would not infringe privatelyowned rights. Reference herein toany specific commercial product,process, or service by tradename, trademark, manufacturer,or otherwise does not necessarilyconstitute or imply its endorse-ment, recommendation, or fa-voring by the United States gov-ernment or any agency thereof.The views and opinions ofauthors expressed herein do notnecessarily state or reflect thoseof the United States governmentor any agency thereof.

© Copyright 1999 Union of Concerned Scientists

All rights reserved.

Alan Nogee is the director of the UCS Energy program. StevenClemmer is a senior energy analyst. Bentham Paulos is an energyconsultant. Brent Haddad is Assistant Professor of EnvironmentalStudies at the University of California, Santa Cruz, and a consultant.Brent Haddad is the principal author of the section and appendixdescribing the Renewables Portfolio Standard.

Unless otherwise noted, all photos are by W. Warren Gretz, andare published courtesy of the National Renewable Energy Labora-tory. Pictures available on-line at www.nrel.gov/data/pix/pix.html.

The Union of Concerned Scientists (UCS) is dedicated to advancingresponsible public policies in areas where science and technologyplay a critical role. Established in 1969, UCS has created a uniquealliance between many of the nation’s leading scientists and thou-sands of committed citizens. This partnership addresses the mostserious environmental and security threats facing humanity. UCS iscurrently working to encourage responsible stewardship of theglobal environment and life-sustaining resources; promote energytechnologies that are renewable, safe, and cost effective; reformtransportation policy; curtail weapons proliferation; and promotesustainable agriculture. An independent nonprofit organization,UCS conducts technical studies and public education, and seeks toinfluence government policy at the local, state, federal, and inter-national levels.

The UCS Energy Program focuses on developing a sustainable en-ergy system—one that is affordable and nondepletable, and thatdoes not degrade natural systems or public health. The programanalyzes, develops, and promotes innovative technology- and mar-ket-based strategies to commercialize renewable energy technolo-gies, and provides information to policymakers, the media, and thepublic about energy’s impact on public health, the environment,and the economy.

More information about UCS and the Energy Program is available atthe UCS site on the World Wide Web, at www.ucsusa.org.

Copies of this report are available from

UCS PublicationsTwo Brattle SquareCambridge, MA 02238-9105

Or call 617-547-5552.

Printed on recycled paper.

P o w e r f u l S o l u t i o n s iii

Contents

Executive Summary............................................................................................................... vii

1. Introduction .......................................................................................................................1

2. Public Benefits of Renewable Energy Use—Why Switch?....................................................4Environmental Benefits .......................................................................................................4Economic Benefits of Reducing Environmental Impacts .......................................................7Nuclear Risks ......................................................................................................................9Diversity and Energy Security Benefits ...............................................................................10Economic Development Benefits .......................................................................................11Other Nontraditional Benefits ...........................................................................................12

3. Costs and Benefits of Increasing Renewable Energy Use in the United States ...................13UCS Renewable Portfolio Standard Analysis.......................................................................13

Energy Information Administration RPS Analysis.................................................................14Energy Innovations Study ...................................................................................................15Department of Energy Five-Laboratory Study......................................................................15

4. Barriers to the Use of Renewable Energy Technologies ....................................................16Commercialization Barriers ...............................................................................................16Unequal Government Subsidies and Taxes ........................................................................17Market Failure to Value Public Benefits of Renewables.......................................................18Market Barriers ..................................................................................................................18

5. Renewable Energy Policies—7 Ways to Switch .................................................................22Existing Policies .................................................................................................................22Renewables Portfolio Standard ..........................................................................................23Public Benefits Funding ....................................................................................................26Net Metering .....................................................................................................................28Fair Transmission and Distribution Rules............................................................................29Fair Pollution Rules............................................................................................................33Consumer Information .......................................................................................................37Putting Green Customer Demand to Work .........................................................................40

6. Conclusion........................................................................................................................44

References ............................................................................................................................46

AppendicesA. Renewable Energy Technology: Potential, Costs, and MarketB. The Renewables Portfolio StandardC. Renewables Portfolio Standard: Implementation Status as of November 1998D. Public Benefits Trust Fund: Implementation Status as of November 1998E. Summary of State “Net Metering” Programs as of November 1998

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P o w e r f u l S o l u t i o n s v

Figures

Figure 1.Air Pollution Deaths ..................................................................................................4Figure 2.Sources of Sulfur Dioxide...........................................................................................5Figure 3.Sources of Nitrogen Oxides .......................................................................................5Figure 4.Sources of Carbon Dioxide ........................................................................................5Figure 5.Atmospheric Carbon Dioxide Concentration and Temperature Change. .....................6Figure 6.Coastal Lands at Risk from a 20-inch Sea-Level Rise in 2100......................................7Figure 7.Nuclear Power Plant Cooling Tower ..........................................................................8Figure 8.Sources of US Electricity ............................................................................................9Figure 9.Average Electricity Prices .........................................................................................10Figure 10.Average Monthly Electric Bill for a Typical Nonelectric Heating Household ...........14Figure 11.Projections of Crystalline Silicon PV Module Sales and Prices ................................16Figure 12.FY 1996 DOE Energy Budget .................................................................................17Figure 13.State Minimum Renewable Energy Requirements ...................................................24Figure 14.Scope of Net Metering by State ..............................................................................29Figure 15.People Willing to Pay More for “Green” Electricity ................................................37Figure 16.Disclosure Label ....................................................................................................39Figure 17.Green-e Logo......................................................................................................... 39

Tables

Table 1. Employment in the Renewable Electricity Industry ....................................................11Table 2. Other Standards Similar to the Renewables Portfolio Standard ..................................23Table 3. The “Value” of a Renewable Energy Credit ...............................................................25Table 4. Possible Applications for Public Benefits Funds ........................................................28

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U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s vii

Executive SummaryThe way electricity is produced and sold in theUnited States is undergoing an historic change. Thechanges being debated and enacted across the countryare intended to lower electricity prices by encourag-ing competition among power companies. But whatare the implications of electricity deregulation for theenvironment and public health?

The answer depends on what the rules governingthe new electricity market will be. If they ignorethreats to the environment and public health, then theoverall quality of American life will be diminished byincreased pollution, global warming, and otherlooming problems. But if new market rules are de-signed to promote cleaner, renewable energy sourcessuch as wind, solar, biomass, and geothermal energy,then we could see lower prices, robust competition,and environmental improvement.

This primer describes seven practical measures toswitch America to renewable electricity sources:

• Renewable portfolio standards

• Public benefits funding

• Net metering

• Fair transmission and distribution rules

• Fair pollution rules

• Consumer information

• Putting green customer demand to work

Public Benefits ofRenewable Energy UseRenewable energy can supply a significant portion ofthe United States’ energy needs, creating many publicbenefits, including environmental improvement, in-creased fuel diversity and national security, and eco-nomic development. These benefits, however, are

often not reflected in the prices paid for energy,placing renewable energy at a severe disadvantagewhen competing against fossil fuels and nuclearpower.

Environmental Benefits. Renewable energyprovides immediate benefits by avoiding the envi-ronmental impacts of fossil fuels. Using fossil fuels tomake electricity dirties the nation’s air, consumes andpollutes water, hurts plants and animal life, createstoxic wastes, and causes global warming.

Air pollution is an especially serious problem forwhich electricity generation bears substantial respon-sibility. One pollutant, fine particles, may be respon-sible for 64,000 deaths each year—more than thenumber of people killed in automobile accidents.Other important pollutants include sulfur dioxide, ni-trogen oxides, and toxic metals.

Electricity generation is also a leading source ofcarbon dioxide emissions, the key heat-trapping gasthat is causing global warming. Although scientificuncertainties remain about the timing and size of im-pacts, there is strong evidence that global warming isoccurring and that its effects could be severely dam-aging to both people and wildlife. The warming thatis predicted for the next several decades (without ac-tion to reduce carbon emissions) could destroy manycoastal wetlands, cause more frequent storms andother extreme weather events, put crop productionunder great stress in some regions, and disrupt publichealth and ecosystems.

Renewables can also help replace nuclear gen-eration and reduce its safety, environmental and eco-nomic risks.

Reducing Pollution Helps the Economy. 6hepollution and other problems associated with fossilfuels place a burden on the American economy aswell as on the environment. The greatest economic

viii P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

impacts take the form of higher health care costs,missed work, and lost lives. According to severalstudies, such health costs may amount annually tohundreds of billions of dollars. Increasing renewableenergy use can help reduce these health costs and alsolower the costs to industries and consumers of com-plying with environmental regulations.

Diversity and Energy Security. By broadeningthe mix of electricity sources, renewables can makethe United States less vulnerable to volatile fuelprices and interruptions to the fuel supply. Renew-ables like wind and solar that do not depend on fuelsare not subject to price fluctuations, such as the hugeleaps and falls in oil and gas prices seen in the 1970sand 1980s. And since they are locally produced, theyare not as vulnerable to supply interruptions fromoutside the region or country.

Economic Development. Renewable energytechnologies can help create jobs and generate in-come. A number of state and national studies havefound positive net job impacts from increasing re-newable energy use. Renewable technologies alsohave enormous export potential.

Other Nontraditional Benefits. Some renew-able technologies can be sited in or near buildingswhere electricity is used. This practice, known asdistributed generation, can avoid costly expenditureson transmission and distribution equipment. Distrib-uted generation can also improve power quality andsystem reliability.

The Costs and Benefits of IncreasingUse of Renewable EnergyCurrent levels of renewable energy use represent onlya tiny fraction of what could be developed. Severalmajor studies show that the United States can meet alarge share of its electricity needs from renewable re-sources at a modest cost, while reducing harmful airemissions, easing pressure on natural gas prices, andgreatly diversifying the electricity mix.

Making Renewable Energy the Standard. A1999 UCS study of federal proposals (A PowerfulOpportunity: Making Renewable Electricity the Stan-dard) found that achieving a standard of 20 percent(nonhydro) renewables generation by 2020 wouldfreeze electricity-sector carbon dioxide emissions at

year 2000 levels. Under business as usual, theseemissions would increase by 24 percent. The carbondioxide reductions would cost $18 per ton. Consumerelectricity prices would fall 13 percent between 1997and 2020, compared to 18 percent under business-as-usual. A typical (500 kilowatt-hours per month)household electricity bill would still be $4.57 permonth lower in 2020 than in 1998, compared with a$5.90 per month reduction without the added renew-ables. The study also showed that the competitionfrom increasing renewable energy use would help re-strain natural gas price increases.

Department of Energy Analysis. A 1998 studyby the Energy Information Administration (AnnualEnergy Outlook 1998) found that with a standard of10 percent nonhydro renewables by 2010, electricityprices would be 17 percent lower than in 1996, com-pared to 20 percent reductions with business as usual.In the renewables scenario, typical households wouldstill see their electricity bills reduced by at least $6.25month by 2010, compared with $7.74 month withbusiness as usual. When the effect of the added re-newables restraining natural gas price increases iscounted, along with electricity conservation induced,there would be a net savings of $1.8 billion from therenewables standard in 2010.

Barriers to Renewable EnergyIf renewable energy sources are such a good deal forthe country, why haven’t they been more successful?Four problems are mainly responsible:

• Commercialization barriers. Like all emergingtechnologies, renewables must compete at a dis-advantage against the entrenched industries. Theylack infrastructure, and their costs are high be-cause of a lack of economies of scale.

• Distortions in tax and spending policy. Stud-ies have established that federal and state tax andspending policies tend to favor fossil-fuel tech-nologies over renewables.

• No value is placed on the public benefits ofrenewables. Many of the benefits of renewables,such as reduced pollution and greater energy di-versity, are not reflected in market prices, thus

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s ix

eliminating much of the incentive for consumersto switch to these technologies.

• Other market barriers. Lack of information bycustomers, institutional barriers, the small sizeand high transaction costs of many renewables,high financing costs, split incentives among thosewho make energy decisions and those who bearthe costs, and high transmission costs can also bebarriers to renewables development.

Green Market Limits. Surveys show that manycustomers are willing to pay more for renewables.But given the barriers to renewables competing fairlyin the marketplace, “green markets” are likely to de-velop slowly. Pilot programs have shown promisingresults, with some commercial customers choosingrenewables, though in smaller numbers than residen-tial customers. Participation levels to date have beenfar below positive survey responses and customers’switching to “green” suppliers in California is off to arelatively slow start. The most optimistic green mar-keters expect that 20 percent of residential customersand 10 percent of commercial customers will choosegreen suppliers within five years of customer choice.

Seven Ways to Switch America toRenewable ElectricityOver the years, state and federal governments havetaken a number of policy actions to encourage renew-able energy production. In states committed to seeingthem through, the policies have been very successful.New policies are needed if renewables are to competesuccessfully in deregulated electricity generationmarkets.

We identify seven effective ways to encouragethe wider use of renewable energy:

1. Renewables Portfolio Standard. The renew-ables portfolio standard (RPS) would use marketmechanisms to ensure that a growing percentage ofelectricity is produced from renewable sources. Byestablishing tradable “renewable energy credits,” theRPS would function much like the Clean Air Actemissions allowance trading system. Five states haveenacted minimum renewables requirements duringrestructuring; three others have set pre-restructuringstate minimums. Together these bills are likely to

preserve 1,650 MW of existing renewables and leadto development of 2,100 MW of new renewables.Connecticut has the highest overall state target; Ari-zona the highest solar support. Six 1998 federal billscontain RPS provisions.

An RPS can ensure steady, predictable growth ofthe renewable energy industry. That would enable theindustry to obtain lower-cost financing and achieveeconomies of scale and production that would makethe technologies more competitive. The RPS wouldensure that the lowest cost renewables are developedby creating competition among renewable developers.The RPS would have low administrative costs, sincethe market would decide what kinds of renewable en-ergy would be produced.

2. Public Benefits Funding. Another way of en-couraging a switch to renewable sources is to fundrenewable energy development with a small chargeon all electricity sold. Such a charge could fund spe-cific activities to overcome market barriers and helpcommercialize new technologies. Seven states haveadopted renewables funds totaling about $1 billionover ten years. California has the highest level of totalfunding; Connecticut the highest per customer.

Public benefits funds can be allocated where theyare most needed. For example, they can be directedtoward technologies that have great long-run poten-tial, like solar photovoltaics, but are not competitivetoday even with other renewables. They can also beused for other purposes, including funding programsto increase energy efficiency, public benefits researchand development and to ensure electricity service tolow-income customers. Moreover, public benefitsfunds, unlike tax credits and other incentives, allowthe level of funding to be precisely defined.

3. Net Metering. Net metering is an importantway to eliminate penalties for households and smallbusinesses that elect to generate their own powerfrom renewable sources (with, for instance, smallwind turbines or rooftop solar systems). It allowscustomers who produce more electricity than they areusing at a given moment to feed the surplus back tothe utility and only pay for net electricity used overan entire billing period or year. As of November1998, at least 21 states required net metering, withutilities in two other states also using net metering.

x P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

4. Fair Transmission and Distribution Rules.Some renewables can be sited in or around customerbuildings where they can not only replace conven-tional generation, but help avoid transmission anddistribution costs. An important issue is whetherthese technologies are credited for these savings. Insome cases, distributed renewables generation canbecome cost-effective when these transmission anddistribution savings are counted.

New regulations or incentives are needed to en-courage distributed generation where it is economic.Options include integrated resource planning for dis-tribution systems and performance-based ratemaking.Massachusetts and Connecticut have required consid-eration of distributed technologies.

Renewable energy producers, like other genera-tors, need access to the transmission grid and theability to sell power whenever it is available. Newfederal rules and regional independent system opera-tors (ISOs) could increase access to customers for re-newable generators, and reduce transmission costs forremote facilities. Some proposals for transmissionservice pricing, however, could unfairly penalize in-termittent renewables like wind and solar, by requir-ing generators to specify sales a day or more in ad-vance and pay penalties for deviating from theamount purchased. Other transmission pricing issuescould also affect renewables adversely. An analysisby the Lawrence Berkeley Laboratory shows thatcharging only for energy transmitted by renewableswill produce the least-cost electricity system.

5. Fair Pollution Rules. Under the Clean AirAct, older power plants are allowed to emit morepollutants than newer plants and, therefore, do nothave to spend as much money on pollution controls.On average, these rules save older plants nearly onecent per kilowatt hour compared to new plants, givingthem an unfair competitive advantage. Northeaststates are especially concerned that deregulationcould increase electricity imports from these dirtier,less expensive plants in the Midwest, unless olderplants are required to clean up to new plant standards.

Several proposals have been made to reduce thedisparity in emissions allowed at different plants.Connecticut and Massachusetts directed their

environmental regulators to develop emissionperformance standards for retail supplier portfolios.Another approach is to develop an overall emissioncap in the area affected by a specific pollutant, and toallow trading among companies to meet the cap. TheUS Environmental Protection Agency has proposed anitrogen oxides trading scheme for Eastern states.Several federal proposals would create caps for mul-tiple pollutants. A third approach would be to taxemissions, a policy that has gained some favor inother countries.

6. Customer Information. To exercise theirpreference for clean energy sources, customers needreliable information about products they are offered.To address this issue, electricity suppliers can be re-quired to label their products. These disclosure labelsfor fuel sources and emissions would be analogous tonutrition labels on food. A number of states have re-quired disclosure, and others are considering it. Inaddition, education programs about environmentalimpacts and choices available in the marketplace, aswell as certification of renewable electricity servicesby an independent organization, can provide impor-tant information.

7. Putting Green Customer Demand to Work.Many surveys have shown that customers are willingto pay more for electricity from clean and renewablesources. At least 40 programs offering customers re-newable energy choices were available by mid-1998.Results from initial pilot and marketing experimentsare mixed, with low initial participation rates butsome signs of long-term promise.

Supportive market rules are important for allow-ing effective customer choice. Electricity customerswho switch suppliers need to receive a shoppingcredit that includes avoided retail overhead costs, asenacted in Pennsylvania.

Aggregation of small customers can reduce over-head and marketing costs, and facilitate choice ofgreen products. Municipal aggregation, authorized byMassachusetts law, where a city or town votes to pur-chase electricity for all its residents and businesses,may be especially promising. Government purchasesof renewable electricity is another approach tostimulate development.

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s xi

ConclusionThe deregulation of electricity generation presentsboth risks and opportunities for renewable energy.The main risk is that renewables will be at a competi-tive disadvantage against fossil fuels. If this occurs,the result could be even less use of renewable energyfor electricity generation than we see today, with cor-responding higher levels of pollution, greenhousegases, and other problems.

However, the new market also creates potentialopportunities for renewables if appropriate policysteps are taken. This report has described seven prac-tical measures that would greatly increase the contri-bution of renewable sources to the nation’s electricitysupply. These measures are complementary and canbe enacted together. Policymakers should considerthem as an integral part of increasing competition inthe electricity industry.

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s 1

Chapter 1

IntroductionThe way electricity is produced and sold in theUnited States is undergoing an historic change. For acentury, electricity has been generated and sold byutilities granted monopolies to supply customers in agiven territory. Now, electricity generators are al-lowed to compete to sell electricity on a wholesalelevel to any utility anywhere they can transmit theirpower. In a number of states, electric companies areallowed to compete to sell power to individual retailcustomers—households or businesses. Whether, how,and when to allow or to require retail competition forelectricity customers is being debated in Congressand in every state in the country that has not yet madea decision.1

The changes now being debated and enactedacross the country are primarily intended to lowerelectricity prices by increasing competition amongelectric companies. That is a laudable goal, but whatare the implications of electricity deregulation forother things we value, such as the environment andpublic health?

The answer depends on what the rules governingthe new electricity market will be. If they ignorethreats to the environment and public health, thenelectricity prices may well go down in the shortterm—but the overall quality of American lives willbe diminished by increased pollution, global warm-ing, disappearing wildlife, and other looming dangers.Electricity generation is the source of 36% of the car-bon dioxide contributing to global warming, to takejust one example, and a significant shift toward coalas the main fuel in power plants (a likely result ofsome deregulation proposals) will only increase thoseemissions and electricity generation’s share ofresponsibility.

And yet, if those new market rules are designedto promote cleaner, renewable energy sources such as

wind, solar, biomass, and geothermal energy—all thewhile permitting robust competition and lowerprices—then we may see significant improvements inall these areas. As several exhaustive studies haveestablished, “renewables” offer a technically sound,economically feasible alternative to more pollutingfossil fuels. The once-a-century restructuring of theelectricity industry is an opportunity to ensure thatthe environmental performance of the industry isoptimized along with the economic performance.

This primer describes seven simple, practicalmeasures to switch America to clean, renewableelectricity sources. They are

• Renewable portfolio standards—a way to usemarket mechanisms to meet minimum targets forthe production of electricity from renewable re-sources

• Public benefits funds—a way to make sure thatpublic benefits, such as environmental improve-ment and fuel diversity, provided by renewablesand other programs, like energy efficiency andservice to low-income customers, are not ignored;and to ensure the that new technologies can becommercialized

• Net metering—a way to avoid penalizing home-owners and small businesses that elect to generatetheir own power

• Fair transmission and distribution rules—a wayto make sure that renewable electricity producerscan get their power to markets at a fair price

• Fair pollution rules—a way to make sure that old,dirty power plants have to meet the same pollu-tion rules as new power plants, and to allow re-newables credit for cleaning up air pollution

2 P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

What Is Renewable Energy?Renewable energy comes from resources that are not depleted when used or that nature can replace when people usethem at sustainable levels. Renewable energy sources have been used from ancient times to provide heat (burningwood), grind grains (windmills), and transport goods (sailing ships). New technologies use renewable resources togenerate electricity.

Solar energy from the sun can provide direct heat. Or it can beconverted to electricity by photovoltaic cells or by using mirrorsto concentrate sunlight enough to heat water and drive a steamturbine or an engine.

Biomass energy comes fromplants, like trees or crops, thatstore solar energy throughphotosynthesis. The stored en-ergy can be released by burningthe plant fuel directly in apower plant or by first converting it to a gas or liquid fuel. Sources of biomassinclude energy crops (plants grown just for fuel), organic wastes such as woodwaste or agricultural wastes, and methane gas from landfills.

Wind energy can be converted to electricity by wind turbines, spun bypropeller-like blades mounted on towers.

Geothermal energy taps into the heat under the earth’s crust to create steamthat drives turbines.

Hydroelectric power uses moving water to turn turbines that produceelectricity.

For more information on renewable energy technologies, status,potential, costs, markets and environmental characteristics, seeAppendix A�


• Consumer information—a way to give consumersthe information they need to choose clean elec-tricity sources, if they wish

• Putting green customer demand to work—a wayto make sure that competition allows all custom-ers to choose clean energy sources.

The primer also examines the rationale forencouraging renewable energy use, especially inderegulated electricity markets. Chapter 1 examinesthe public benefits of renewables and the risk thatthese benefits will be ignored in a restructured elec-tricity industry. Chapter 2 summarizes several studiesshowing how practical and economical it would be toincrease the use of renewables in producing electric-ity. Chapter 3 describes the barriers that inhibit thesuccess of renewables in current, and perhaps future,electricity markets. Chapter 4 lays out, in depth, theseven ways to switch to renewable electricity.Appendices provide more detail on renewable energytechnologies and their status and costs, detailed dis-cussion of implementation issues with the renewablesportfolio standards, and descriptions of how stateshave implemented renewables portfolio standards,public benefit funds, and net metering to date.

Because of the historic restructuring of the elec-tricity industry underway, this primer focuses onchanges that it is critical to consider during the re-structuring process. However, most of the recom-mended solutions can also be implemented independ-ently of the restructuring process. They need not waitfor deregulation.

The primer does not consider all of the policiesneeded to deregulate the electricity industry success-fully. Electricity deregulation is a very complextopic.2 The primer focuses only on policies whichhave critical impacts on the development of renew-able energy resources and technologies.

This primer also does not focus, therefore, onenergy efficiency technologies, although the publicbenefits fund mechanism discussed here is a criticalpart of providing support for ongoing improvementsto energy efficiency. Energy efficiency provides mostof the same public benefits as renewables and facesmost of the same market barriers.3 Most importantly,energy efficiency improvements are usually the mostcost-effective steps that can be taken to reduce theenvironmental impact of our energy system and tolower long-run costs. As the studies described inChapter 2 demonstrate, increasing both energy effi-ciency and renewables is essential for meeting envi-ronmental objectives. Preserving the public benefitsof utility funding of energy efficiency improvementsis a vital part of any restructuring debate.4

Following the strategies we recommend will notguarantee that every new power plant will be renew-able-based. However, it will set America on a coursetoward a renewable-based future, one in which theenvironment and public health, on the one hand, andfree-market principles, on the other, are fostered andrespected.


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Chapter 2

Public Benefits ofRenewable Energy Use—Why Switch?

Renewable energy can supply a significant proportionof the United States’ energy needs, creating manypublic benefits for the nation and for states and re-gions, including environmental improvement, in-creased fuel diversity and national security, and re-gional economic development benefits.

Environmental BenefitsUsing fossil fuels—coal, oil and natural gas—tomake electricity dirties the nation’s air, consumes andpollutes water, hurts plants and animal life, createstoxic wastes, and causes global warming. Using nu-clear fuels poses serious safety risks. Renewable en-ergy resources can provide many immediate environ-mental benefits by avoiding these impacts and risksand can help conserve fossil resources for future gen-erations. Of course, renewable energy also has envi-ronmental impacts. For example, biomass plants pro-duce some emissions, and fuel can be harvested atunsustainable rates. Windfarms change the landscape,and some have harmed birds.Hydro projects, if theirimpacts are not mitigated, cangreatly affect wildlife andecosystems. However, theseimpacts—which are discussedin Appendix A—are generallymuch smaller and morelocalized than those of fossiland nuclear fuels. Care mustnevertheless be taken tomitigate them.

Air Pollution� Clean air isessential to life and goodhealth. Air pollution agg–ravates asthma, the num–ber one children’s health

problem. Air pollution also causes disease and evenpremature death among vulnerable populations, in-cluding children, the elderly, and people with lungdisease. A 1996 analysis by the Natural ResourcesDefense Council of studies by the American CancerSociety and Harvard Medical School suggests thatsmall particles in the air may be responsible for asmany as 64,000 deaths each year from heart and lungdisease.5 Figure 1 shows that air pollution is respon-sible for more deaths than motor vehicle accidents,and ranks higher than many other serious healththreats.6 A few of the most important pollutants arediscussed below.7

Sulfur oxides. Electricity production, primarilyfrom burning coal, is the source of most emissions ofsulfur oxides (SOx), as figure 2 shows. These chemi-cals are the main cause of acid rain, which can makelakes and rivers too acidic for plant and animal life.Acid rain also damages crops and buildings. Nationalreductions in sulfur oxides required by the Clean Air


Act Amendments of 1990 may not be sufficient toend damage from acid rain in the northeastern UnitedStates.8 SO2 is also a primary source of fine particlesin the air.

0KVTQIGP QZKFGU� Burning fossil fuels either toproduce electricity or to power transportation emitsnitrogen oxides (NOx) into the air (see figure 3). Inthe presence of sunlight, nitrogen oxides combinewith other chemicals to form ground-level ozone(smog). Both nitrogen oxides and ozone can irritatethe lungs, cause bronchitis and pneumonia, and de-crease resistance to respiratory infections. In addition,research shows that ozone may be harmful even atlevels allowed by federal air standards. The U.S. En-vironmental Protection Agency (EPA) has publisheda new rule reducing nitrogen oxide emissions from0.12 parts per million to 0.08 parts per million. Stateshave until 2003 to submit plans for meeting the newstandard and up to 12 years to achieve it.9

Carbon dioxide. Carbon dioxide (CO2) is the

most important of the greenhouse gases, which con-tribute to global warming by trapping heat in theearth’s atmosphere. Electricity generation is, as figure4 shows, the largest industrial source of carbon diox-ide emissions and a close second to the transportationsector.

Samples from air bubbles trapped deep in icefrom Antarctica show that carbon dioxide and globaltemperature have been closely linked for 160,000years (see figure 5). Over the last 150 years, burningfossil fuels has resulted in the highest levels of carbondioxide ever recorded. In 1995, the IntergovernmentalPanel on Climate Change—an authoritative interna-tional scientific body—concluded that “the balance ofevidence suggests that there is a discernible human

influence on global climate.”10 All 10 of the warmestyears on record have occurred in the last 15 years.The 1990s have already been warmer than the1980s—the warmest previous decade on record, ac-cording to the Goddard Institute of Space Studies.11

Without action, carbon dioxide levels would dou-ble in the next 50 to 100 years, increasing global tem-peratures by 1.8 to 6.3 degrees Fahrenheit. The heattrapped in the atmosphere would cause expansion ofthe ocean’s volume as surface water warms and meltsome glaciers. A two-foot rise in sea level could flood5,000 square miles of dry land in the United States,and another 5,000 square miles of coastal wetlands,as figure 6 shows. From 17 to 43 percent of coastalwetland—prime fish and bird habitat—could be lost.Building dikes and barriers could reduce flooding ofdry land, but would increase wetland loss. Impacts on

Figure 2. Sources of Sulfur Dioxide

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Figure 4. Sources of Carbon Dioxide

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island nations and low-lying countries, like Egypt andBangladesh, would be much worse.

Altered weather patterns from changes in climatemay result in more extreme weather events. Some ar-eas will suffer more drought and others more flood-ing, putting crop production under great stress insome regions. The character of our forests couldchange dramatically. Other expected impacts includean increase in heat-related deaths, increased loss ofanimal and plant species, and the spread of pests anddiseases into new regions with less resistance tothem.12

In 1997, at a conference in Kyoto, Japan, the de-veloped nations of the world agreed to reduce carbondioxide emissions. The United States agreed to 7 per-cent reductions from 1990 levels by the period 2008–2012. Senate ratification of this agreement remainsuncertain, however.

Other air pollutants.Burning fossil fuels, espe-cially coal and oil, produces a host of other airpollutants in addition to those discussed above.Among them are

• Carbon monoxide (CO), which can cause head-aches and place additional stress on people withheart disease

• Hydrocarbons (HC), which come from unburnedfossil fuels and contribute to smog

• Large particles such as dust, soot, smoke, andother suspended matter, which are respiratory ir-ritants

• Small (so-called “fine”) particles, which havebeen linked to chronic bronchitis, aggravatedasthma, and premature deaths

Large particles (10 microns in diameter) areregulated by the Clean Air Act. In 1997, the Envi-ronmental Protection Agency published a new rulelimiting emissions of fine particles (2.5 microns).

A typical 500-megawatt coal plant produces3.5 billion kilowatt-hours per year—enough topower a city of about 140,000 people.

It burns 1.4 million tons of coal (the equivalent of40 train cars of coal each day) and uses 2.2 billiongallons of water each year. In an average year, thisone plant also generates the following:

• 10,000 tons of sulfur dioxide

• 10,200 tons of nitrogen oxide, equivalent to halfa million late-model cars

• 3.7 million tons of carbon dioxide, equivalent tocutting down 100 million trees

• 500 tons of small particles

• 220 tons of hydrocarbons

• 720 tons of carbon monoxide

• 125,000 tons of ash and 193,000 tons of sludgefrom the smokestack scrubber

• 170 pounds of mercury, 225 pounds of arsenic,114 pounds of lead, 4 pounds of cadmium,and other toxic heavy metals

• Trace amounts of uranium

Figure 5. Atmospheric Carbon DioxideConcentration and Temperature Change

Source: White House Initiative on Global Climate Change, Oc-tober, 1997. On line atwww.whitehouse.gov/Initiatives/Climate/greenhouse.html


Figure 6. US Coastal Lands at Risk from a 20-inch Sea-Level Rise in 2020

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States have until 2005 to 2008 to submit plans to theEPA for meeting the standard, and another 12 yearsto actually comply.13

In addition, coal and oil contain air toxics—met-als like mercury, arsenic, and lead. Although onlytrace amounts of these metals are present in coal andoil, they are difficult to catch using pollution-controlequipment. Utility coal burning accounts for 40,000tons of toxic air pollutants per year.14 For example,coal plants are responsible for over a third of the 150tons of mercury that are released into the air eachyear.15

Once deposited in nature, toxic metals can accu-mulate in the fatty tissue of animals and humans.They can cause severe health problems, such asmental retardation, nervous system damage, and de-velopmental disorders. Due to the accumulation oftoxic metals in fish—some of it as a result of air pol-lution—35 states have advisories against eating fishcaught in lakes and rivers. Children and pregnantwomen are the most at risk.16

Water, Land, and Thermal Pollution. Energyproduction and use also have profound impacts onwater and land. There are direct impacts, such as oilspills and coal mining, and indirect impacts from airemissions settling out on land and water. Land andwater damage can occur throughout the life cycle offossil fuels, from mining, drilling, and refining, toshipping, use, and disposal.

Coal mining contributesto land and water pollution.New mining practices some–times level mountains. Toxicchemicals brought to the surfaceduring the mining process canleach into water supplies.17

Railroad and barge trans–portation of coal releases coaldust and is vulnerable toaccidents. Finally, after the coalis burned, ash is left as a wasteproduct.

Drilling for oil and naturalgas can also pollute theimmediate environment. Oilspills kill plants and animals,

often leaving waterways and the surrounding shoresuninhabitable.

Fossil fuels produce heat energy when burned,some of which is used to generate electricity. Becausethe process is inefficient, about two-thirds of the heatis released to the atmosphere or to water used as acoolant. Heated water, once returned to rivers orlakes, can upset the aquatic ecosystem. And waterintake, outflow, and cooling systems can trap and killfish and fish larvae.

Economic Benefits ofReducing Environmental ImpactsThe many environmental impacts described above re-sult in real costs to society and to individuals. Whensuch costs are not included in energy prices, they arereferred to as “externalities.” During the 1990s, ef-forts have been made to calculate the dollar costs ofsuch externalities and, in some cases, to include themin energy planning decisions.18 In 1998, the Minne-sota Supreme Court upheld a state law requiring thatutility planning consider externalities.19

The largest external costs from pollution areprobably human health costs, in the form of healthtreatment costs, higher health insurance rates, missedwork, and lost life. According to an exhaustive surveyof health impacts by the Pace University School ofLegal Studies and studies by the American LungAssociation, the annual US health costs from all air


Figure 7. Nuclear Power Plant CoolingTower

pollutants may be as high as hundreds of billions ofdollars.20 However, unless policies are adopted so thatutility rates account for these societal and environ-mental costs, customers may ignore them when de-regulation enables customers to choose their gener-ating sources. Such policies might include pollutiontaxes or placing total limits on each emission for thegeographic area affected by the emission. (SeeChapter 4)

Even without considering externalities, both in-dustry and individuals stand to gain from increasedreliance on renewable energy. Because renewablesproduce little or no pollution, they can reduce re-gional pollution and thereby reduce the costs forneighboring industry to comply with environmentalregulations.

The savings are not always obvious. Environ-mental regulations usually focus on one pollutant at atime, as scientific knowledge about the impacts of thepollutant develops. Then, when government imposesa new regulation, industry may add a series of newpollution controls. Compared with any single pollu-tion-control requirement, replacing the fossil fuelgenerator with a renewable energy technology maylook expensive. But if all potential future controls areconsidered together, renewable technology can lookfar more attractive. As of 1998, a host of new envi-ronmental regulations were pending:

• The level of ozone (smog) allowed in ambient airis being reduced from 0.18 to 0.08 parts per mil-lion.

• Nitrogen oxides have long been regulated underthe Clean Air Act. In determining how to allot re-ductions among industries, state governments arelikely to target utilities for major reductions.

• Sulfur dioxide limits will be tightened in the year2000 when Phase II of the Clean Air Act goesinto effect. This will affect every coal-burningpower plant in the country.

• Fine particles are being regulated for the firsttime, with final rules expected by 2005.

• Mercury and other toxic metals have been thesubject of substantial research by the

Environmental Protection Agency. The EPA hasannounced it will require coal-fired plants to dis-close discharges, and it will use the data to decideon regulations by late 2000.21

• Carbon dioxide emissions would need to be re-duced to implement the Kyoto agreement onglobal warming.22

Conversion now to renewable technologies wouldforestall the need for future retrofits to achieve com-pliance with these regulations.

A 1997 study—The Hidden Benefits of ClimatePolicy: Reducing Fossil Fuel Use Saves Lives Now—illustrates the benefit of multi-emission reductions.Researchers found that measures to reduce globalcarbon dioxide emissions—including increasing theuse of renewables—could save 700,000 lives eachyear and a cumulative total of 8 million lives


worldwide by 2020, in part by such pollutants as fineparticles.23

Nuclear RisksAlthough nuclear power plants avoid many of the airemissions associated with fossil fuel plants, they cre-ate unique environmental risks. A combination ofhuman and mechanical error could result in an acci-dent killing several thousand people, injuring severalhundred thousand others, contaminating large areasof land, and costing billions of dollars.24 While theodds of such an accident are low, the Chernobyl acci-dent in 1986 showed that they can occur.

Major nuclear accidents can only result frommany failures occurring at about the same time. Butin order to maintain safety margins, inspectors andtests must identify equipment problems, and plantsmust have accurate procedures to minimize workererrors. A 1998 report by the Union of Concerned Sci-entists found a breakdown in quality assurance duringa one-year study of a 10-plant focus group. Theplants’ internal auditors did not identify in advanceany of more than 200 problems reported in 1997. Inaddition, many problems resulted from worker errorsor poor procedures.25 A 1997 report by the US Gen-eral Accounting Office criticized the Nuclear Regu-latory Commission (NRC) for failing to catch de-clining performance at some plants.26 These findingsare especially significant at a time when nuclearplants are cutting costs to become more competitive.Cutting costs need not jeopardize nuclear safety, butmaintaining safety in this environment requires in-creased attention.

Pressure to cut costs at marginal nuclear plantscould reduce the margin of error on safety. For exam-ple, the Nuclear Regulatory Commission attributedsafety problems at the closed Maine Yankee nuclearplant to “economic pressure to be a low-cost energyproducer”—pressure that limited the resources avail-able for repairs.27

The erosion of safety measures can be subtle.Staff downsizing programs often target senior em-ployees who receive high compensation. Their de-parture lowers the corporate experience level andmay possibly increase the frequency of human error.Some nuclear utilities reduce costs by scaling back

safety monitoring efforts, such as inspecting andtesting safety equipment less often and postponingpreventive maintenance.

In addition to safety issues, nuclear plants con-tinue to be problematic because of their spent fuelrods and other radioactive waste. By 1995, US nu-clear plants had produced almost 32,000 metric tonsof high-level radioactive waste.28 Finding a way tokeep this waste out of the environment for the thou-sands of years it remains radioactive has proven diffi-cult. Problems such as groundwater contamination ledto four of the six commercial facilities that store low-level radioactive waste being closed.29 And, despiteyears of research, the permanent repository the gov-ernment hopes to build at Yucca Mountain still hasunresolved issues.30

But regardless of the environmental issues, it iseconomics that is most hurting the nuclear industry.In 1998, about 40 percent of the nuclear plants in theUnited States were producing power at prices abovethe short-term market rate.31 A study by the Wash-ington International Energy Group concludes thatabout 37 percent of the combined nuclear capacity ofthe United States and Canada could be retired as a re-sult of competition.32 If fossil fuels are the only re-placement option, early nuclear retirements will raisethe cost for the country to comply with emission-reduction goals. Most of the planned increases in USnatural gas capacity could be needed to replace theseretiring nuclear plants, which means that little newcapacity would be available to displace coal genera-tion. Even if the nuclear plants were to operate untilthe end of their license periods, abundant

Figure 8. Sources of US Electricity(1996)

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low-emission replacement options would be needed.The availability of significant renewable generationcould help to mitigate these nuclear-replacementproblems, lowering the costs of regulatory compli-ance for industry as well as utilities and avoiding therisks inherent in nuclear power generation.

Diversity and Energy Security BenefitsRenewables offer benefits not only because they canreduce pollution, but because they add an economi-cally stable source of energy to the mix of US gen-eration technologies. Depending on only a few energyresources makes the country vulnerable to volatileprices and interruptions to the fuel supply. As figure8 shows, the United States relies heavily on coal, withnuclear power and natural gas supplying most of therest.

Natural gas is generally considered the fuel ofchoice for new power generation, because it iscleaner than coal and sometimes less expensive. Butoverreliance on natural gas could also create prob-lems. Fossil fuels are susceptible to supply shortagesand price spikes.33

Since most renewables do not depend on fuelmarkets, they are not subject to price fluctuations re-sulting from increased demand, decreased supply, or

manipulation of the market. And since fuel suppliesare local, renewable resources are not subject to con-trol or supply interruptions from outside the region orcountry. Some industrial customer trade groups havesupported new renewable energy development pri-marily for their diversity benefits. For example, As-sociated Industries of Massachusetts, a trade group ofmanufacturers, testified in support of a utility re-structuring settlement including a renewables fund,stating: “Fuel diversity is important to the Common-wealth’s future. It would not be advisable to place allour eggs in the natural gas basket.”34

An additional benefit of increased competitionfrom renewables—and thus reduced demand for fos-sil fuels—could be lower prices for electricity gener-ated from fossil fuels. Several analyses reviewed inChapter 2 show that competition from increasing re-newables could reduce natural gas prices. A compre-hensive modeling project of the New England Gover-nors’ Conference found that an aggressive renewablesscenario, in which renewables made up half of allnew generation, would depress natural gas pricesenough to lead to a slight overall reduction in re-gional electricity prices compared with what priceswould be if new generation came primarily from fos-sil fuels.35 (See figure 9.)

The nation’s fossil fueldependence also has seriousimplications for national security,since the United States couldagain be forced to protect foreignsources of oil to meet our energyneeds. During the Persian GulfWar in 1991, US troops were sentin partly to guard against apossible cutoff of the US oilsupply. The public continues topay taxes to support theprotection of overseas oil suppliesby US armed forces.

Reliance on foreign oil alsomakes the United States vul-nerable to fuel price shocks orshortages if supply is disrupted. In1997, about a third of US oilcame from the Middle East. By


2030, if energy policy does not change, thecountry may be relying on Middle Eastern, andpossibly Central Asian, oil for two-thirds of itssupply. Some analysts believe that oil discov-ery peaked in the early 1960s and that a declinein global oil production, and the beginning ofincreasingly high prices, will occur within 10to 12 years.36

Some regions, especially New England,still use significant amounts of oil for electric-ity generation even though nationwide most oilis used for transportation. Electric vehicles, es-pecially if powered from renewable sources, couldalso play an increasingly important role in reducingoil use and emissions from the transportation sector.And higher oil prices, absent sufficient fuel competi-tion, could lead to higher prices for other fossil fuels.

Economic Development BenefitsRenewable energy technologies can not only keepdollars in this country, but also create significant re-gional benefits through economic development. Manystates are dependent on energy imports. Iowa andMassachusetts, for example, each import about 97percent of the energy they use.37 Renewable tech-nologies create jobs using local resources in a new,“green,” high-tech industry with enormous exportpotential. They also expand work indirectly in localsupport industries, like banks and construction firms.As table 1 shows, during the 1990s, the US renewableelectricity industry employed nearly 117,000people.38

Some renewable technologies, like biomass, arerelatively labor intensive, which is one of the reasonsthey are slightly more expensive than their fossil fuelcounterparts. For example, growing, harvesting, andtransporting biomass fuels all require labor, as doesmaintaining the equipment. This means that much ofthe revenue for installing, fueling, and operating re-newable power plants remains within the regionwhere the power is used.

Renewables can mean increased revenues for lo-cal landowners. A Union of Concerned Scientists(UCS) analysis found that farmers could increase

their return on land by 30 to 100 percent from leasingpart of it for wind turbines while continuing to farm.39

Another study found that adding 10,000 MW of windcapacity nationally would generate $17 million peryear in land-use easement payments to the owners ofthe land on which the windfarms are situated, and $89million per year from maintenance and operations.40

Renewables can contribute heavily to local taxes.Wind farms in California pay $10 million to $13 mil-lion in property taxes. And manufacturing capital-intensive renewables technologies can also be donedomestically. According to the American Wind En-ergy Association, at least 44 states are involved inmanufacturing wind energy system components.41

A UCS analysis for Wisconsin found that, over a30-year period, an 800-megawatt mix of new renew-ables would create about 22,000 more job-years thannew natural gas and coal plants would.42 A New YorkState Energy Office study concluded that wind energywould create 27 percent more jobs than coal and 66percent more than a natural gas plant per kilowatthour generated.43 A study of energy efficiency andrenewable energy as an economic development strat-egy in Colorado by Economic Research Associatesfound an energy bill savings of $1.2 billion for Colo-rado ratepayers by 2010 with a net gain of 8,400jobs.44

The California Energy Commission estimates thatthe 600 MW of new renewables that will be built us-ing $162 million in public benefits funding in thestate restructuring law will induce

• $700 million in private capital investment

TABLE 1Employment in the Renewable Electricity Industry

DirectEmployment

IndirectEmployment

TotalEmployment

Wind (1992) 1,260 4,350 5,610

Biomass (1992) 66,000

Photovoltaics (1994) 15,000

Solar Thermal (1994) 250 250 500

Geothermal (1996) 10,000 20,000 30,000

Total 116,860


• 10,000 construction jobs, with over $400 millionin wages

• 900 ongoing operations and maintenance jobswith $30 million in long-term salaries

• gross state product impacts of $1.5 billion duringconstruction and $130 million in annual ongoingoperations45

In addition to creating jobs, renewables can im-prove the economic competitiveness of a region byenabling it to avoid additional costly environmentalcontrols on other industries, as well as by stabilizinglong-term energy prices.

Renewables can also contribute to economic de-velopment by providing opportunities to build exportindustries. In developing countries that do not haveelectricity grids, pipelines, or other energy infra-structure, renewable energy technologies can be themost cost-effective options for electrifying rural vil-lages. The American Wind Energy Association hasestimated that global markets for wind turbines alonewill amount to as much as $400 billion between 1998and 2020.46

Other industrial countries are leaping ahead ofthe United States in renewable energy production,however, because they value the environmental bene-fits more highly and because they recognize the op-portunity to supply export markets. In fact, Japan andvarious European nations are encouraging the devel-opment of renewables by providing greater subsidiesthan does the United States.47

Other Nontraditional BenefitsBecause some renewable technologies are small andmodular, they can be sited in or near buildings whereenergy is used. These distributed generation tech-nologies offer some benefits that utilities have usuallynot considered.

Perhaps most importantly, distributed generationtechnologies can avoid costly expenditures on trans-mission and distribution. For example, a utility put-ting distributed generation in a new neighborhoodmight be able to use smaller transformers or reducethe size or number of power lines going to the neigh-borhood. Distributed generation reduces the wear and

tear on existing distribution equipment, thereby de-laying the need to replace or upgrade the equipment.And distributed generation reduces power lossesthrough the transmission system, so that less electric-ity needs to be produced in the first place.48

A UCS study found that in certain neighborhoodsin the Boston area, the value of avoiding transmissionand distribution expenditures would more than payfor the extra cost of using such distributed renewablesas photovoltaics, solar water heaters, and fuel cells.49

Many other studies during the 1990s have alsopointed to added value from distributed generation.50

Distributed generation can also provide “pre-mium power” to customers, improving power qualityand system reliability.51 Companies with criticalelectricity needs, like hospitals, airports, and com-puter-dependent firms, pay a premium to ensure reli-able power, since the cost of outages can be huge.Generation on site, with small renewable generators,is one way to meet those needs.

Because renewables are typically small, modular,and require short lead times for installation, they canbenefit electricity companies’ planning. Companiesusing modular technologies can add capacity in smallincrements as needed, rather than planning largepower plants many years in advance, only to find thatthey may not be needed when they finally go on line.

Finally, the concept of value is changing the per-ception of renewables, as is consumer choice. Manysurveys have shown that customers value the envi-ronmental benefits of renewables more than conven-tional polluting energy sources and prefer electricitycompanies that supply at least part of their powerfrom renewable energy technologies.52 Renewablesprovide options that service-oriented companies canuse to improve customer satisfaction. They can im-prove a company’s public image and can create prof-itable new business opportunities for electricity gen-eration or distribution companies that are customer-oriented.


Chapter 3

Costs and Benefits of IncreasingRenewable Energy Use in the United States

Before the 1980s, the only widely used renewableelectricity technology was hydropower. Hydropower isstill the most significant source of renewable energy,producing 20 percent of the world’s electricity and 10percent of that of the United States. The 1973 oil crisisawoke the country to its vulnerability through depend-ence on foreign oil. Subsequent changes in federal pol-icy spurred the development of renewable technologiesother than hydro.

In 1978, Congress passed the Public Utility Regu-latory Policies Act (PURPA), which required utilities topurchase electricity from renewable generators andfrom cogenerators (which produce combined heat andpower, usually using natural gas) when it was less ex-pensive than electric utilities could generate them-selves.

Some states, especially California and those in theNortheast, required utilities to sign contracts for renew-ables whenever electricity from those sources was ex-pected to be cheaper over the long term than electricityfrom traditional sources. These states saw the largestrenewables development under PURPA. However, be-cause oil price projections were high and because utili-ties were planning expensive nuclear plants, these re-newables contracts turned out to be expensive relativeto the low fossil fuel prices of the 1990s.

Nevertheless, under PURPA over 12,000 mega-watts of nonhydro renewable generation capacity cameon line. This development enabled renewable technolo-gies to develop commercially. Wind turbine costs, forexample, decreased by more than 80 percent.

Over the last five years, renewable energy growthhas been modest, averaging less than 2 percent per year,primarily because of the low cost of fossil fuels.53 Inaddition, the uncertainty around the deregulation of theutility industry largely froze investment in renewables,as utilities avoided new long-term investments.

Current levels of renewables development representonly a tiny fraction of what could be developed. Manyregions of the world and the United States are rich inrenewable resources. Winds in the United States con-tain energy equivalent to 40 times the amount of energythe nation uses. The total sunlight falling on the countryis equivalent to 500 times America’s energy demand.And accessible geothermal energy adds up to 15,000times national demand.54 Of course, there are limits tohow much of this potential can be used, because ofcompeting land uses, competing costs from other en-ergy sources, and limits to the transmission systemneeded to bring energy to end users.

Below we summarize several studies from the late1990s that have looked at scenarios involving a greaterrole for renewable energy technologies. These studiesexamined a number of policy mechanisms to increasethe percentage of renewables in the electricity mix, thenconsidered the costs and benefits of those policies. Theresults of these studies consistently show that the UScan meet a significant share of its electricity needs fromrenewable resources at a modest cost, while reducingharmful air emissions, easing pressure on natural gasprices, and greatly diversifying the electricity mix.

UCS RenewablePortfolio Standard AnalysisA 1999 study by UCS analyzed the costs and benefits ofgenerating a gradually increasing share of the nation’selectricity from wind, biomass, geothermal and solarenergy, as proposed in six federal bills. 55 These renew-able portfolio standards (RPS) range from 4 percent in2010 to 20 percent in 2020. The study found thatachieving the most aggressive renewables target of 20percent in 2020 would freeze electricity-sector carbondioxide emissions at year 2000 levels through 2020 at amodest cost of $18 per ton reduced. By contrast, carbon


dioxide emissions are projected to grow 24 percent overthe same period under a business-as-usual scenario.

Meeting the 20 percent target would also result inrenewable energy development in every region of thecountry. In particular, the Plains, Western, and Mid-Atlantic states are projected to generate more than 20percent of their electricity from a diverse mix of renew-able technologies. Biomass, wind, and geothermal en-ergy are projected to provide the majority of new re-newable generation.

The study also found that the RPS proposals wouldreduce a portion of the savings consumers are expectedto realize from lower electricity prices under a busi-ness-as-usual scenario to achieve these benefits. But inevery RPS proposal, customers would still be payingless for electricity than they are today. Even under themore aggressive 20 percent RPS, average consumerelectricity prices were projected to fall 13 percent be-tween 1997 and 2020, compared with 18 percent with-out an RPS. This would reduce a typical (500 kilowatt-hours per month) household’s expected average electricbill savings of $5.90 per month between 1998 and 2020under business as usual by $1.33. (figure 10).

The UCS study also showed that increasing renew-able energy use would reduce some of the projected

growth in natural gas prices for all gas consumers. Forexample, the 20 percent RPS lowered the projectedgrowth in average natural gas prices by 5 percent in2020. For the over 50 percent of households that heatwith natural gas, gas savings completely offset theslightly higher electricity costs over time. Even with arenewables target of 20 percent, however, total naturalgas generation would still nearly quadruple from 1997levels.

Energy InformationAdministration RPS AnalysesA 1998 study by the Energy Information Administra-tion (EIA) found that achieving a 10 percent penetrationof nonhydro renewables in 2010 would result in a 3percent higher average electricity price in 2020 com-pared with a business-as-usual scenario, but the pricewould still be 17 percent lower than it was in 1996.56

The study also showed that the RPS would reduce aportion of the average residential household’s expectedelectricity bill savings of about $6.56 per month be-tween 1996 and 2020, due to lower electricity pricesunder a business-as-usual scenario, by a maximum of$2.63 per month in 2020.

However, a close examination of the results re-vealed major savings for consumersthat were not made explicit in the re-port. First, slightly higher electricityprices under the RPS compared withbusiness-as-usual projections wouldstimulate investments in energy effi-ciency, reduce the demand for elec-tricity, and lower consumer electric-ity bills. Second, by displacing someof the projected growth in naturalgas use for electricity generation, theRPS was shown to reduce projectedaverage natural gas prices by 6 per-cent and lower costs for all gas con-sumers. Including these effectswould reduce the projected peak costof the RPS from $10.6 billion to $1.8billion in 2020 and would actuallyproduce a net savings of $1.8 billionin 2010.57

The EIA study also found that an

Figure 10. Average Monthly Electricity Bill for a TypicalNonelectric Heating Household

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RPS of 10 percent in 2010 would result in a 10 percentdrop in projected carbon dioxide emissions and a 8 per-cent drop in projected nitrogen oxide emissions in 2020in the electricity sector.

Energy Innovations StudyA 1997 study by UCS and others––Energy Innova-tions––analyzed the impacts of achieving a 10 percentpenetration of non-hydro renewable electricity in 2010,as part of a more comprehensive set of policies toachieve a 10 percent reduction in carbon emissions be-low 1990 levels.58 Researchers modeled a hybrid re-newable portfolio standard/public benefits fund ap-proach, in which funds were raised through a charge of0.2¢ per kilowatt-hour (¢/kWh) on all electricity salesto “buy down” the projected capital costs of renewablegenerating technologies to levels competitive with fos-sil fuels. In addition, no single renewable technologywas allowed to capture more than half the market shareto spread out the costs among a number of technologies.

The study showed that the RPS reduced carbonemissions 7 percent below projected levels in 2010 at acost of $26 per ton of carbon dioxide saved.59 The RPSwas also effective in dramatically lowering the cost ofrenewable technologies, which in turn reduce averageelectricity prices by more than 2 percent in 2010 and

offset much of the higher initial costs. The study alsofound that combining the RPS with policies to increaseenergy efficiency would create jobs, produce savingsfor consumers and the economy, and greatly reduce airpollution.

Department of EnergyFive-Laboratory StudyAn analysis by a working group of staff from five De-partment of Energy national laboratories projected thatbetween 40,000 and 80,000 MW of renewable gener-ating capacity could be added to the US electricity mixby 2010 for under $50 per ton of carbon (or about $14per ton of carbon dioxide).60 This would increase themarket share of renewables by 5 percent to 10 percentof total generation. A $50-per-ton charge is equivalentto adding 0.5 ¢/kWh to the cost of natural gas-generatedpower and 1.3¢/kWh to coal-generated power.

One conclusion of the DOE laboratories’ researchis that renewables are necessary for greenhouse gasreductions. “While aggressive energy efficiency andfuel switching can reduce domestic carbon emissions toapproximately 1990 levels by 2010, controlling orreducing carbon emissions beyond that date will requiregreater energy contributions from low-carbon technolo-gies such as renewables.”


Chapter 4

Barriers to theUse of Renewable Energy Technologies

Renewable energy technologies have an enormouspotential in the United States and that potential canbe realized at a reasonable cost. Market researchshows that many customers will purchase renewablepower even if it costs somewhat more than conven-tional power.61 However, both economic theory andexperience point to significant market barriers andmarket failures that will limit the development of re-newables unless special policy measures are enactedto encourage that development.62 These hurdles canbe grouped into five categories:

• commercialization barriers faced by new tech-nologies competing with mature technologies

• price distortions from existing subsidies and une-qual tax burdens between renewables and otherenergy sources

• failure of the market to value the public benefitsof renewables

• market barriers such as inadequate information,lack of access to capital, “split incentives” be-tween building owners and tenants, and hightransaction costs for making small purchases

Commercialization BarriersTo compete against mature fossil fuel and nucleartechnologies renewables must overcome two majorbarriers to commercialization: undeveloped infra-structure and lack of economies of scale.

Infrastructure. Developing new renewable re-sources will require large initial investments to buildinfrastructure. These investments increase the cost ofproviding renewable electricity, especially duringearly years. Examples include

• Prospecting: Developers must find publicly ac-ceptable sites with good resources and with ac-cess to transmission lines. Potential wind sitescan require several years of monitoring to deter-mine whether they are suitable.

• Permitting: Permitting issues for conventionalenergy technologies are generally well under-stood, and the process and standards for revieware well defined. In contrast, renewables often in-volve new types of issues and ecosystem impacts.And standards are still in the process of develop-ment.

• Marketing: In the past, individuals had no choicesabout the sources of their electricity. But elec-tricity deregulation has opened the market so thatcustomers have a variety of choices. Start-upcompanies must communicate the benefits of re-newables to customers in order to persuade themto switch from traditional sources. Public educa-tion will be a critical part of a fully functioningmarket if renewables are to succeed.

Figure 11. Projections of Crystalline Silicon PV ModuleSales and Prices

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• Installation, operation, and maintenance: Work-ers must be trained to install, operate, and main-tain new technologies, as well as to grow andtransport biomass fuels. Some renewables needoperating experience in regional climate condi-tions before performance can be optimized. Forexample, the optimal spacing of wind turbines islikely to be different on New England ridgelinesthan on agricultural land in the Midwest.

Economies of Scale. Most renewable energytechnologies are manufactured on assembly lines,where mass production can greatly reduce costs. Asof the late 1990s, manufacturing costs for photovol-taics had declined 20 to 25 percent for each doublingof production volume, as illustrated in figure 11.63

The Spire Corporation, which makes assembly linesfor manufacturing photovoltaic modules, says thatcosts for photovoltaic modules can be reduced fromabout $2.25 per watt to $1.80 per watt merely byscaling up photovoltaic factories so that instead ofmanufacturing 10 MW of photovoltaics per year, theymake 25 MW per year.64 Economies of scale are alsolikely to lead to cost reductions for wind, fuel cell,and biomass technologies. Unfortunately, aslong as relatively few units are produced, prices willremain high. This leads to low demand, and thereforelow production volumes. This chicken-and-egg prob-lem is especially difficult with technologies that havelong lives.65 However, scaling up manufacturing ofnew technologies too quickly can create its ownproblems, such as shortages of skilled laborand bottlenecks in parts supplies.

Unequal GovernmentSubsidies and TaxesCompared with renewables, nuclear and fossilfuel technologies enjoy a considerable advan-tage in government subsidies for research anddevelopment.��

• A 1980 Pacific Northwest Laboratory re-port found that, of $516 billion spent onenergy subsidies through 1978, 50 percenthad gone to oil, 25 percent to electricity,and 25 percent to nuclear, hydro, gas, andcoal.67

• A 1992 Energy Information Administration studyfound that, during fiscal year 1992, direct federalsubsidies totaled $8 billion, with renewables (ex-cept ethanol for transportation) receiving aboutone-third as much as coal and less than one-quarter as much as natural gas. Another $3.1 bil-lion in indirect subsidies went to the oil indus-try.68

• For fiscal year 1996, Congress appropriated $422million for fossil fuels, $227 million for nuclearfusion, $252 million for nuclear fission, $400million for nuclear waste (only half of which ispaid for by nuclear waste fees on generators), butonly $273 million for all renewable energy tech-nologies combined69 (see figure 12).

In addition to receiving subsidies for research anddevelopment, conventional generating technologieshave a lower tax burden. Fuel expenditures can bededucted from taxable income, but few renewablesbenefit from this deduction, since most do not usemarket-supplied fuels. Income and property taxes arehigher for renewables, which require large capital in-vestments but have low fuel and operating expenses.A 1996 study by Resources for the Future found thatthe total tax burden of natural gas facilities is only0.507¢/kWh (in 1993 dollars), compared with1.521¢/kWh for biomass generators.70 Even if therenewable energy production tax credit were counted(no biomass plants had qualified as of 1998), the tax

Figure 12. FY 1996 DOE Energy Budget

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burden would be over 50 percent higher than for anatural gas plant.71 The tax burden for wind energy isapproximately as high as for biomass.72

A study by the Energy Information Administra-tion found that renewable energy development isfurther inhibited by a “depletion allowance” for oil,natural gas, and coal suppliers, which resulted in afederal tax revenue loss of $745 million in 1992. Thedepletion allowance allows companies to deduct the“loss” of fuels that have been mined or drilled.73 Fur-thermore, tax law allows fossil fuel producers to writeoff certain exploration and development costs ratherthan capitalizing and depreciating them over time.These write-offs, in combination with other incen-tives, encourage domestic exploration and develop-ment. While this has resulted in increased productionwithin the United States and lower oil prices, it mayalso have both diverted capital from more productiveactivities, such as energy efficiency investments, aswell as constrained the growth of renewable energy.

Market Failure to ValuePublic Benefits of RenewablesMany of the benefits of renewables described earlierin this primer are public benefits that accrue to every-one—what economists call “public goods.” For ex-ample, those who choose renewables reduce pollutionfor everyone and provide an environmental benefit tothe public at large. A customer who is willing to paymore for electricity from renewables still has tobreathe the same air as the neighbor who mightchoose not to pay more. Public goods do not motivateeveryone who benefits to pay for them, if they canchoose to be “free riders” who benefit from the con-tributions of others.

Employment, fuel diversity, price stability, andother indirect economic benefits of renewables alsoaccrue to society as a whole.74 For example, for alarge industrial customer, it may make more sense torisk moving to another region in response to increasesin fuel prices rather than pay more for renewables tostabilize regional prices. While this strategy maybenefit the individual firm, it is likely to hurt the re-gion’s long-term economic competitiveness. In thesame way, firms that can pass on increases in energycosts to customers may also lack an incentive to di-

versify fuel sources, even though investment in re-newables would stabilize prices over the longer term.

Research and development that produces societalbenefits, but has little effect on a company’s bottomline, will be especially undervalued in restructuredmarkets. Although R&D is likely to continue in acompetitive electricity industry, and the desire to pro-vide customer choice is likely to accelerate some in-novations, research will probably shift to those areaswith the fastest payback and those that allow compa-nies to beat out competitors in the short term. Privatefunding is likely to dwindle for research with benefitsthat are primarily public or that do not result in arelatively quick payback, primarily to the funder.

Some research indicates that people will be will-ing to pay more for public benefits than economictheory would suggest. But investment in technologieswhere much of the payback does not accrue to the in-dividual making the investment will always be lessthan the optimal investment for society.75 Two-thirdsof electricity produced is used by commercial and in-dustrial customers. While some of these customersmay also pay more for cleaner electricity sources,many will not.76

For these reasons, renewables will be unable tocompete on a level playing field with conventionalgeneration until new policies are adopted to internal-ize the public costs of these fossil fuel sources. Emis-sion fees or caps on total pollution, with tradableemission permits, are examples of ways to internalizethe costs of pollution, creating a more level arena forrenewables. (Such mechanisms are discussed belowin Chapter 5.)

Market BarriersRenewable energy technologies face considerablebarriers in market transactions.

Lack of Information. Customers may have in-sufficient information to make informed choices.Most utilities provide little or no information abouttheir emissions or the fuels they use. Because renew-able technologies are relatively new, most customersknow little about them. Many customers, for example,may think that solar and wind technologies are unre-liable because they are available only when the sun isshining or the wind is blowing. They are unlikely to


be aware that these intermittent technologies can behighly reliable when combined with other options.

Institutional Barriers. Commercial and indus-trial customers are also generally unfamiliar with re-newables and have institutional barriers to purchasingrenewables. Industrial energy managers are trainedonly to find low-cost solutions. Industrial environ-mental managers look for ways to reduce in-housepollution and are unlikely to consider pollution asso-ciated with their electricity purchases.

Even local electricity companies may be unfa-miliar with renewables. Most utilities have not stud-ied how renewable resources could fit into their sys-tems or what local resources are available. Forexample, few have investigated how the output ofsolar and wind technologies matches their systempeak load.

Small Size. Renewables projects and companiesare generally small. Thus they have fewer resourcesthan large generation companies or integrated utili-ties. These small companies are less able to commu-nicate directly with large numbers of customers. Theywill have less clout negotiating favorable terms withlarger market players. And they are less able to par-ticipate in regulatory or legislative proceedings, or inindustry forums defining new electricity market rules.

High Transaction Costs. Small projects havehigh transaction costs at many stages of the develop-ment cycle. For example, it costs more for financialinstitutions to evaluate the credit-worthiness of manysmall projects than of one large project. It costs mar-keters more to negotiate contracts with many smallprojects, and to market to and sign up residentialcustomers, who are the most likely segment to paymore for renewables.

High Financing Costs. Renewables developersand customers may have difficulty obtaining financ-ing at rates as low as may be available for conven-tional energy facilities. In addition to having highertransaction costs, financial institutions are generallyunfamiliar with the new technologies and likely toperceive them as risky, so that they may lend moneyat higher rates. High financing costs are especiallysignificant to the competitive position of renewables,since renewables generally require higher initialinvestments than fossil fuel plants, even though they

have lower operating costs. A study by the LawrenceBerkeley Laboratory found that financing costs cangreatly affect the price and competitiveness of windenergy, since most of the cost is in capital and little isin operation. The study also found that financingcosts for solar panels could result in solar generationprices as low as 15.2¢/kWh for publicly owned utili-ties and as high as 43.1¢/kWh for a private developerusing project financing.77

Split Incentives. When renewables are used lo-cally to provide power to individual buildings andbusinesses through photovoltaics, fuel cells, or smallwind turbines, they encounter additional market bar-riers. Landlords own some of the most cost-effectivebuilding sites, but are unlikely to install equipmentjust so tenants can realize energy savings. And ten-ants may not have the right to modify the property orthe interest in making a long-term investment.

Few utilities consider the full value of distributedgenerating technologies. A small renewable energysystem located in a neighborhood with growing elec-tricity use can help avoid investments to upgradetransmission or distribution lines to the neighbor-hood. But utility generation planning departmentsgenerally consider only the cost of generating elec-tricity with a distributed technology, not the potentialsavings in transmission and distribution costs.Transmission and distribution planners consider onlythe costs of alternative transmission and distributiontechnologies. Because planning is done in separatedepartments, no one looks at the potential integratedvalue of a solar module in avoiding all three: genera-tion and transmission and distribution expenditures.Renewable technologies are sometimes cost-effectivewhen this integrated value is considered. In a re-structured industry where distribution, transmission,and generation are all in separate companies, plan-ning for distributed generation may be even lesslikely than previously, unless policymakers providesignificant incentives.

Transmission Costs. Renewables may also becharged higher transmission costs than conventionaltechnologies or may be subject to other discrimina-tory grid policies. For example, a system that requiresgenerators to reserve a block of capacity in advancemay force an intermittent generator, like solar or


wind, to pay for the maximum output they can gener-ate at any moment. Most of the time, however, an in-termittent resource generates at less than its maxi-mum potential capacity. Since a wind farm produces,on average, only about a third of the time, it couldhave to pay three times more per kilowatt hour trans-mitted than a conventional plant designed to generateat full capacity all the time.

Another problem is predicting the exact time andquantity of power for delivery, since wind speeds orsunshine can be difficult to predict more than a day ortwo in advance. The Federal Energy RegulatoryCommission recommends a penalty if energy deliv-eries vary 1.5 percent from scheduled amounts.78 Re-motely located renewable resources may also have topay heavily in transmission pricing schemes thatcharge according to distance or in those that charge“pancaked” rates, which depend on the number ofutility territories crossed.

Green Market Limits. Given the numerous bar-riers facing renewables in the competitive market,how big the green electricity market is or could be-come is uncertain. Some initial signs are encouraging;others are less so. Survey after survey shows strongcustomer preference for green electricity.79 Marketresearch also shows distinct market segments of cus-tomers interested in buying environmentally prefer-able products generally. Green markets for otherproducts—including food, paper, cleaners, clothing,computers, furniture, and homes—are also emerging.Of all new products introduced in 1996, 12 percentmade environmental marketing claims, according toone market researcher.80 In some cases, green prod-ucts have transformed markets; for example, phos-phate-containing detergents are no longer available inEurope.

Some electricity choice pilot projects have shownencouraging results. In Massachusetts, for example,31 percent of residential customers exercising choicein a carefully controlled pilot program picked a prod-uct advertised as green.81 In an Oregon pilot, 15 per-cent of customers choosing among four options chosea 100 percent renewables product.82 And some busi-ness customers have shown interest in picking greenoptions over the lowest-price options. In TraverseCity, Michigan, small commercial customers volun-

tarily contributed as much money toward a wind tur-bine as residential customers did.83 IBM, Coors, andother large industrial customers are participating in aColorado wind energy program.84 Toyota has chosen a100 percent renewables product for its four Californiaoffices.85

Other signs are less hopeful. Many fewer peopleactually choose to buy green electricity than say theywould if they could. Where utilities have offered“green pricing,” no more than 3 percent of all resi-dential customers have participated—in some casesless than 1 percent.86 One important reason why par-ticipation rates have been much lower than survey re-sponses is that people have a strong preference foreveryone to contribute to renewables. In an October1998 poll of Texas Utilities customers, 88 percentsaid they would be willing to pay more for renew-ables. However, 79 percent preferred that all utilitycustomers pay at least some of the added costs,whereas only 17 percent wanted to rely only ongreen-pricing.87 More importantly, commercial andindustrial customers—which use nearly two-thirds ofall the electricity that’s generated—are more likely tobe concerned about price than about the environ-ment.88

Newly deregulated markets where customers donot have to choose suppliers may face considerableinertia. Fifteen years after long-distance telephonederegulation, 54 percent of customers have never ex-ercised choice and more than two-thirds are still withAT&T. 89 While environmental factors will inducesome customers to switch electricity suppliers, manycustomers are likely to find the complexity ofweighing price and environmental factors more con-fusing than telephone choices. And, since marketingcosts to induce switching are likely to be high, theywill probably absorb a substantial part of the greenpremium customers are willing to pay.

The most optimistic green marketers expect thatas many as 20 percent of residential customers and 10percent of commercial customers will buy greenelectricity five years after competition has been intro-duced in a given market.90 Such results could lead tomeaningful new renewable resource development, es-pecially in markets where there are not large amountsof existing renewables that need market support.


However, they would still mean that 80 to 90 percentof customers were not contributing to renewableelectricity generation, even though they could be re-ceiving benefits of clean air, fuel diversity, pricestability, and increased economic development fromrenewables. Policy mechanisms are needed to

maximize these public benefits, as well as to ensurethe development of as robust a green market aspossible.


Chapter 5

Renewable Energy Policies—7 Ways to SwitchExisting PoliciesOver the years, state and federal governments havetaken a number of actions to encourage renewableenergy production. Among these were price guaran-tees, tax incentives, and minimum requirements forrenewables. #V VJG HGFGTCN NGXGN� the Public UtilityRegulatory Policy Act of 1978 (PURPA) has had thegreatest effect in supporting the development of re-newable energy. During the late 1990s, as the indus-try moved toward competition, some legislators havesought to repeal PURPA. Independent energy pro-ducers and consumer groups have defended the policyas necessary until the renewables industry is fullycompetitive. Renewable energy advocates also arguethat PURPA should not be repealed until alternativemechanisms are in place to preserve the public bene-fits of renewables in a deregulated industry.

Federal tax credits for renewable energy tech-nologies have waxed and waned. In the 1980s, in-vestment tax credits for renewables led to some earlydevelopment. Later, the Energy Policy Act of 1992(EPAct) extended the investment tax credit for solarand geothermal power, and established a productiontax credit of 1.5¢/kWh for wind and for some bio-mass applications. This credit has been important insustaining some growth in the wind industry. How-ever, the “closed loop” biomass facilities (see Appen-dix A for a description) that the legislation supportshave remained too expensive to develop, so no facili-ties have been able to take advantage of the credit.The EPAct production tax credit for wind and bio-mass expires in July 1999. Efforts are under way toextend the tax credit for wind and to expand thecredits to support conventional biomass technologies.

The federal government has also supportedresearch and development for renewables, primarilythrough federal research laboratories. However, fed-eral spending on R&D for renewable technologies has

been far less than for fossil fuel and nuclear tech-nologies, as discussed in Chapter 3.

States have taken a variety of actions to promoterenewable energy.91 Many states have offered taxbreaks for renewable energy projects. But these haverarely been effective by themselves since they haveusually been set too low to make renewables com-petitive. Only when combined with other policieshave tax breaks succeeded in creating an active re-newables market.

The most successful renewables efforts have beenin the two states that aggressively implementedPURPA: California and Maine. In the 1980s and early1990s, California developed almost 6,092 MW of re-newables capacity—about 14 percent of the state’sgeneration capacity. Maine developed 855 MW, pro-viding over 35 percent of the state’s power plant ca-pacity.92

In the 1980s, a number of states adopted inte-grated resource planning (IRP) policies. IRP regula-tions require utility companies to consider the mix ofdemand-side measures (such as investments in en-ergy-efficiency improvements) and supply optionsthat provide electricity at the lowest cost. Some stateshave considered environmental costs in determiningwhat mix of resources would produce the lowestoverall costs to society. Other states, like Wisconsin,passed laws stating a preference for renewable energysources when cost-effective. IRP frequently led utili-ties to invest money in energy efficiency programs,because it is often less expensive to reduce energyuse by improving the efficiency of appliances, lights,motors, and other end uses than it is to generate thesame amount of electricity. But because these policieswent into effect during a period when existing elec-tricity capacity exceeded demand, utilities resistednew generation. Consequently, little new capacity—renewable or fossil fuel—was developed. Where new


capacity was developed to meet PURPA or IRPregulations, natural gas generators increasingly sub-mitted the low bids and got the contracts. In Texas,however, IRP, together with a process of “delibera-tive polling” to assess public opinion has led to 43MW of wind capacity by the end of 1998, with an-other 75 MW scheduled to come on-line in 1999.93

Colorado regulators approved an IRP settlement withPublic Service of Colorado including 25 MW of winddevelopment.94

Some states have required that their regulatedutilities build a minimum amount of renewable plantcapacity. The largest set-asides have been in theMidwest: Iowa’s 1983 law resulted in 105 MW ofwind and biomass electricity generation.95 Minne-sota’s 1994 settlement with Northern States Powerresulted in 425 MW of wind power and 125 MW ofbiomass. And Wisconsin’s 1998 Reliability Act con-tains a 50 MW renewables requirement. One stateutility, Wisconsin Electric, has announced it intendsto significantly exceed the requirement.96

With increasing wholesale competition, manyutilities have actively resisted PURPA, IRP, and set-asides. There is a need for new policies and for recon-figuring older policies to be consistent with restruc-tured electricity markets, if renewables are to com-pete successfully. Realizing the full potential ofrenewables to provide public benefits requires eitherimposing the costs of pollution on those that generateit or providing equivalent support to nonpollutingsources. The remainder of this section describesseven critical ways that can advance renewable en-ergy development in restructured electricitymarkets.97

Renewables Portfolio StandardThe renewables portfolio standard (RPS) is a re-quirement that a minimum percentage of each elec-tricity generator’s or supplier’s resource portfoliocome from renewable energy. The RPS creates aminimum commitment to a sustainable energy future.It would build on and enhance the investment alreadymade in sustainable energy. And it would ensure thatthe new electricity markets recognize that clean re-newable electricity is worth more than polluting fossilfuel and nuclear electricity. Further, these goals can

be accomplished using a market approach thatprovides the greatest amount of clean power for thelowest price and an ongoing incentive to drive downcosts. By using tradable “renewable energy credits”to achieve compliance at the lowest cost, the RPSwould function much like the Clean Air Act credit-trading system, which permits lower-cost, market-based compliance with air pollution regulations.

As a minimum national standard, the RPS wouldnot be new or especially notable. US citizens alreadybenefit from similar standards in other sectors of theeconomy, as table 2 shows. Energy-efficiency stan-dards for buildings, for example, are common inmany states and countries. From airlines to cars todrugs, standards ensure public safety, economichealth, and environmental protection. Such standardshelp societies achieve goals or meet needs that mightotherwise go begging.

The RPS has garnered significant bipartisan po-litical support. As of December 1998, it has beenadopted in five states and is under consideration in anumber of others. (See Appendix C for a comparison

TABLE 2Other Standards Similar to theRenewables Portfolio StandardBuildingEnergyEfficiency

Many states and over 25countries require insulation orequivalent measures in all newbuildings.

AutomobileFuelEfficiency

Each automaker's fleet of newcars must achieve a certainaverage fuel economy. Called“CAFE Standards.”

AirplaneSafety

Uncounted across-the-boardrules. A recent rule requiresthat all passenger aircraft havefire detectors in their cargoholds.

Acid RainReduction

All major emitters of sulfur di-oxide must own SO2 allow-ances equal to their emissions.

ProductSafety

Medicines must have child-proof caps. Electronic equip-ment must meet standards thatminimize the chance of elec-trical shocks or fire.

Food Safety Standards for packaging, re-frigeration, sanitation, labeling,fat content, etc.


of state RPS plans.) In one state, Pennsylvania, indi-vidual utility settlements have included minimumrenewables requirements for default service—i.e.,customers not choosing competitive suppliers. To-gether with minimum requirements adopted in threestates outside of restructuring, these commitmentscan be expected to preserve approximately 1,500 MWof existing renewables capacity, and lead to the de-velopment of 1,700 MW of new renewables (see fig-ure 13).98

The RPS has also been included in six separatefederal restructuring bills. Appendix C details howstates and the U.S. federal government have imple-mented or proposed to implement the RPS as of De-cember 1998. There is also growing support for im-plementing a European Union target of doubling themarket share of renewables to 12 percent by 2010,with a credit trading system already implemented inthe Netherlands.99

The RPS has proven politically attractive becauseif combines the use of a market-based mechanism tosolve a “market failure” (i.e., it puts a competition-based price on the “green” in green electricity) with apublic policy commitment to a sustainable energyfuture. State legislators have recognized its economicdevelopment and environmental benefits, while a

growing number of federal legislators see it as a wayand of supporting an emerging domestic industry anddecreasing the expense of reducing greenhouse gases.

The Elements of the RPS. The renewables port-folio standard includes two elements: a standard thatspecifies what percent of a utility’s electricity mustcome from renewable resources, and renewable en-ergy credits that the utility acquires as a result of ob-taining energy from those renewable sources.

The standard is simple: it requires that a certainpercentage of all electricity used in the United Statesmust come from renewable resources. That meansevery retail provider and generator of power wouldneed to demonstrate once each year that a portion ofthe power they provided came from renewables. Theamounts proposed in state and federal bills vary, butthey typically start by preserving existing levels ofrenewables (around 2–3 percent nationally) and thenincrease that amount to 4–10 percent by 2010, and intwo cases to 20 percent by 2020.

Renewable energy credits (RECs) correct the biasagainst renewable energy in the electricity market bymaking sure that renewable generation companies re-ceive payment for the public benefits they produce.The fact that environmental and other benefits are notrecognized in the cost of power is the starting point

for creating a new com-modity that representsthose benefits. That com-modity is the renewableenergy credit.

When a fossil fuel ornuclear power plant oper-ates, it is really creatingmany products: the elec-tricity itself and all thebyproducts, like air andwater pollution, hazardousand radioactive waste, therisk of meltdown, and soon. Customers only payfor the electricity. Societypays for the byproductsthrough a host of unac-knowledged costs: healthproblems, environmental

Figure 13. State Minimum Renewable Energy Requirements

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degradation, subsidies for oil and gas production,limits on liability for nuclear power plant operators,and many others.

When a renewable power plant runs, like con-ventional plants it creates electricity, but unlike themit also creates a reduction of pollution, waste, andrisk. The “byproducts” are cleaner air and water, lesswaste, reduced fuel imports, and lower risk of cata-strophic accidents. When customers buy electricitygenerated from renewable sources, they pay only forthe power and society pays nothing. Renewable en-ergy generators sell cleaner power, but are paid onlyfor power.

With renewable energy credits, renewables com-panies will have a new product that represents theclean. That is, RECs represent all of the renewableenergy benefits that electricity markets ignore, in-cluding environmental and energy security benefits.Table 3 outlines the “value” of a renewable energycredit, listing many of the benefits of renewablepower that are “free” to society, because nobody ispaying for them. But unless someone starts paying forthem, many of these generators will go out of busi-ness and the benefits will be lost. By turning thevalue of renewable energy into a commodity tradedseparately from energy, RECs make that value clearlyevident. The renewables premium is no longer hiddenin the overall price of a renewable kilowatt hour.

Every unit of renewable energy generated andsold would create one renewable energy credit. AREC could take the form of a piece of paper, like acurrency. It would list the number of kilowatt-hours,the year and state of origin, and the type of generation(solar, wind, etc.). Since renewable generation com-panies produce the power, they would be the originalowners of RECs. Electricity providers could purchasethese RECs to fulfill their compliance requirements.RECs could also be traded electronically, like stock.

The success of the sulfur dioxide emissions-trading program, instituted by the Clean Air Act, hasshown that a systems of allowance and credit tradingcan be effective, easy to administer, and cheap. Thesulfur-trading system works like this: every powergenerator must meet a certain cap on emissions ofsulfur dioxide, a key source of acid rain. To meet thecap, generators can either invest in pollution-controldevices (like scrubbers), buy cleaner coal, or buycredits from other generators. If they “overcomply”with the cap—that is, if they stay well under the cap,they can sell their extra credits to generators thatwould find meeting the cap too expensive.

The RPS applies the same logic to meeting therenewables content standard. A company on thewindy Great Plains, for example, may find it easy toovercomply with the minimum renewables content byinvesting in wind turbines. It can then sell its extraRECs to companies that don’t have as strong a re-newable resource.

Appendix B provides further details about how anRPS might work, including information about partici-pants, setting the standard, price caps for RECs, aswell as how the RPS might interact with current lawsand regulations, with public benefits funds, and with“green pricing” measures. Appendix C describes theRPS policies instituted or proposed by state and fed-eral governments as of September 1998.

What the RPS would accomplish. The RPS isdesigned to ensure the sustained orderly develop–ment of renewable energy technologies.100 Steady,predictable growth will enable the industry to reducecosts by obtaining lower-cost financing, investingin research and development, and developinginfrastructure—from new manufacturing plants tomaintenance, repair, and marketing capacity.

TABLE 3The “Value” of a Renewable Energy CreditConsumers typically do not pay for these benefits ofrenewable energy generation. Renewable energycredits—whose cost all consumers will share—willembody these benefits.

• Less air pollution, water pollution, solid waste,radioactive waste, etc.

• Less exposure to fuel price swings and supply dis-ruptions as a result of multiple fuel sources

• Local economic development

• Technology development benefits, including ex-port potential

• Long-run national energy independence

• Steps toward a sustainable energy system

• A more robust transmission and distribution sys-tem as a result of distributed generation


The RPS will also reduce renewables prices byusing market forces to create competition among re-newables developers and providers to meet the stan-dard at the lowest cost. Marketers would have astrong incentive to find the lowest-cost renewables inorder to keep their prices down. The RPS will there-fore enable those renewables that are most commer-cially ready—typically wind, biomass, or geothermaltechnologies—to become an integral part of the elec-tricity market.

And the RPS minimizes administrative judgementin picking winners and losers among renewables de-velopers and technologies. Instead, the market makesthose decisions. The policy thus avoids substitutingbureaucratic judgement for market discipline andminimizes political influence in determining com-mercial success or failure.

Public Benefits FundingAnother way of preserving the public benefits of re-newable energy is to create a direct funding mecha-nism for renewables in the restructuring process.Public benefits funding can be provided from feesplaced on electricity companies or customers. Suchfees are sometimes referred to as “system benefitcharges” and are analogous to funding mechanismscreated during both long-distance telephone and air-line deregulation. A fee on long-distance calls, forexample, helps to preserve universal telephone serv-ice. A surcharge on all airline tickets helps supportairport maintenance and air traffic control. TheUnited Kingdom created a Non-Fossil Fuel Obliga-tion (NFFO) levy to fund renewables when electricitywas deregulated there in 1990.101 Public benefitsfunding has been proposed to cover not only renew-able energy, but energy efficiency programs, researchand development, universal service, and other low-income protections.102

As of December 1998, seven states have adoptedlaws or regulations implementing public benefitsfunding for renewables. (See Appendix D for com-parison among states.) Two states, Pennsylvania andNew Mexico, have individual utility commitments,with a statewide regulation pending in New Mexico.Collectively, these states have committed approxi-mately $1 billion over the next ten years. Based on

extrapolation from California’s experience, thesefunds are likely to leverage around $2 billion in pri-vate investment, and lead to the development of over1,000 MW of new renewables capacity (Note: thisfigure does not include Connecticut or Massachusetts.For the sake of the analysis, new renewable genera-tion in those states is attributed to their renewablesportfolio standards. See previous section).

Such a direct funding mechanism has someunique advantages for preserving the public benefitsof renewables. First, funds can be allocated wherethey are likely to be most effective. For example, theycan be directed toward technologies that have greatlong-run potential, like solar photovoltaics, but thatwill not be immediately competitive even with otherrenewables. These technologies will have a difficulttime competing for market share even with a Renew-ables Portfolio Standard. On a state level, funding canbe targeted toward resources that provide specialbenefits to that state. For example, a state with ex-cellent solar resources or with many photovoltaicmanufacturing companies could target more of itsfunding to photovoltaics. A state with wind resourcescould use the fund for wind resource assessment,collaborative projects to identify and overcome ob-stacles to siting or permitting, or directly for windproject development.

Second, public benefits funding allows the levelof the support for renewables to be precisely defined.Unlike tax credits, which may never be used if notstructured appropriately, public benefits funding canassure a minimum level of market activity and renew-ables development. At the same time, the total cost ofthe program is limited by the funding levels provided.

Level of the Fund. Ideally, the level of publicbenefits funding should be set according to the spe-cific objectives of the programs to be funded.

Thus far, states that have passed restructuringmeasures have generally set funding levels for publicbenefits programs at about the same level the utilitieshad provided before restructuring. Some states havereduced funding for energy efficiency somewhat, butincreased funding for renewables, on the assumptionthat the market would stimulate more efficiencyinvestment, especially for commercial and industrialcustomers.103


Restructuring is an opportunity for optimizing theenvironmental performance of the electricity industry,however, not just an opportunity for preservingfunding levels at an arbitrary or historical level. Thefunding levels adopted in Connecticut and Massachu-setts are close to the level UCS had recommended,based on an analysis of commercialization needs forrenewable technologies with potential for New Eng-land.104

Duration of the Fund. Stable, long-term fundinglevels are especially important for renewables, so thatdevelopers can secure long-term financing at favor-able rates and manufacturers will consider investingin new plants. The market is likely to continue to ig-nore the environmental benefits of these technologiesuntil pollution costs are internalized either throughemission taxes or fees or through comprehensivepollution caps. Thus indefinite funding periods arewarranted. Funding levels should be reviewed peri-odically based on ongoing evaluations of market bar-riers to the technologies.

As of September 1998, several states had estab-lished public benefits funds for renewables that didnot include sunset provisions. Other states, however,set terms of three to five years for both renewablesand energy efficiency funds.

Structure of the Charge. Most of the publicbenefits funds adopted and proposed at the state levelcharge distribution company customers a fee for eachkilowatt-hour of electricity consumed. Such a distri-bution-related charge is both efficient and fair. Theenvironmental, fuel diversity, and indirect economicbenefits of public spending on renewables (and en-ergy efficiency) are related to the energy usage ofcustomers. Customers who use more energy are in ef-fect responsible for causing more emissions, so it isreasonable for them to contribute more to developingand commercializing new clean technologies. Fund-ing to support universal service in electricity andtelecommunications has also generally been based onusage. Federal proposals for public benefits fundshave also been based on usage, placing the charge ontransmission sales, where federal regulators have

jurisdiction. Illinois, however, has assessed fundingby a flat monthly charge per customer (see AppendixD).

Administering Entity. States have generally cho-sen either state energy offices or economic develop-ment agencies to administer renewables funds. Wherestate energy agencies have been charged with thisduty, they had significant renewable energy develop-ment programs prior to restructuring. Designation ofeconomic development agencies to implement thefunds reflects an intention to stimulate new renew-ables business development in those states. Wherefunds are used primarily for energy efficiency, distri-bution companies generally retain responsibility—with oversight by the utility commission—for fund ad-ministration.

Funding Strategies and Mechanisms. One ofthe advantages of public benefits funding is the vari-ety and flexibility of options for structuring the funds.Funding can use market mechanisms, such as com-petitive bidding, or can rely on judgment to determinethe most effective applications. Or these approachescan be combined.

One proposed market mechanism is the “auc-tioned renewables credit.”105 All renewables wouldbid against each other for financial support from thefunding pool per kWh generated, with awards to thelow bidders. Like the renewables portfolio standard,this approach would favor those technologies closestto competitiveness. Bidding could also be structuredto ensure support for a variety of technologies or toensure winners within designated technology catego-ries.

California has classified technologies as belong-ing to one of three tiers based on their competitive-ness and has set different levels of support for eachtier. The Massachusetts trust fund was authorized bythe state legislature to leverage private investment tocreate a larger pool of capital and to familiarize pri-vate investors with renewable energy. Appendix Dprovides more details about state public benefitsfunds adopted through 1998.

Many other funding mechanisms are possible.Table 4 illustrates possible applications of publicbenefit funds for renewables.


Funding could also be used to support renewableenergy business development directly. (Indirectly, ofcourse, any funding for renewables will provide somecompany support.) Funding for installation, opera-tion, and maintenance of renewable energy technolo-gies will generally bolster local businesses where therenewable energy is consumed. The Sacramento Mu-nicipal Utility District used a request for proposals toencourage establishment of a local facility to manu-facture photovoltaic panels. Since the objective ofany renewables support should be to create a self-sustaining industry, fund managers may also want toconsider involving commercial financing institutionsas partners.

State funds must be structured with federal op-portunities and regulations in mind. Fund managersmust be careful that state funding mechanisms do notprevent projects from also obtaining federal tax cred-its.106 And funds must be structured so as not to runafoul of the US Constitution’s Commerce Clause, asmight happen if funds from a fee placed on electricitywere to advantage in-state businesses over out-of-state competition.107

Net MeteringElectricity customers seeking to install renewable en-ergy generators, like solar panels or small wind orhydro turbines, at their own buildings often face adaunting array of barriers. Some utilities have im-posed expensive requirements for interconnectingwith the utility grid, required separate meters formeasuring the output of the renewables, and havepaid little to buy back any surplus electricity gener-ated in surplus of the customer’s needs.

Under these conditions, installed systems wouldlikely be sized not to exceed building electricity use,even when the sun or wind is at its peak. Thus, abuilding would be unable to use the renewable systemfor more than a small fraction of its overall electricityuse, since there will be many hours when the sunwon’t be shining or the wind blowing. Fixed inter-connection and metering costs would make suchsmall systems expensive and less cost-effective.

One simple policy to overcome these barriers andencourage direct use of renewables is called “netmetering” or “net billing.” This policy allows cus-tomers who produce more electricity than they areusing at a given moment to feed the surplus directlyinto the grid and run their single electricity meterbackward. The customer is billed only for the netelectricity consumed. In effect, the customer is trad-ing surplus electricity to the utility at the same ratethe customer buys electricity from the utility. In somecases, net billing is calculated over an entire year.Customers that produce more power than they con-sume over the billing period must usually sell the sur-plus power back to the utility at the wholesale marketprice.

With net billing, it makes sense to size the renew-able system closer to the average use of the building.The overhead expenses of installing, reading, andbilling for a separate meter are avoided. The renew-able investment becomes much more cost-effective.

Net metering can mean some revenue loss for theutility. Individual renewables systems are still expen-sive enough, however, that they are not likely to beused by many customers and are unlikely to havemuch overall effect on utility revenues. An analysisof net metering in California found that the savings to

TABLE 4.Possible Applications forPublic Benefits Trust Funds• Aggregate projects that are too small to attract

commercial lenders in order to reduce transac-tion costs

• Provide low-cost financing or financing guaran-tees where financing is difficult to obtain

• Provide equity financing, grants, production in-centives, or buydowns of a portion of a project’scost

• Build infrastructure and reduce developmentcosts, such as siting studies for wind farms

• Develop uniform standards for siting, permitting,and connecting with the electricity grid

• Familiarizing potential customers with the bene-fits of renewable technologies

• Provide incentives, such as rebates or bill credits,to establish markets for new and unfamiliar prod-ucts

• Directly fund installation, operation, and main-tenance of renewable energy technologies


the utility from avoiding the extra meter reading andbilling would be about the same as the revenues lostfrom net metering.108 Net billing can provide addi-tional benefits to utilities, by encouraging distributedgeneration. (See section on Fair transmission anddistribution rules.)

Concerns about revenue losses to utilities couldbe addressed by placing a cap on the number of eligi-ble customers. In California, a limit of 0.1 percent ofthe peak electricity demand of each utility wasdeemed eligible for net metering. While this limit issmall, it still allows for considerable expansion of thenumber of customer-owned renewable facilities. Cali-fornia, Maryland, Vermont, New Hampshire, Wash-ington and New York adopted net metering during1996–1998. Maine, Massachusetts, and Rhode Islandreaffirmed their net-metering policies under restruc-turing regulations. Despite a challenge from its utili-ties, Maine broadened its net metering policy, movingto yearly averaging for net billing.109 As of 1998, atleast 21 states have allowed net metering by law orregulation. In two other states, utilities have volun-tarily implemented net metering programs (See figure14 and Appendix E).110

Many states adopted net metering as part of im-plementing federal PURPA standards. With repeal ofPURPA under consideration at the federal level,inclusion of net metering under state legislation,

enacted with or independent of restructuring, couldput net metering on a more stable footing.

In October 1998, however, the Mid-AmericanEnergy Company, in Iowa, challenged that state’snew net metering statute at the Federal EnergyRegulatory Commission. The utility argued that netmetering constitutes a forced purchase of electricityat a set price, a practice FERC has previously prohib-ited.111 Environmental and renewable energy advo-cacy groups have intervened to defend net meteringas sound policy falling squarely within state, ratherthan federal jurisdiction.

Fair Transmission and DistributionRules

Some have argued that a revolution in the way wemake and move electricity is developing. New gen-eration technologies—like fuel cells, photovoltaics,wind turbines and natural gas microturbines—areavailable in small modular units that can be sited in,on, and around buildings where power is used. Many“distributed” technologies also create waste heat thatcan be easily used on the spot for water and spaceheating, boosting their efficiency. These distributedtechnologies already offer an economical alternativeto building large central station power plants and newpower grids in remote areas that do not have trans-mission and distribution (T&D) systems. As the

prices of the new technologies fall, theymay completely reshape existing powernetworks as well. As discussed inChapter 1, distributed generation tech-nologies can provide substantial non-traditional benefits to utilities and theircustomers.112

Recognition of the added value thatdistributed technologies can provide canbe critical for new technologies enteringthe market. UCS’s 1995 Renewing OurNeighborhoods study looked at theBoston Edison service territory andcompared the cost of upgrading the ag-ing transmission and distribution systemin certain neighborhoods with the costof installing renewable technologies.Even though renewables tend to be

Figure 14.

Source: Yih-huei Wan and H. James Green, NREL , Current Experience With Net Me-tering Programs, WINDPOWER '98, Bakersfield, CA, April 27 - May 1.


higher priced than central station power, UCS foundthat some renewable technologies may already becost-effective in areas where particularly expensivetransmission and distribution investments can beavoided.113 Studies in other parts of the country havefound similar results.

In a study of potential early markets for solarphotovoltaics, the Utility Photovoltaic Group foundthat the potential US market for photovoltaics at acost of $3 per watt is as high as 7,630 MW for dis-tributed power applications, compared with 1,130MW for the potential “green market” at this price.114

Of course, photovoltaics is not likely to capture mostor all of the potential distributed market. It mustcompete with other distributed technologies whichcan provide “distribution services.” These includedistributed electricity storage, such as batteries, anddemand-side management technologies, such as en-ergy efficiency investments, which can reduce de-mand in targeted regions or neighborhoods, extendingthe usefulness of existing distribution equipment.

Because many renewable energy technologiesoperate intermittently when the sun is shining or thewind blowing, there are added difficulties in valuingtheir output fairly. Traditionally, the reliability valueof an electricity generator is based on the maximumoutput that can be turned on, or “dispatched,” by thesystem operator, especially during periods of peakelectricity demand. Because individual renewablegenerators may not be dispatched at will, and cannotbe guaranteed to be available during peak times, theyhave frequently been assumed to have zero reliabilityvalue.

There is often, however, a relatively consistentrelationship between the output of an intermittent re-newable and the level of electricity demand overtime. Solar output, for example, tends to be high onmid-afternoon on hot sunny days, which is oftenwhen air conditioning use is also high. Utilities havelong used statistical methods to allocate costs toclasses of customers based on a tendency to use elec-tricity more during high-cost vs. low-cost periods.Similar methods can be used to allocate benefits tointermittent generators based on a tendency to

produce electricity during high-value or low-valueperiods.

Few utilities have closely examined the reliabilityvalue of intermittent renewables for their systems.Fewer still have looked at the potential value of re-newables in reducing peak demand on their distribu-tion systems. Because the mix of customers and thetimes they use electricity may vary greatly from oneneighborhood to another, the value of intermittenttechnologies in deferring or avoiding transmission ordistribution expenditures may vary greatly from loca-tion to location.

In order to realize distributed technology benefits,however, electricity distribution companies mustvalue distributed technologies fairly and be willing toinvest in them or encourage their customers to investin them when they can reduce system costs. Tradi-tional cost-plus regulation has not necessarily encour-aged least-cost distribution planning. Also, becausemethods to value distributed generation in planningdistribution systems are new, few utilities have yetadopted them. Utilities are beginning to show greaterinterest in distributed resources, however.115

A restructured industry presents new opportuni-ties and barriers for distributed generation.116 A morecompetitive industry is likely lead to specific identifi-cation of cost centers and profit opportunities. Loca-tion-based transmission or distribution rates, whichwould be higher where there is congestion, could leadto generation being sited in areas where it has greatervalue. Independent companies that could profit fromproviding distributed generation services would havea strong incentive to seek out potential opportunities.

On the other hand, the separation of vertically-integrated utilities into separate functional units orseparate companies providing generation, transmis-sion, distribution, and retail marketing services maymake it harder to identify the integrated value a dis-tributed technology provides in each of these areas. Itis uncertain which market players will have the re-sources and incentives to make the investments toavoid a combination of generation, transmission, anddistribution costs faced by other market players. Atransition to location-based distribution pricing,where separate distribution prices would be charged


to different neighborhoods based on local costs,would raise significant equity issues. Residents in aneighborhood with aging distribution facilities (whoshared the cost, under regulation, of upgrading distri-bution facilities in other neighborhoods) may well re-sent seeing distribution price increases designed toinduce local distributed generation.

And just as some utilities have avoided investingin new power plants that risked making existingpower plants economically obsolete, some companiesmay resist distributed technologies that could com-pete with their existing transmission and distributioninvestments. In many cases, therefore, legislators orregulators may need to establish appropriate rules andincentives.

Many states that have shown some interest inthese issues have been preoccupied with overall in-dustry restructuring. There is therefore little experi-ence to draw on at this time.

Connecticut and Massachusetts have addresseddistributed technology issues in their restructuringprocesses. Connecticut’s restructuring law requires“demand-side management” expenditures to be con-sidered as alternatives to distribution expenditures.Demand-side management generally refers to tech-nologies to reduce electricity demand, like energy ef-ficiency investments, or to methods that shift demandfrom one period to another. Distributed generationtechnologies installed in customer buildings also re-duce the system demand for electricity, however, andcould be included in regulations developed to imple-ment the Connecticut law.

In Massachusetts, the Department of Telecom-munications and Energy has stated that distributedgeneration will be considered as part of performance-based ratemaking proceedings. This policy, as an al-ternative to cost-of-service regulation, seeks to induceutilities to reduce costs and improve performance bylinking incentives to specific performance measures.

Performance-based ratemaking in Massachusettsand elsewhere has generally been implemented with aprice cap. Under a price cap per kilowatt hour,distribution companies have an incentive to sell morekilowatt hours to increase total revenues. Price capsprovide disincentives to reduce sales through distrib-uted generation or energy efficiency investments. In

contrast, under a revenue cap, total company revenuesare fixed, and a company does not lose revenues fromdistributed technology investments. Prices are ad-justed periodically to make up for any unanticipatedrevenue shortfalls or surpluses. Therefore, a companydoes not lose revenues or profits if it encourages re-duced electricity demand through energy efficiencyor distributed generation. Oregon has adopted a reve-nue cap.117

In California, environmental organizations andrenewables companies have petitioned the PublicUtilities Commission to establish distributed genera-tion regulations. As of November 1998, however, noformal action on the petition had been taken.

One way of ensuring appropriate investment indistributed technologies would be to require regula-tory review of transmission and distribution planningdecisions. Such planning reviews would be analogousto “Integrated Resource Planning” (IRP) for genera-tion, extended to the distribution planning level. In-vestments in the distribution system would be re-viewed to ensure they have invested in the mix ofdemand-side and supply side options that provideelectricity at the lowest cost.) While there has been atrend to reduce IRP regulatory review in favor of in-creasing competition in generation, it may be appro-priate to retain it for regulated transmission and dis-tribution companies.

Distribution IRP would be somewhat more com-plex than generation IRP. Generally, however, com-panies will be planning major transmission or distri-bution investments in only a few areas at any giventime, thus limiting the complexity of the review. Onepotential model for distribution-level IRP has beendeveloped for the Boston Edison Demand-Side Man-agement Settlement Board.118

One way to insert distributed generation into theplanning process would be to require distributioncompanies to competitive bids for distribution serv-ices where new investment is required. Distributedtechnology providers could then compete against tra-ditional equipment upgrades. Another approachwould be for the system owner to offer incentives fordistributed generation in specific parts of the systemthat are weak or overtaxed.


One important issue likely to affect utility activi-ties in distributed technology is whether they can owndistributed generation.119 Distribution company own-ership of these technologies raises antitrust and anti-competitive concerns. There has been some concernthat allowing utility ownership could undermine thedevelopment of distributed generation by seeking tobe monopoly providers of distributed generationtechnologies. On the other hand, allowing ownershipof distributed generation provides them with an in-centive to become active in this area. Massachusettshas explicitly allowed distribution companies to owndistributed generation.

Transmission Rules. Renewable energy genera-tors’ unique characteristics pose challenges to de-signing fair transmission rules and prices. Renew-ables generators must be located where the naturalresources are, and sometimes must be transmittedlong distances. The intermittent output and low ca-pacity factor of some renewables creates operationalissues for the transmission grid (i.e., having backupcapacity if the wind suddenly stops blowing) andpricing issues similar to those covered above withdistributed generation.

In 1996, the Federal Energy Regulatory Commis-sion (FERC) Order 888 required utilities to maketransmission available to all generators and custom-ers.120 FERC has also encouraged the formation of In-dependent System Operators (ISOs), groups of multi-ple stakeholders to control the operation of thetransmission network. These developments shouldincrease renewables generators’ access to customers.It should also reduce multiple transmission charges,known as “pancaking,” when power is transmittedacross more than one utility system and each utilityexacts a toll.

Transmission service is typically specified asfirm or nonfirm, with nonfirm service moreinterruptible in cases of transmission constraints.FERC did not specify how transmission prices shouldbe set, but proposed that all firm transmission servicebe based on reservations of transmission capacitymade at least one day in advance. Generators wouldpay for reserved transmission whether or not theyused it. They would be subject to penalties if they

exceeded or fell short of their reservation by morethan 1.5 percent.121

This requirement would heavily penalize inter-mittent generators like wind and solar, where it ishard to predict output accurately a day in advance. Ifit turns out to be windier than predicted, and notenough transmission capacity is reserved, the windgenerator could be unable to sell all the electricitygenerated. If it were less windy than expected, thegenerator would be stuck paying for unused transmis-sion. Ideally, generators would be able to resell re-served transmission capacity that they could not use,but this secondary market has not really developed.Renewables generators would have to resell transmis-sion capacity at the last minute, making it unlikelythey would get a good price, and transaction costswould be high. Renewables generators could, how-ever, bundle their output together with power sourcesthat can be turned on and off as needed, such as gasturbines. But requiring such bundling would reducegenerator and marketer flexibility and might raise to-tal costs. 122

Generators could also buy non-firm transmissionservice without a reservation. However, buyers ofnon-firm service can have their transmission inter-rupted if the lines get congested. And lenders maycharge higher financing costs if renewables genera-tors do not have firm transmission contracts.123

The formation of ISOs, with multiplestakeholders, has created pressure for more flexibilityand options in transmission service, which may bene-fit renewables. ISOs that include power exchanges—spot markets for electricity sales—plan to charge spotmarket prices for transmission that is higher or lowerthan scheduled amounts, for example. California iscurrently operating in this manner.

However, as of the end of 1998, most ISOs arestill in the process of formation, with their makeup,governance, rules and pricing still under develop-ment. The ISOs in formation generally do not includepower exchanges.124

Some early ISO proposals have some negativeimplications for renewables. A Southwest proposalwould require generators who want nonfirm transmis-sion service to have backup reserve capacity. A New


England ISO proposal would impose “nonusage”charges for both firm and non-firm transmissionservices.125

Another transmission issue affecting renewablesis the pricing of “ancillary services” needed to main-tain system reliability, such as reserve generating ca-pacity to compensate for plant outages. The wind in-dustry has supported continued cost-based regulationof these services by FERC, although some analystssuggest that market-pricing may provide more flexi-ble services for renewables.126

Some ISOs have proposed “postage stamp”rates—one price for transmitting power from any-where within a region to any other point within theregion. Others have proposed “megawatt mile”charges that vary with distance. Congestion chargeproposals also vary. The impact of these proposalswill vary with specific renewables projects. Gener-ally, transmission costs do not increase linearly withdistance, so loading all transmission charges onto amegawatt mile may not treat remote projects fairly.Having many small “postal zones” could have asimilar or worse effect, however.

An analysis by the Lawrence Berkeley Labora-tory (LBL) shows charging for unused transmissioncapacity can raise the cost of the entire electricitysystem. LBL developed a two-tier pricing system,which bases transmission access charges on energytransmitted and congestion charges on capacity reser-vations. The access charges would be used to coverfixed costs—80 to 90 percent of network costs. LBLshows that this pricing scheme would lead to a least-cost technology mix, as well as reducing the penaltyfor intermittent renewables, without creating a specialcondition for them. 127

Fair Pollution RulesOne of the main goals of utility restructuring is to in-crease competition in electricity generation. With in-creasing competition, investment decisions will beguided by market forces. Investors will bear risksthey were often insulated from under regulation, suchas investing in generation that turns out to be un-needed or uneconomical.128

To an extent, investors will bear added environ-mental risks in a more competitive industry. With

evolving environmental regulations, investors in apolluting technology must assume the risk that newlyrequirements for cleaning up emissions could maketheir plant less competitive in the future.

There are two major reasons, however, that mar-ket forces will still lead to investment decisions thatare uneconomic and that harm the environment. First,as discussed in Chapter 1, damage from pollutionproduces external costs to society at large rather thandirectly to the investors in the polluting plant or theconsumers who buy electricity from the plant. Neitherinvestors nor consumers have the incentive to makedecisions that would mean the lowest total costs foreveryone, and overall economic efficiency will not beachieved unless policies are implemented to recog-nize the “externalities.”

Second, under current environmental regulations,some plants are allowed to emit more pollutants thanother plants. Plants that are allowed to emit morepollutants will have lower costs for pollution controlsor for mitigation, so they can operate less expensivelythan plants facing tougher pollution limits. To theextent that some of these cheaper, dirtier plants arenot used to their full capacity before markets open up,they could sell more electricity and increase totalpollution.

Under the Clean Air Act of 1970, existing powerplants were exempted from meeting emission re-quirements placed on new power plants. The “grand-fathering” exemption was continued in the Clean AirAct Amendments of 1977 and 1990. The main rea-sons for exempting older plants appear to have beenthat installing pollution controls would be more ex-pensive for older plants and the belief that existingplants were likely to be retired and replaced bynewer, cleaner plants over time.129

Instead, most older coal plants have continued tooperate. New “life-extension” technologies allowedolder fossil plants to continue operating at a lowercost than building new plants. Now fully a quarter ofthe nation’s fleet of fossil and nuclear plants are morethan 30 years old, with some coal plants dating backmore than 50 years.130

The correlation between age and emissions is notperfect—there is, with a number of old plants pollut-ing less than some newer plants. But some older coal


plants emit up to five times as much sulfur dioxide(SO2) as any post-1975 plant, for example. On aver-age, coal plants built before 1976 emitted more thantwice as much SO2 and almost twice as much nitrogenoxides (NOx) as newer plants in 1996.131

The disparity in emissions leads to distortion inthe electricity market price. According to an analysisby Synapse Energy Economics, if older plants had toclean up emissions of SO2 and NOx to the level typi-cally required of new plants, the average cost of oper-ating and maintaining the existing coal plants wouldincrease by nearly 1 cent per kWh, from 2.1¢ perkWh to almost 3¢ per kWh. The total added costs foremission controls on each plant would by $9.2 billionper year, although market mechanisms such as fuelswitching, improving efficiency, or allowance tradingcould reduce these costs. Total emissions of both NOx

and SO2 would be reduced by about 75 percent.132

Under this scenario, about 6 percent of coal-firedgeneration would become uneconomical comparedwith natural gas generation.133 There would be littleeffect on CO2 emissions, because most of the emis-sion reductions would come from pollution controlsinstead of switching to cleaner fuels. Under a sce-nario that also includes a tax of $10 per ton of carbondioxide (CO2), however, almost a third of current coalgeneration would be unable to compete with newnatural gas plants, unless the coal plants could reducecosts or improve efficiency.134

The carbon tax scenario illustrates the benefit ofreducing multiple pollutants simultaneously, insteadof one after the other. If no consideration is given tocarbon reductions along with SO2 and NOx reduc-tions, billions of dollars could be invested installingpollution controls on coal plants that could becomeuneconomical if subsequent reductions in carbonemissions are required. If limits on CO2 were are putin place along with SO2 and NOx reductions, then anintegrated emissions reduction strategy could takeadvantage of opportunities for replacement by cleanergenerating sources—achieving total emissions reduc-tions at lower cost.

The 1 cent per kWh disparity in costs between theaverage operating costs of older coal plants and whatit would cost to meet emission standards for newplants underlies the danger that deregulating electric-

ity generation could lead to greater overall emissions.Utilities or customers could seek to buy power fromcheaper, dirtier plants within a region or from outsideit.

An analysis by the Federal Energy RegulatoryCommission concluded that open electricity marketswould not significantly increase pollution. FERCtherefore declined to require environmental mitiga-tion in its Order 888 opening up wholesale markets.The FERC analysis did find, however, that undersome conditions, pollution from midwest plants couldincrease by more than 30 percent by 2010, an in-crease greater than all the pollution currently emittedby northeast plants but FERC attributed most of theadded emissions to increasing competition and salesthat would occur even without Order 888.135

FERC’s analysis was criticized as underestimat-ing potential pollution increases by environmentalgroups, northeast environmental regulators and gov-ernors, and the US EPA. Perhaps most importantly,even in its worst case, FERC assumed that transmis-sion constraints would greatly limit exports of coalgeneration from the Midwest. Increasing market ac-tivity could lead to investments in improving trans-mission efficiency or increasing capacity however. Apreliminary analysis by Northeast environmentalregulators found that net power exports in 1996 fromone large Midwest utility exceeded FERC’s high-caseprojection for the entire Midwest for year 2000, andthat generation increased at a number of high-polluting Midwest coal plants. 136

The EPA took important steps in 1997 and 1998to tighten emission regulations which should reduceemission disparities. They revised standards forozone and particulates and established NOx “budgets”for 22 midwestern and eastern states assumed to con-tribute most to polluting downwind neighbors, re-quiring all plants to average meeting “new source”standards during the peak ozone season. These meas-ures are not expected to eliminate the disparities andwill not take effect until after 2003 for the NOx budg-ets, and even later for the new ozone and particulatestandards.

Several mechanisms have been proposed to fur-ther reduce or eliminate these inequities in allowedpollution levels:


• emission performance standards

• cap and trade regulations

• emission taxes and fees

Emission Performance Standards. There areseveral variations of proposals to establish compara-ble emission standards for all electric generators,eliminating the disparities between plants of differentages or in different locations. Uniform standardscould be applied to the average of all plants owned orcontrolled by a company, or to each plant or boilerindividually. In certain respects, application to eachboiler or plant would be simplest and, importantly,would provide emission reductions to all communi-ties near power plants. But this approach would alsobe less flexible and more expensive than allowing av-eraging or trading among plants, and states couldprobably not be apply their standards to out-of-stateplants. Applying standards to individual fossil plantsor boilers would also not create incentives for com-panies to reduce emissions by incorporating more re-newables into their mix.

Connecticut and Massachusetts, in their restruc-turing laws, both adopted emission performance stan-dards for the generation portfolios of retail suppliersserving customers in those states. These laws apply tothe overall mix of power plants, including importsfrom outside the region.

The Massachusetts law requires the Departmentof Environmental Protection to study emission per-formance standards for all harmful pollutants, withstandards for at least one pollutant to be in place nolater than 2003. If another state adopts standards be-fore 2003, Massachusetts may emulate those.

Connecticut required its Department of Environ-mental Protection to establish standards by the end of1998 for sulfur dioxide, nitrogen oxides, carbon di-oxide, carbon monoxide, and mercury. However, thestandards are not to go into effect until three north-east states with a population of at least 27 millionpeople (i.e., Connecticut, Massachusetts, and NewYork) have adopted the same standards.

A Vermont bill, which has passed the state sen-ate, would establish portfolio requirements for allsignificant environmental impacts.

Because they are applied to retail supplier port-folios, emission performance standards are similar torenewables portfolio standards. Additional incentivescan be created for renewables, and potentially for en-ergy efficiency investments, by allowing suppliers toinclude those resources in their portfolios as a meansof lowering overall portfolio emissions.

Cap and Trade. Emission caps are limits on thetotal amount of emissions of a particular pollutant ina region or nationally. The Clean Air Act Amend-ments of 1990 created a national cap for utility sulfurdioxide emissions of 6.3 million tons per year (abouthalf of 1980 levels), covering 110 of the largest sulfurdioxide emitters. In the year 2000, Phase 2 of theamendment will expand the program to hundreds ofsmaller fossil fuel plants and change the cap to 8.95millions tons per year. The EPA is also consideringanother reduction in the cap in the year 2010.137

To meet the caps, utilities can trade emissionallowances or credits. Allowances are permits thatallow an electric generator to release an air pollutant.If a utility overcomplies with emission limits, it willhave excess credits that it can sell to other polluters,providing an incentive for companies to reduce emis-sions below mandated levels.

Currently, a national market for tradable permitsis in place for sulfur dioxide emissions. Thirteenstates have trading mechanisms for volatile organiccompounds or NOx credits, and the EPA has encour-aged the 37 easternmost states (known as the OzoneTransport Assessment Group or OTAG) to establish acap and trading system for NOx.

Regional “cap-and-trade” programs could beimplemented through the new entities that controlutility transmission systems, called independent sys-tem operators or ISOs. Richard Cowart, chair of theVermont Public Service Board, has proposed that anygenerator that wants to sell power in a region wouldhave to earn or buy enough emission allowances togain access to the transmission system. 138, 139 Gen-erators with high emissions would have to buy creditsfrom those with lower or no emissions. Those withlow emissions would earn credits, gaining access forlow or no cost. The ISO would dispatch generators soas to avoid exceeding a regional emissions cap.


Cap-and-trade programs can be very economi-cally efficient. The national SO2 allowance tradingsystem has been widely credited with producingemissions reductions at a cost far lower than almostanyone anticipated.140 Cap and trade programs aregood solutions when they can be implemented over ageographic area affected by specific emissions. ForCO2, which affects warming over the entire globe, aninternational cap and trading program is appropriate.But for emissions with localized impacts, such astoxic metals, trading programs could produce heavilyimpacted local areas. Trading programs cannot beeasily applied by a state to out-of-state sources.

Cap-and-trade programs require a fair means forallocating allowances among generators. The nationalSO2 trading system has been criticized for awardingallowances based on historical emissions, rewardinghigh emitters and penalizing low emitters and newmarket entrants, which receive no allowances andmust buy them from the market. Also, apart from apool of 300,000 bonus allowances created for energyefficiency and renewables, these resources do notcreate additional credits or allowances for independ-ent developers. Renewables generators receive no di-rect benefit for their potential emission reductions. 141

The reduction in fossil generation from the added re-newables could allow fossil generators to save allow-ances to pollute more in the future, or even to in-crease their pollution rate, say, by burning a cheaper,higher sulfur fuel, while still leaving total emissionswithin the cap.

In early 1998, the EPA proposed NOx trading inthe OTAG region using a “fuel-neutral” approach, inwhich allowances would be awarded to kilowatthours generated by any source. While such an ap-proach would earn credits for renewables, it wouldalso reward nuclear generators. Many environmentalorganizations objected to nuclear generation, with itsunique environmental impacts and risks, being al-lowed to earn the same credits as renewables and be-ing provided with a substantial cash windfall. TheEPA subsequently dropped the proposal.

One solution would be to award credits only tofossil generators and to efficiency and renewables.Another might be to award credits to new non-fossilgeneration, to avoid providing windfalls to existing

sources, but stimulate the development of new proj-ects. This approach could, however, lead to a reduc-tion of existing renewables generation. Auctions ofallowances or other allocation schemes are other po-tential approaches.

On the federal level, cap and trade provisions forSO2, NOx and CO2 were included in the restructuringbill filed by Sen. James Jeffords (R-VT). Rep. FrankPallone (D-NJ) has introduced a bill with caps on SO2

and NOx. Rep. Dennis Kucinich (D-OH) would alsocap CO2, mercury, and nuclear waste. A bill spon-sored by Rep. Edward Markey (D-MA) would directthe Administration to issue a rule preventing anycompetitive advantage from grandfathered emissionstandards. The Administration bill clarifies the exist-ing authority of EPA to create a cap-and-trade pro-gram for NOx.

Emission Taxes or Fees. A third approach to re-ducing emissions and emission disparities would beto assess a tax or fee per ton of pollutant emitted.Emission taxes are generally the preferred approachof economists and many environmental organizationsfor internalizing pollution costs efficiently.142 Theyallow producers complete flexibility in whether andhow to reduce costs. They require producers of theunwanted pollution to consider the risk of increasesin pollution taxes if more stringent environmentalgoals are needed in the future. Conversely, mecha-nisms that provide special benefits to clean energyproducers generally lead those producers to considerthe risk that those benefits will be reduced or elimi-nated in a changing political climate.

One revenue-neutral method proposed for elimi-nating the disparity between old and new plantswould be to assess emissions from existing sourcessufficient to compensate owners of new power plantsfor their higher costs of meeting the more stringentnew source standards. This method might not, how-ever, actually lead to desired emission reductions inold sources.143

While sometimes favored in other countries,emission fees or taxes have proven difficult to im-plement in practice in the United States, at least on airemissions.144 Proposals for pollution taxes have beenintroduced in state legislatures in Minnesota, Ver-mont, and Wisconsin.145


Customer Information.In survey after survey, people say they would preferto receive electricity generated by clean and renew-able energy technologies, and are willing to pay morefor it (see figure 15).146 Thus allowing customers tochoose their electricity suppliers will provide newopportunities for renewable energy technologies. Butfor those opportunities to be realized, customers willneed reliable information.

A primary barrier for any new technology enter-ing the marketplace is consumers’ unfamiliarity withit. Renewables in a competitive market face a triplebarrier. First, customers do not know what sourcesare used today to generate their electricity, and whattheir environmental impacts are. Second, many cus-tomers are unfamiliar with renewable energy tech-nologies, and may have misleading impressions oftheir performance. Third, customers are unaccus-tomed to any choice of electricity suppliers, and willbe unfamiliar with many of the companies offeringnew energy choices in the marketplace.

Disclosure Label. Customers are not well-informed about how their electricity is generated.People generally overestimate how much of theirelectricity comes from renewable sources and under-estimate how much comes from polluting fossil fueland nuclear sources.147

To make sure that customers have the informationthey need to compare electricity products, the Na-tional Association of Regulatory Commissioners andothers recommend that electricity suppliers be re-quired to label their products.148 These “disclosure”labels would be analogous to the label providing uni-form information about the nutritional content of foodproducts. Research for the National Council on Com-petition in the Electricity Industry found that—tomake effective choices—consumers want and needlabels showing standardized information about price,fuel mix, and emissions, similar to the labels for in-gredients in food.149

The New Hampshire retail choice pilot program,which did have disclosure requirements, illustratedthe importance of providing uniform information onthe environmental characteristics of energy choices.Suppliers made a wide variety of confusing environ-mental claims, some of which were misleading. Forexample, one company touted electricity from itsclean hydropower plant. It did not disclose that theplant was a pumped storage facility, at which coaland nuclear energy are used to pump water into astorage reservoir during the night.150

Disclosure labels must be uniform, simple andeasy to understand. Figure 16 shows a format for thelabel developed by the Regulatory Assistance Project,

based on considerable re-search on consumer pref-erences and the effective-ness of various formats inhelping customers pick theproducts that best reflectstheir preferences.

In order to be effec-tive, disclosure rules needto have a practical mecha-nism for tracking genera-tion sales and purchases.They need not (and physi-cally cannot) track elec-trons from generators tohomes: electrons flowingin the transmission gridcannot be distinguishedfrom one another. But they

Figure 15. People Willing to Pay More for “Green” Electricity

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can determine that purchases by customers pay forcertain kinds of generators to operate and deliverelectricity to the grid. At least two kinds of workabletracking mechanisms have been proposed. Onemechanism would use the same data that electriccompanies use to settle their own financial accountsand could be implemented by the Independent SystemOperators controlling the transmission grid. Anothermechanism would use tags issued to identify thesource of generation. The tags could then be tradedindependently of kilowatt hours (like renewable en-ergy credits). The price of different kinds of tagswould be determined by the market value of the gen-eration characteristics (fuel source and emissions)represented by the tags.

The design of potential disclosure mechanismscan have major implications for renewables:

• The rules must allow disclosure of the content ofdifferent electricity products, rather than just theoverall generation mix of a company, to encour-age companies to enter the green market withnew products. Annual reporting for overall com-pany generation can then provide useful supple-mentary information to consumers.

• In order to be effective for intermittent renew-ables, disclosure should allow averaging of gen-eration over a period of time. A solar generatorcould then receive credit for surplus sales duringpeak sunny hours to offset lack of output at night.Similarly, some averaging over monthly, sea-sonal, or even annual periods, will allow windand hydro generators to sell more of their genera-tion to green customers. Without such averaging,surplus green generation could have be dumpedinto the pool during peak generation periods.

• A mechanism to track sales to power pools or ex-changes is needed to allow generators and mar-keters to be credited for the renewables fractionof sales to the power pool and enable them toearn a premium on a greater proportion of theirtotal output and facilitate green marketing.151 TheNew York Public Service Commission staff hasdesigned a mechanism for attributing green gen-eration delivered to the pool.

• Marketers prefer that disclosure be prospective,to indicate the content of electricity productscustomers will receive after they make their pur-chase decisions, as California has done. NewEngland and Illinois regulators, however, havepreferred retrospective disclosure, to ensuregreater accuracy and accountability.152

The Edison Electric Institute has proposed thatsuppliers be allowed to disclose average fuel mix ofthe regional system, rather than their specific pur-chases and sales.153 This proposal would limit thetracking needed to disclose the content of productsclaiming an environmental benefit. However, it wouldallow companies to “greenwash” especially dirty fuelmixes, by “coloring” them with the regional averagemix. Using a regional default label would also pre-vent one tracking mechanism being used both foremissions disclosure and for verifying compliancewith emission portfolio standards.

Many states are considering disclosure require-ments at the legislative or regulatory level.154 Califor-nia and Maine laws currently require that fuel sourcesbe disclosed on a customer label. Massachusetts, Illi-nois, and Connecticut require disclosure of fuel mixand air emissions, along with other standardized in-formation.155 The six New England state utility com-missions have tentatively agreed on uniform regula-tions for the region. The administration’s federalrestructuring bill includes mandatory disclosure ofprices, fuels, and emissions.

Education Programs. Providing informationabout the content of electricity supplies is a criticalfirst step in informing customers about their choices.But many customers will be unfamiliar with the envi-ronmental and health impacts of the fuel sources andemissions identified on a label.

The Oregon voluntary disclosure label includessuch information. Consumer research shows thatkeeping the label uncluttered, however, is importantfor consumers to use it. One solution, adopted byMassachusetts regulators, is to require that briefsummaries of environmental and health impacts beincluded on the back of the content label.

Environmental organizations are likely to be asource of such information in regions where


Figure 16. Disclosure LabelElectricity Facts

Generation PriceAverage price (cents perkWh) for varying levels ofuse. Prices do not includeregulated charges for de-livery service.

Average 250 kWh 500 kWh 1000 kWh 2000 kWhMonthly Use

Average 5¢ 4.5¢ 4¢ 3.5¢Generation Price

Your average price will vary according to when and how much electric-ity you use. See your most recent bill for your monthly use and Terms ofService on your bill for the actual prices.

ContractSee your contractor Termsof Service for more infor-mation

■ Minimum Length: 2 Years ■ Price Changes: Fixed over con-tract period

Supply MixWe used these sources ofelectricity to supply thisproduct from 6/96 to 5/97

Coal ............................................. 30%Natural Gas.................................. 20%Nuclear........................................ 15%Hydro .......................................... 10%Solar, Wind, Biomass.................... 20%Waste Incineration .........................5%Total........................................... 100%

Air EmissionsNitrogen oxides (NOx),sulfur dioxide (SO2), andcarbon dioxide (CO2)emissions relative to re-gional average.

Nitrogen Oxides

Sulfur Dioxide

Carbon Dioxide

Regional Average

Source: Center for Clean Air Policy, Disclosure in the Electricity Marketplace: A Policy Handbook for theStates, March 1998.

electricity choice is enacted. These organizations willrarely have the resources, however, to provide the in-formation to all customers seeking to make informedchoices.

The Pace University Energy Project is developinga method–ology for ranking the environmental qualityof products available in the electricity marketplace onbehalf of the “Green Group,” a coalition of nationalenvironmental organizations that in–cludes the Unionof Concerned Scientists. The methodology and resultsare expected to be published on the PACE web site.156

Certification. Another approach to providingimportant in–formation to customers is certification.A logo provides an easily recognizable symbol tocustomers that an independent party has determinedthat certified products are en–vironmentally superiorchoices.

The nonprofit Center for Resource Solutions of-fers a “Green-e” logo (figure 19) to products that anannual audit certifies obtain at least half of their gen-eration from renewable resources.157 The other half

must be at least as clean asthe system average. Mar-keters also agree to abideby a code of conduct in-cluding requiring disclosureof the fuel sources of allproducts, and no double-selling of renewables.158

As of October 1998, tenretail products and fivewholesale products hadbeen certified in the Califor-nia market.159 Many of theproducts initially intro-duced go beyond theminimum requirement of 50percent renewables content,with several 100 percentrenewables productsavailable. The Green-ecertification program waslaunched in Pennsylvania inJune 1998, with fourproducts from twocompanies certified by

September.160 Marketers and environmental groups inNew England are discussing introducing Green-ecertification in that region in 1999.

Some environmental groups have criticized mostinitial green electricity products marketed in Califor-nia for not prod-ucing incremental environmental im-provement.161 Beginning in the year 2000 in Califor-nia and Pennsylvania, all Green-e products will haveto include an increasing percentage of electricity fromnew renewable energy projects built after 1997, toensure that Green-e products lead to development ofnew renewables. Five of the ten retail products avail-able in Californiain October 1998claimed to supportnew renewablesprojects. Certifiedproducts will alsohave to meet thenew renewablesstandard one year

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after Green-e is introduced in any new regions be-yond California and Pennsylvania.

Other organizations are looking to certify indi-vidual generators or to develop broader assessmentsof the environmental quality of electricity products.Scientific Certification Systems has developed aprotocol for certifying generators as having low envi-ronmental impacts based on an evaluation of life-cycle impacts, from fuel extraction and processingthrough waste disposal.162

States have also considered certification. Califor-nia certifies renewable generation facilities, but notproducts in the market. Early versions of Massachu-setts restructuring bills included provisions for statecertification of green products. These provisions wereabandoned when not supported by marketers or envi-ronmental groups, because of the difficulty of comingup with appropriate standards in a legislative contextand a preference for private certification efforts. ADelaware coalition has proposed state certification ofgreen products.

Information about Renewables and CustomerChoice. Some states have also included provisions intheir restructuring laws or in accompanying bills forbroader customer education about renewable energy.

The California public benefits fund has $5 mil-lion per year allocated to customer education aboutrenewables. The statutes creating the renewablesfunds in Massachusetts and Connecticut enable thefunds to be used, in part, to increase customer knowl-edge and expertise on renewables.

These state laws also included funding for gen-eral customer education on retail choice. These pro-grams have been somewhat controversial to date.Special care must be taken to ensure that such pro-grams are unbiased, timely, and well thought out.California set up an $87 million public educationcampaign administered by the California EnergyCommission, but with a governing board consistingentirely of utilities. The program has been criticizedfor discouraging customers to leave their existingelectricity suppliers. In Massachusetts, a televisionadvertising campaign produced by the state Divisionof Energy Resources, without participation bystakeholders, began long before suppliers were ready

to offer choices to residential customers. The ads,which portrayed consumers celebrating the arrival ofchoice by conspicuously wasting electricity, were se-verely criticized by consumer groups. Jurisdictionswhere restructuring measures have not yet been en-acted have the opportunity to consider what educa-tional approaches might prove most effective andleast biased. Participation by a broad cross-section ofstakeholder groups, including independent generators,marketers, consumers, and environmental organiza-tions, should help make education efforts credible.

Putting Green CustomerDemand to WorkThe willingness of many electricity customers to paymore for renewable energy supplies can be tappedwithin any market structure. The term “green-pricing”has been used to describe programs run by regulatedutilities that allow customers to contribute to the de-velopment of renewable energy projects. “Greenmarketing” is generally used to describe offerings bycompetitive suppliers in a retail competition envi-ronment.163

As of June 1998, there were approximately 40utility green-pricing programs around the country,using a number of different models. The majority ofprograms charge a higher price per kilowatt hour tosupport an increased percentage of renewables or tobuy discrete kilowatt-hour blocks of renewables.Other programs have fixed monthly fees, round upcustomer bills, charge for units of renewable capac-ity, or offer renewables systems for lease or purchase.Average market penetration for these programs wasabout one percent, with approximately 45,000 cus-tomers participating nationally, expected to lead tonew renewables capacity of about 45-50 MW.164

Green-pricing results have varied widely, how-ever, ranging as high as three percent. Among the im-portant variables influencing success are specifics ofprogram design, the extent and quality of market re-search, the credibility of the utility, the simplicity ofthe program, the tangibility and visibility of the re-newables projects, and marketing efforts, particularlywith community organization partnerships.165

Texas has approved a green pricing rule, setting


standards for eligible renewables, green pricing pre-miums and limits on administrative and marketingcosts.166

Many environmental groups have actively sup-ported green marketing. The Natural Resources De-fense Council, Environmental Defense Fund, Centerfor Energy Efficient and Renewable Technologiesand Union of Concerned Scientists all have web sitesencouraging customers to choose renewable op-tions.167

Green marketing has begun to develop in Califor-nia and Pennsylvania. Marketers in California havecited a number of requirements for a successful retailmarket which are not fully established. Electricitysuppliers will need access to information about ex-isting customers and will need to be able to do me-tering and billing. Standard methods for switchingcustomer accounts easily will also be needed. Mar-keters have complained that it has been difficult andtime-consuming to switch customer accounts in theearly stages of the California market. 168

Most importantly, marketers have had a difficulttime competing with artificially low generation pricesoffered by incumbent utilities. In California, custom-ers who want to switch suppliers receive a credit onthe bills from their utilities equal only to the whole-sale electricity generation rate. They are free to shopfor any competitive supplier who can compete againstthe wholesale generation rate.

But competitive suppliers must not only buywholesale generation to resell to their customers, theymust also incur marketing and overhead costs. Mar-keting costs to persuade customers to switch suppliersin California have exceeded $100 per customer.169

Utilities do not have to advertise to keep most oftheir existing customers. And their overhead costs—office space, equipment, telephones, customerservice, etc.—continue to be paid by all customers,because even those who switch suppliers do not getany credit on their utility bills for these costs.

As a result of these unfavorable conditions, En-ron, a large diversified energy company headquar-tered in Texas, gave up trying to compete in the Cali-fornia residential market only after a few months.There is little competition in California to offer resi-dential customers lower prices than they can get

staying with their utility. Ironically, about the onlyway marketers can compete is to offer a different kindof product—like a green product—but the cost disad-vantage faced by marketers has limited competitionfor green customers as well.

In Massachusetts and Rhode Island, the initialcompetitive environment has been even worse than inCalifornia. All customers who stay with their existingutility are guaranteed a “standard offer” generationprice. The standard offer starts at 2.8¢/kWh, and in-creases over time. But the wholesale market price inNew England has been about 3.5 to 4¢/kWh. Utilitiesthat lose money by having to sell generation at stan-dard offer prices which are below-market are allowedto recover those losses with interest after seven years,thus subsidizing the standard offer. Not surprisingly,during the first year competition has been allowed, nocompanies have stepped forward to try to competeagainst the residential standard offer. One company,AllEnergy, a subsidiary of New England Electric, isoffering a hybrid service, where standard offer cus-tomers of any utility an option to “upgrade” theirservice by buying blocks of renewables generation,but with limited success to date.

A solution adopted in Pennsylvania is to have thecredit on utility bills for customers switching suppli-ers not only reflect the wholesale generation price,but retail costs that the distribution company is nolonger incurring on the customer’s behalf. Customerschoosing to switch suppliers receive a “shoppingcredit” intended to cover not only generation costs,but supplier overhead and marketing. The shoppingcredit varies by company, and is as high as 5.2¢/kWhfor customers in the Philadelphia area. As a result,customer response to early offers has been very high.One green marketer recently reported having signedup as many customers in 6-7 weeks in Pennsylvaniaas they have in 6-7 months in California. 170

Another partial solution would be to requirecompetitive bidding to serve the standard offer. Mar-keting and overhead costs to serve the standard offercustomers would be low, and companies would belikely to include those costs in their bids.171 However,this approach would still not create a robust marketwith many companies competing to provide newproducts and services to residential customers.


Another approach might be to require utilities todivest of their customers, requiring all customers tochoose a competitive supplier. Customers who didnot choose would be assigned to a competitive sup-plier at random.

Aggregation. Customer aggregation is anothermechanism for creating a more competitive market ina way that can benefit both the environment and con-sumers. An aggregator organizes customers into abuying group, thus giving the buying group more bar-gaining clout and greatly reducing transaction costsfor marketers. By combining customers who useelectricity at different times of the day and week, andsmoothing out sharp peaks or valleys in electricitydemand, aggregators can also make it easier and lessexpensive for marketers to serve groups of custom-ers.172 Aggregation may be especially important innew markets, where choice is unfamiliar, there isgreat inertia in the market, and the costs of persuad-ing customers to make any choices can be quite high.

Several different aggregation models are beingdeveloped and implemented. In California, state uni-versities have aggregated their demand and negotiateda contract with one supplier. Water agencies through-out the state also formed an aggregation group.173

In Colorado, an environmental organization, theLand and Water Fund of the Rockies, is aggregatingcustomers to participate in a wind energy green-pricing program offered by Public Service of Colo-rado, a regulated utility.174

In Massachusetts, large nonprofit electricity usersof many kinds, including universities, health facili-ties, schools, and cultural organizations are being ag-gregated by the Massachusetts Health and Educa-tional Facilities Authority. The organization, whichalready had a buying group for natural gas, has ex-panded to electricity and claims over 500 memberswith a combined buying power of almost $150 mil-lion.175 Another aggregator, National Energy Choice,is offering an extra 5 percent savings on top of thestandard offer discount, plus an additional 5-7 percentsavings from energy efficiency improvements, tomembers of the Massachusetts Municipal Associationand two other nonprofit associations.

On an even broader scale, 21 towns on Cape Codand Martha’s Vineyard are aggregating the electricity

demand of their more than 150,000 residents, busi-nesses, and town facilities through a municipal fran-chise model.176 The towns—which have a combinedpeak demand of 335 MW—issued a request for pro-posals in August 1998 through an association knownas the Cape Light Compact.177 A number of otherMassachusetts towns and counties are also in variousstages of considering municipal aggregation.178 TheMassachusetts Restructuring Law specificallyauthorizes municipal “opt-out” aggregation. The lawallows municipalities to aggregate their customers, byvote of town council or meeting, with contracts sub-ject to approval by the Massachusetts Department ofTelecommunications and Energy. Although all resi-dents and businesses of participating towns would beautomatically included in the aggregation, any cus-tomer can opt out of the aggregation and choose anylicensed electricity supplier.

Municipal aggregation could be favorable for re-newables in several ways. For one thing, towns mayset their own minimum requirements for renewables,energy efficiency services, or other environmentalcriteria, to reflect the public benefits provided byclean and renewable energy options. And, by poolinglarge numbers of customers and by making the aggre-gation process automatic, municipal aggregation cangreatly decrease marketing costs and ensure that mostof the premium for any green electricity options goesdirectly to produce more renewable electricity gen-eration. Municipal aggregation could also make iteasy for customers to choose a green option merelyby checking a box on a bill. Finally, customers mayfind a green option offered through a municipalitymore credible than one offered by a private companywith which they are not be familiar.

Of course, municipal aggregation will not auto-matically favor green options. The tendency of manytowns is likely to be to seek out the lowest cost elec-tricity sources, irrespective of their environmentalprofile. Concerned citizens and advocacy groups mayneed to participate in time-consuming local forums toinfluence aggregation choices. In addition, townswith contracts for waste disposal with waste-to-energy facilities are likely to feel pressured to includethose facilities as green options, despite objectionsfrom some environmental groups.


Buyers cooperatives, or co-ops, are another tradi-tional form of aggregation. A Vermont group has puttogether a plan for a regional consumer controlledcoop to reduce prices and develop cleaner energysources.179

Government purchase. A related strategy isusing government purchases of green electricity, ordirect investment in renewables. The US governmentis the world’s largest energy consumer, with totalpurchases (electricity plus fuels) of almost $10 bil-lion.180 State and local governments also consumelarge amounts of energy. Santa Monica became thefirst California city to buy from a green marketer topower city facilities.181 In Nebraska and Colorado, thegovernors issued Executive Orders for state agenciesto look at purchasing green power supplies. In Ne-braska, all state facilities to use renewables and en-ergy efficiency where cost-effective.182

In 1994, the President issued Executive Order12902, which set a goal of reducing energy use infederal buildings by 30 percent by 2005 and directingthe Department of Energy to develop a RenewableImplementation Plan for increasing the use of renew-ables by federal buildings and agencies. A number ofsuccessful projects have since been developed.183

The New England regional office of the U.S. En-vironmental Protection Agency has made a commit-ment to purchase at least four percent of its electricityfrom renewable energy sources..

The Massachusetts restructuring law requires thestate to conduct an annual study of the costs andbenefits of requiring all state agencies and facilities topurchase a minimum of 10 percent of its electricityfrom renewable sources.184


Chapter 6

ConclusionThe deregulation of the electricity market presentsboth enormous risks and great opportunities for thedevelopment of clean renewable energy sources. Themain risk is that renewables will be at a competitivedisadvantage against fossil fuels. The failure of themarket to value public benefits like environmentalprotection and fuel diversity, as well as market barri-ers, will make it hard for relatively new technologiesto become commercialized and enter the mainstreammarketplace. If this occurs, the result could be evenless use of renewable energy for electricity generationthan exists today, with corresponding higher levels ofpollution, greenhouse gases, and other problems.

However, the new market also creates potentialopportunities for renewables if appropriate policysteps are taken. This report has described seven prac-tical measures that would greatly increase the contri-bution of renewable sources to the nation’s electricitysupply.

At the beginning of the debate over deregulationof electricity generation, renewable energy advocatessometimes debated which of these measures werebetter or more important than the other. In particular,the relative merits of the renewables portfolio stan-dard and of public benefits funds were hotly debatedin California, the first state to implement retail com-petition.185 The relative importance of trying to makemarkets for renewable energy work versus enactingmechanisms that recognize and internalize the publicbenefits of renewables was also widely discussed inCalifornia and elsewhere.

As the debate has matured, more recent restruc-turing decisions have incorporated multiple publicbenefits mechanisms and paid closer attention tomaking the market work more effectively. All ofthese approaches can be synergistic, rather than com-petitive.

No matter what industry structures states chooseto adopt—retail competition, wholesale competition,

regulation with integrated resource planning, publicownership of utilities, electricity cooperatives, or anycombination—resource planning decisions and mar-kets can be structured to be fair to clean energy re-sources, or to discriminate against them. Legislatorsand regulators who want to minimize the environ-mental impact of electricity generation while reduc-ing costs will want to ensure that utility customershave the opportunity to make green choices, that theyare well-informed about their choices and their con-sequences, and that green generators have fair accessto the grid and to customers. Fair competition alsorequires fair pollution rules, with comparable emis-sion standards for all power plants.

At the same time, no matter how fair specificmarket rules are, it is important that public benefitsthat are not reflected in market prices be recognizedand supported through some public mechanism. Thetwo major mechanisms that have been proposed andadopted in various jurisdictions for preserving renew-ables public benefits—the renewables portfolio stan-dards and public benefits funding—can serve com-plementary functions. The RPS provides a market-friendly mechanism to ensure the sustained orderlydevelopment of renewables close to being market-ready, while maximizing competition. Public benefitsfunding can help jump-start the renewables market,be targeted to overcome specific market barriers ingiven regions, and advance research, developmentand commercialization of technologies which havelong-run potential but are not as cost-effective in theshort-term.

Various states are currently serving as experi-mental laboratories for renewable policy, as well asmajor drivers of renewables development. They willprovide important new lessons and models for mov-ing forward. The Massachusetts and Connecticut re-structuring laws warrant special attention as modelsfor having adopted the RPS and funding mechanisms

U n i o n o f C o n c e r n e d S c i e n t i s t s Powerful Solutions 45

together, along with net metering, information disclo-sure, emissions performance standards, and supportfor distributed generation. California will continue tobe a major bellwether, with a substantial lead in im-plementing the nation’s largest funding program forrenewables, along with a number of the other policiesdiscussed in this report. Pennsylvania’s marketstructure may allow the first significant test of theimpacts of green marketing. Continued implementa-tion of pre-restructuring renewables requirements inMinnesota, Iowa, Wisconsin and Texas will provide

major near-term development experience for the re-newables industry.

The majority of states have not yet consideredthese policies. Congress is being called on to repealthe statute that has provided the most support for re-newables to date. If the states enacting policies de-scribed in this report are seen as models that can bereplicated and improved upon in other states and atthe federal level, America may yet switch to cleanerrenewable electricity, and realize substantial envi-ronmental and economic benefits.

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s A-1

Appendix A

Renewable Energy TechnologyPotential, Costs, and Market

The United States produced about 450 billion kilo-watt-hours (kWh) of electricity from renewable en-ergy sources in 1996, about 12 percent of the nationaltotal. Hydroelectric generators produced 10 percentof this. Only 2 percent came from other renewablesources powered by biomass, geothermal, wind, orsolar energy (figure A-1).*

Solar EnergyPhotovoltaics, or solar cells, are the most commonsolar electric technology. When sunlight hits a semi-conductor material, like silicon, it knocks electronsloose from the atoms. These electrons flow in aclosed circuit, creating an electrical current. Theglobal photovoltaics industry is growing rapidly, fromsales of 23 megawatts (MW) per year in the late1980s to over 100 MW in 1997. American manufac-turers saw annual average growth of 19 percent over

* The capacity of a power plant is typically meas-

ured in megawatts (MW), or million watts of generatingcapacity. Electrical energy is measured in kilowatthours or megawatt hours (kWh or MWh). A typical

the last ten years, with much of their market foundabroad. American companies exported $83 millionworth of solar panels in 1996.186 Much of the marketis in providing power to people who are “off thegrid,” or not connected to power lines, especially indeveloping countries. In the United States, solar cellsare increasingly used to power road signs, irrigationpumps, and cellular phone transmitters.

A second type of solar technology uses the sun’senergy to heat a fluid. Steam produced using theheated fluid turns a turbine to generate electricity.Such solar thermal electric technology may take anyof three configurations: troughs, towers, or dishes.187

The most common—solar troughs—use curved(parabolic) mirrors in the shape of a trough to heat afluid in a tube running through the center of thetrough (figure A-2). Southern California has 354 MWof solar troughs. Solar towers use mirrors to heat afluid in a central tower (figure A-3). Two experi-mental 10 MW “power towers” have been built in

American household uses about 10,000 kilowatt-hoursper year.

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Figure A-2.

Office of Utility Technologies, DOE and Electric PowerResearch Institute, 1997. Renewable Energy TechnologyCharacterizations, October, online atwww.eren.doe.gov/utilities/techchar.html.

A-2 P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

California. Solar One operated from 1982–1988,while Solar Two began operation in 1996. Solar dishtechnology uses dish-shaped mirrors to focus thesun’s heat (figure A-4). A demonstration solar enginewas recently installed at the Pentagon.188

Potential. Photovoltaic panels installed on lessthan 1 percent of the US land area could provide allthe electricity the country needs, if there were notransmission constraints.189 Texas alone receives three

times the amount of sunlight needed to power thewhole country. Of course, different parts of thecountry receive different amounts of sunlight, but thevariations are not as great as one might expect. Thesunny southwest gets only about 35 percent more sunthan the northeast.190

While solar panels work best in the dry and sunnySouthwest, they can be of value in less sunny regions,if electricity is expensive and peak electricity demand

occurs when the sun is shining bright-est, which is often the case in regionswith high air-conditioning use. Powerfrom solar panels is currently muchmore expensive than that from con-ventional generators. In many places,though, power prices are very highduring periods of peak demand, offer-ing an opportunity for solar power.Figure A-5 shows states where photo-voltaics have the greatest value.191

Because photovoltaics can be eas-ily sited on existing rooftops and otherstructures, this technology has greatpotential. A UCS study found that in-stalling photovoltaics on rooftops andsouth-facing walls could meet as muchas 20 percent of the Boston area’selectricity needs.192

Figure A-3.


Figure A-4.


Figure A-5. Economic Feasibility of Photovoltaics

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Richard Perez, Christy Herig. and Howard Wenger, Valuation Of Demand-SideCommercial PV Systems in the United States. See also NREL web site athttp://www.nrel.gov/ncpv/documents/pv_util.html.


Solar thermal electric technologies are limited inthe United States to the Southwest, because they re-quire strong, direct sunlight and few clouds. Despitethis constraint, estimates suggest that solar thermalelectric stations covering the area of Edwards AirForce Base in California and the White Sands MissileRange in New Mexico could theoretically meet abouta quarter of US electricity needs.193

Cost. The price of photovoltaics has declinedsteadily over time. With increased efficiency andmass production, prices could decrease further. TheElectric Power Research Institute and the Departmentof Energy project a drop in total costs for bulk resi-dential customer installations from $6.72/watt in1997 to $3.05/watt in 2010 and $1.77/watt in 2020. If,as expected, solar module efficiency increases from14 percent to 20 percent, utility-scale systems couldfall to 6.2¢/kWh in 2020 and 5¢/kWh in 2030.194

Solar thermal electric technologies are also likelyto undergo large price reductions. Projections show adecline in prices for electricity from parabolic troughsfrom 17.3¢/kWh in 1998 to 6.8¢/kWh in 2030. Forhybrid solar dishes, using natural gas to provide sup-plemental energy, the projected decrease is from17.9¢/kWh in the year 2000 to 5.2¢/kWh by 2030.Electricity from power towers could reach as low as4.2¢/kWh in that time frame, dropping from13.6¢/kWh in 2000.195

Market. The market for photovoltaics is limitedby high costs relative to other renewable as well asconventional technologies. Even at 1998 prices, how-ever, there are niche markets where these systems cancompete. In remote applications, such as off-gridhomes, outdoor lighting, communications towers, andwater pumping, photovoltaics can be less expensivethan building transmission lines to connect with con-ventional generation. Even in urban areas, photovol-taics may be cost-effective in locations where instal-lation allows expensive transmission and distributionsystem investments to be deferred or avoided.196

The market for photovoltaics is expected to takeoff when the price of an installed module declines toabout $3 per watt. At that price, the total US marketfor photovoltaics may reach 9,000 MW.197 Photovol-taic production is expected to grow by 20 percent peryear, aiming in part at the 10 million single-family

homes located in regions of the United States thathave above-average sunshine and suitably tilted roofswith unshaded access to direct sunlight. This marketalone has a long-run potential of over 30,000 MW.198

Impacts. Solar energy is the most environmen-tally benign energy source available, since solar tech-nologies produce no air or water pollution, do notdeplete natural resources, and do not endanger publichealth or safety.

The few environmental impacts are minor or eas-ily controlled. The manufacture of photovoltaic pan-els, for example, involves the use of toxic materialslike cadmium and arsenic. Because this takes place ina closed factory, the toxics can be controlled; pollut-ants are not released intentionally as they are from acoal-burning power plant. Processes to recycle mate-rials used in thin-film solar panels will need to be de-veloped, but these are unlikely to pose problems.

Land use is an issue for centralized solar thermalpower plants. These technologies require about 7.5acres of mirrors per megawatt, or one square mile foran 85 MW plant. However, as noted earlier, largeamounts of electricity could be produced on a smallarea of desert.

Wind EnergyWind turbines convert the force of moving air intoelectricity. Like an airplane, the wind turns the bladesusing lift. Almost all wind turbines have blades

Office of Utility Technologies, DOE and Electric Power ResearchInstitute, 1997. Renewable Energy Technology Characterizations,October, online at www.eren.doe.gov/utilities/techchar.html.

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rotating about a horizontal axis. They range in theUnited States from small 200-watt machines used onsailboats to 750 kW turbines with 46-meter bladesmounted on 60-meter tall towers. Some wind turbinesof 1 MW and larger are being installed in Europe.199

Wind power is the most rapidly growing sourceof energy in the world, increasing 20 percent per yearsince 1990.200 Power producers installed over 1,500MW of wind turbines around the world in 1997.Germany’s installed base rose to 2,080 MW of wind,surpassing the United States as the world leader inwind power generation. In China, India, Denmark,and Spain, wind power is also growing rapidly. MostUS wind power development has been in California,but since 1993 new large-scale wind turbines havebeen installed in Colorado, Iowa, Michigan, Minne-sota, Texas, Vermont, and Wyoming.

Potential. A study bythe Pacific Northwest Labo-ratory estimated the totaltheoretical potential forwind at about 40 times an-nual US consumption.201 Thestudy excluded areas wheresiting wind turbines wouldbe especially difficult, likecities, national parks, andenvironmentally sensitiveareas. About 6 percent ofthe total land area in thelower 48 states has windspeeds of 13 mph or moreand is potentially availablefor wind turbine installation.Estimates indicate that an-nual wind power outputfrom these areas could be4,400 billion kWh—1.5times total US electricitydemand. The study foundthat 12 states in the middleof the country have most ofthe wind energy potential,enough to produce nearlyfour times the amount ofelectricity consumed by the

nation in 1990, if there were no constraints on trans-mission. North Dakota alone could supply over athird of the nation’s power needs.

The study concludes that to provide 20 percent ofthe nation’s electricity, wind development would re-quire only about 0.6 percent of the land of the lower48 states. Furthermore, since wind turbines must bespaced widely so as not to interfere with each other,less than 5 percent of this land would be occupied byturbines, electrical equipment, and access roads,leaving the rest of the land available to existing landuse, such as farming and ranching.

The distance from existing power lines is also akey factor determining the cost-effective potential ofwind power, since new long-distance transmissionlines can cost as much as $200,000 per mile. In 1995,the Department of Energy assessed the US wind

Figure A-7.

C L A S S E S O F W I N D P O W E R D E N S I T YWind Power

ClassDensity at10m (33ft)

W/m2

Speed at 10m(33ft)

m/s mph

Density at50m (164ft)

W/m2

Speed at 50m(164ft)

m/s mph1 0-100 0-4.4 0-9.8 0-200 0-5.6 0-12.52 100-150 4.4-5.1 9.8-11.5 200-300 5.6-6.4 12.5-14.33 150-200 5.1-5.6 11.5-12.5 300-400 6.4-7.0 14.3-15.74 200-250 5.6-6.0 12.5-13.4 400-500 7.0-7.5 15.7-16.8

5-7 250-1000 6.0-9.4 13.4-21.1 500-2000 7.5-11.9 16.8-26.6D.L. Elliott and M.N. Schwartz, Wind Energy Potential in the United States, DOE, PacificNorthwest Labs, 1991, online at www.nrel.gov/wind/potential.html.


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potential based on distance from existing power lines,using a GIS-based method that the Union of Con-cerned Scientists pioneered in Powering the Midwest.The DOE found that 153,000 square miles of landwithin 5 miles of existing transmission lines had thepotential for wind development. That land could ac-commodate 464,000 average MW—more than thetotal US generation capacity in 1993. Within 10 milesof power lines, enough wind turbines could be sitedto provide more than twice the power needs of thecountry—as much as 6,430 million MWh.202

Costs. Wind costs have declined from 25¢/kWhin 1981 to less than 5¢/kWh in 1998. Installation andoperations costs are likely to continue falling as per-formance increases. Improvements in wind technol-ogy should enable turbines to take advantage of awider range of wind speeds, thereby producing powerin both slower and faster winds. Construction costsare projected to fall from $1,000/kW in 1998 to$635/kW in 2030, with generation prices falling aslow as 2.3 cents per kWh. These improvements willbe driven by research and development on aerody-namics and materials, leading to more efficient,lighter weight systems with improved components,placed on taller towers. Manufacturing improvementsand increased volume of production will have astrong effect on reducing costs as the market grows.203

Markets. Wind competes as a bulk power sourceand its price is expected to remain higher than the

price of natural gas for the near future. Thus changesin the market for wind are likely to depend on howquickly a market develops for environmentallyfriendlier “green power” and on the extent to whichpolicy supports wind power. Policy decisions aboutrenewal of the 1.5¢/kWh production tax credit, cur-rently set to expire in July 1999, the adoption of re-newables portfolio standards, and the extent to whichtransmission prices penalize intermittent sources likewind will have an enormous impact on wind markets.Market projections for wind range widely. The USEnergy Information Administration, forecasting busi-ness as usual, projects an increase from 1998 capacityof 1,850 MW to 3,330 MW by 2010. On the otherhand, Energy Innovations, a study by the Union ofConcerned Scientists and others projects market po-tential at 44,480 MW by 2010, if strong measures aretaken to achieve a 10 percent reduction in carbonemissions from 1990 levels by that date.204

Impacts. Wind power produces no air or waterpollution, involves no toxic or hazardous substances(other than the lubricants commonly found in largemachines), and poses no threat to public safety. A se-rious potential obstacle facing the wind industry,however, is public concern about their impacts onwilderness areas and about the visibility of wind tur-bines. In forests, wind development may clear sometrees and cut new roads. Near populated areas, windprojects may run into opposition from people who re-

gard them as unsightly, or who feartheir presence will reduce propertyvalues. However, recent studies of thefirst commercial wind development inNew England, as well as a number ofstudies in Europe, have shown greaterpublic acceptance after constructionthan before.205

One of the most misunderstoodaspects of wind power is its use ofland. Wind turbines occupy only asmall fraction of the land area acrosswhich they are sited. The rest can beused for other purposes or left in itsnatural state. For this reason, windpower development is ideally suited

to farming areas. Farmers can plant orOffice of Utility Technologies, DOE and Electric Power Research Institute, 1997.Renewable Energy Technology Characterizations, October, online atwww.eren.doe.gov/utilities/techchar.html.


allow grazing right to the base of turbine towers. Infact, landowners can derive substantial benefits in in-creased income and land value by leasing land forwind turbines. Consequently, the areas with thegreatest potential for wind power development are inthe Great Plains, where wind is plentiful and vaststretches of farmland could support hundreds of thou-sands of wind turbines.

Bird deaths have been a significant problem forwind turbines at only two locations: Altamont Pass inCalifornia and Tarifa, Spain. Studies show that birddeaths can be reduced by minimizing perches on andaround the wind machines, as by using tubular ratherthan lattice towers, and new turbines with larger andslower moving blades. Recently, a Danish companyannounced plans to replace 750 smaller wind turbinesat Altamont with only 100 larger new machines.206

This should greatly reduce the number of injuriesthere.

Biomass EnergyBiomass energy is energy from plants and organicmaterial. Although the most common form is wood,which can be burned, biomass also includes wastes,like paper, sawdust, and yard clippings; methane,from decomposing trash, sewage, and manure; andcrops grown specifically for energy use. For the fore-seeable future, biomass energy has the greatest po-tential of all renewables. Currently in the UnitedStates, the combustion of biomass wastes, such as inpaper and lumber mills, provides 7,300 MW of powerand generates 42 billion kWh of electricity a year,about 1.4 percent of the nation’s electricity. Munici-pal solid waste, considered a renewable source by theUS Department of Energy, contributes another 3,000MW and 20 billion kWh.207

Most biomass used for electricity production issimply burned in power plants, much like coal. Mostfuel for these plants is produced as waste in otherprocesses, like farming and wood processing. Al-though this approach is straightforward and familiar,new approaches are needed to take advantage of thefull potential for biomass energy.

A process called gasification offers higher effi-ciency and cleaner power production than simplecombustion. A gasification system heats the biomass

fuel under pressure until it gives off volatile gases. Ahigh-efficiency gas turbine then burns these gases.While this approach has been proven at a small scale,it is still being tested at a large scale. The USDepartment of Energy has converted the McNeilGenerating Station in Vermont to a 10 MW gasifica-tion system using wood waste and is also testing agasification plant in Hawaii, using sugar canewaste.208 If successful, these demonstrations couldlead to a wider acceptance of utility-scale biomassplants.

Full development of this technology also requireslarger amounts of biomass fuels. Under current eco-nomic conditions, waste wood, agriculture residue,and municipal solid waste make the most sense as fu-els, since they would otherwise face disposal costs.But expanding biomass generation requires farms andplantations that produce crops solely for energy pro-duction. Fast-growing native species like switchgrass,poplar, and willow can grow on land that is idle,subject to erosion, or ill-suited for food crops.

Potential. About 100 million acres of croplandare idle in any given year, some as part of federalconservation programs. Another 150 million acres ofpasture, range, and forest has “medium to high”potential for conversion to cropland, according to theUS Department of Agriculture. Overall, around 200million acres of cropland might be suitable and avail-able for energy or “power” crops, without irrigationand without competing with food crops.209 This landbase would be capable of producing one billion tonsof biomass every year. Recoverable biomass wastescould contribute 375 million tons annually—during1997 only half of this was used. In theory, then, bio-mass could produce over 2 trillion kWh of electricitya year—about 70 percent of US consumption.

On the other hand, some of the biomass resourcecould be used to make liquid fuels for transportation.If used entirely for transportation, the 1.4 billion-tontotal could produce about 150 billion gallons of etha-nol or 200 billion gallons of methanol, roughlyequivalent to all the fuel currently used in cars andlight trucks.

Costs. Biomass is generally cost-effective whenresidues are available at a low or negative cost. It isalso cost-effective when it can serve two purposes at


once: producing heat as well electricity, or producingelectricity in addition to ethanol or animal feed or in-dustrial chemicals. However, power crops are not yetcost-effective, either for farmers to grow or for powerproducers to use, mainly because subsidies favor foodcrops and fossil fuels and because the environmentalbenefits of biomass are not formally valued.

Biomass power is currently produced by smallcombustion power plants, with an average size of 20MW. Most of this is operated by the wood industry incombined heat and power applications. These smallplants have higher capital costs and lower efficienciesthan larger steam plants, resulting in electricity costsin the 8–12¢/kWh range.

The Department of Energy and the ElectricPower Research Institute expect the next generationof biomass power plants to substantially reduce thesehigh costs and efficiency disadvantages (see figureA-9). Several processes could result in lower costs:

• cofiring biomass in existing coal-fired powerplants

• using high-efficiency gasification with combinedcycle gas turbines

• improving efficiency in largercombustion plants, allowing bio-mass to take advantage of econo-mies of scale

Technologies under development maybe competitive in the future TheWhole Tree Energy system burnswhole trees at once, saving the effortof processing the wood. Integratedgasification fuel cell systems combinebiomass gasifiers with new high-efficiency fuel cells. Small modularsystems use gasifiers with microtur-bines, allowing the electrical generatorto go the source of biomass, ratherthan shipping the biomass to the gen-erator.

Markets. The Department of En-ergy envisions liquid biofuel usegrowing to over 20 percent of car and

light truck use by 2010 and over 50 percent by 2030.The DOE also hopes to raise biomass electric gener-ating capacity to 12,000 MW by the year 2000 and22,000 MW by 2010. The Electric Power ResearchInstitute believes that as much as 50,000 MW—ap-proximately 8 percent of US generating capacity—could be in place by the year 2010, with twice thatamount by 2030.210

Researchers at Oak Ridge National Laboratory,the US Department of Agriculture, and the Universityof Maryland have estimated the economic potentialfor energy crops like switchgrass, willow, and poplarin a number of states.211 They found that switchgrassand wood raised on 54 million acres of land and usedin biomass gasification/gas turbine systems couldproduce 630 billion kWh, for about 4.5¢/kWh. This isequal to a fifth of total US electricity production.

Power crop cultivation and energy productionmight be split among regions as shown in figure A-10. Switchgrass production would be grown in theNorth Central, South Central, and Northeastern states.The Northeast would lead wood crop production,with 16 million acres of willow trees.212

Impacts. Conventional biomass combustionsystems produce some air emissions similar to coal-fired power plants, but little sulfur dioxide, carbon

Figure A-10. Biomass Production Regions

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dioxide, or toxic metals. The most serious problem isparticulate emissions, which must be controlled withspecial pollution-control devices like electrostaticprecipitators. More advanced biomass energy tech-nologies, such as the gasifier/combustion turbinecombination, are likely to have emissions comparableto natural gas power plants.

Using biomass as a fuel can greatly reduce emis-sions of the heat-trapping gases that cause globalwarming. The carbon dioxide released when biomassis burned is reabsorbed into plants grown to producemore biomass fuels. Thus, in a sustainable fuel cycle,there would be almost no net emissions of carbondioxide.213

Power crops have significant environmentalimpacts if they are grown in the same unsustainableway that most food crops are grown today, withheavy doses of chemicals and energy. But they can begrown quite differently, so that they improve soil andwater quality, reduce erosion, and create animalhabitat. Energy crops using fast-growing and heartynative species like switchgrass, willow, and poplarrequire little if any applications of fertilizers or pesti-cides. Since trees would grow for several years beforebeing harvested, their roots and leaf litter could helpstabilize the soil. Planting varieties that regeneratewhen cut would minimize the need for disruptivetilling and would be especially beneficial on croplandor rangeland prone to erosion and flooding. Perennialgrasses harvested like hay could play asimilar role; soil losses with a crop suchas switchgrass, for example, would benegligible compared with losses of an-nual crops such as corn.

Geothermal EnergyGeothermal energy uses the heat underthe earth's crust to produce steam, heat,and power. The US geothermal industryis concentrated in California and Ne-vada, although the world leader is Ice-land, where almost every building isheated by hot springs. With a 3,000MW capacity, geothermal plantsproduce about 5 percent of California’selectricity. Geothermal plants also

produce 460 MW (thermal) of steam and heat fordirect use, displacing the use of 1.2 million barrels ofoil per year. Worldwide capacity in 1990 was 5,800MW electric and 11,300 MW thermal.214

Geothermal energy in the United States producedabout 16 billion kWh of electricity in 1995, making itthe third largest renewable energy source, after hy-droelectric and biomass generation. Geothermal en-ergy is not replenished, but considering the vastquantity of energy available, it is virtually inexhausti-ble. The US Geological Survey estimates that theamount of energy from geothermal heat that is acces-sible amounts to at least 14 times more than allproven and unproven coal reserves in the UnitedStates.

Much of this energy, however, is in forms thatcannot be captured economically with today’s tech-nology. So far, only hydrothermal resources—boilinghot water and steam coming straight out of theground—have been tapped. Steam reservoirs are theeasiest to use for electricity production, but they arerare, and most—like the Geysers in California—havealready been exploited. New development is focusingon hot water (150°C or more). Hot water plants havebeen built in California, Hawaii, and Nevada. The USGeological Survey estimates hot water systems couldprovide 23,000 MW of power for 30 years at an af-fordable cost—enough for 23 million people.215 Hotwater and steam are also used directly for industrial

Office of Utility Technologies, DOE and Electric Power Research In-stitute, 1997. Renewable Energy Technology Characterizations, Octo-ber, online at www.eren.doe.gov/utilities/techchar.html.

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processes, enhanced oil recovery, and district heating.Most new plants are closed loop, returning the steamand hot water to the ground after use. Older plantstend to be open loop, venting the steam to the air afteruse.

Geothermal heat can also be harnessed using “hotdry rock” technology, which involves drilling deepwells and pumping water down the hole to extract theheat. Since this approach uses hot underground rockswherever they occur, the potential is enormous, ac-counting for most of the geothermal resource poten-tial in the United States. While research continues,costs are so far not competitive with traditionalresources.

The Department of Energy expects little growthin electrical production from geothermal power plantsbetween now and 2020, as new power plants offsetthe decline in output from the installation at the Gey-sers. In an optimistic scenario or with a renewablesportfolio standard, geothermal power productioncould double by 2020.216

Impacts. Geothermal plants draw heat from theearth and use it to run steam turbines. Many existinggeothermal plants using hot steam directly from theearth and vent it to the air afterwards. These open-loop systems can generate solid wastes as well asnoxious fumes. Metals, minerals, and gases arebrought to the surface with the geothermal steam.Open-loop systems release carbon dioxide as well,although only about 5 percent of that emitted by acoal- or oil-fired power plant. Open-loop systems canalso deplete the water and geothermal resource.Closed-loop systems are almost totally benign, sincegases or fluids removed from the well are not exposedto the atmosphere and are usually injected back intothe ground after being run through a heat exchanger.Although this technology is more expensive thanconventional open-loop systems, in some cases it mayreduce scrubber and solid waste disposal costsenough to provide a significant economic advantage.

Hydroelectric EnergyHydroelectric power uses the energy of moving waterto drive water turbines, producing electricity. Largesystems rely on dams to block rivers, storing hugeamounts of water. The water is passed through the

turbines when power is needed. Smaller "run-of-the-river" systems let the water flow through continu-ously. Most energy production comes from largedams. In the United States, hydropower has grownfrom 56,000 MW in 1970 to about 80,000 MW today.As a portion of the electricity supply, however, it hasfallen to 10 percent, down from 14 percent 20 yearsago. Still, US hydropower plants produce the energyequivalent of 500 million barrels of oil per year. Insome parts of the country, hydropower is the domi-nant generator. It provides 63 percent of power usedalong the west coast and two-thirds of the power inthe Pacific Northwest, from 58 hydroelectric dams.

Potential. In theory, there remains great potentialfor further hydropower development in the UnitedStates. The Federal Energy Regulatory Commissionhas catalogued 7,243 sites, which could provide147,000 MW of hydropower capacity. As of 1991,less then half of this had been developed, with an-other 3,300 MW capacity planned or under construc-tion (most of it in expansions or upgrades of existingfacilities). Thus, the potential exists for the UnitedStates to just about double its current hydropower ca-pacity. The majority of this expansion potential lies inwestern states, where most previous hydropower de-velopment has taken place.217

But most of this resource is unlikely to be devel-oped. Environmental laws like the 1968 NationalWild and Scenic Rivers Act preclude building damson stretches of many virgin rivers, eliminating about40 percent of the potential. An additional 19 percentof potential sites are under a development moratoriumuntil their final status can be decided. According to a1990 report by national laboratory scientists, only22,000 MW of the undeveloped hydropower resourceis economically viable and of this only 8,000 MW islikely to be developed because of “regulatory com-plexities and institutional and jurisdictional overlaps”in the hydropower licensing process.218

As a result, most of the potential for expandinghydropower involves upgrading existing facilitiesrather than building new ones. Possibly 6,000 MW inimprovements could be made at large dams. The2,500 small hydro plants currently in operation couldalso be expanded. These plants account for a tinyfraction of the 70,000 dams that block and divert our


rivers. An estimated 4,600 MW of capacity could beadded at existing small dams, especially at the morethan 3,000 facilities that were abandoned in the 1950sand ’60s.219

Although it is unlikely, hydropower capacitycould be affected if any existing dams were deniedlicenses when they come up for relicensing. Sincehydro facilities have long lives, many dams are quiteold. The Grand Coulee dam, for example, has been inoperation since 1942. The federal government issueslicenses for all dams for a 30- to 50-year period. In1993, over 200 licenses were due for renewal,amounting to 2,000 MW of capacity. Relicensing willrequire some dam owners to find ways to reduce en-vironmental impacts.

Costs. As with other renewable technologies,capital costs for hydroelectric plants are high, whileoperating costs are low, although costs vary widelyaccording to design and location. Large dams in thePacific Northwest are so inexpensive to operate thatcommercial electric rates there are as low as1.5¢/kWh. New large-scale hydro plants can be builtfor between $500 and $2,500 per kW, while smallplants average around $2,000 per kW. Repowering ofexisting dams is a much cheaper option, usually lessthan $100 per kW. Operation and maintenance costsare about one-tenth of a cent per kWh.220

Impacts. Although hydropower is inexpensiveand nonpolluting, the environmental impacts of hy-dropower can be serious. The most obvious effect isthat fish are blocked from moving up and down theriver, but there are many more problems. Most prob-lems of hydropower come from large dams with res-ervoirs. Small run-of-the-river hydro plants producefewer environmental impacts.

In the Pacific Northwest, large federally-owneddams have blocked the migration of coho, chinook,and sockeye salmon from the ocean to their upstreamspawning grounds.221 Some steps are being taken tohelp the fish around the dams, such as putting them inbarges or building fish ladders, but this has helpedonly a little. Also, when young fish head downriver tothe ocean, they can be chewed up in the turbines ofthe dam. The salmon population in the Northwestcurrently seems headed for extinction, falling from apopulation of 16 million to 300,000.

When land is inundated by the creation of reser-voirs, habitat and productive land can be destroyed.This land is often composed of wetlands, which areimportant wildlife habitats, and low-lying floodplains, often the most fertile cropland in the area. Inaddition, population density is often higher alongrivers, leading to mass dislocation of urban centers.

A related problem has occurred in Canada. Thestones and soil in areas now under water containednaturally occurring mercury and other metals. Whenthe land was flooded, the mercury dissolved into thewater and was absorbed by fish. The creatures thateat the fish, from bears and eagles to the native Creepeople, are suffering from mercury poisoning.

Hydropower affects water quality in other waysas well. Water falling over spillways can force airbubbles into the water, which can be absorbed intofish tissue, ultimately killing the fish. When damsslow rivers, the water can become stratified, withwarm water on top and cold water on the bottom.Since the cold water is not exposed to the surface itloses its oxygen so that fish can no longer live in it.And, as illustrated by the Colorado River in theGrand Canyon, fast-moving rivers can fill up withsediment when they are slowed down. During 1997,the Department of Interior flushed huge amounts ofwater out of dams in an attempt to clear away thesediment.

Another important habitat disruption comes fromoperating the dam to meet electric demand. Water isstored up behind the dam and released through theturbines when power demand is greatest. This causeswater levels to fluctuate widely on both sides of thedam, stranding fish in shallow waters and drying outhabitat. There are many competing pressures on damoperators—to produce power, to provide water forrecreational use on the reservoir and downstream, toprovide drinking and irrigation water, to allow NativeAmericans to carry out traditional religious practices,and to preserve habitat for fish and plant species. Inmost cases, nature loses out to boaters and electricitycustomers.1

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s B-1

Appendix B

The Renewables Portfolio StandardUsing Markets to Promote Clean Power

With the move toward free markets for electricity,proponents of a sustainable energy future face the riskthat unsustainable sources of electricity (primarilyfossil fuels and nuclear power) will dominate themarket. Today, only 2 percent of US electricity comesfrom clean, sustainable renewable sources (biomass,geothermal, solar, and wind power), with another 8percent from hydroelectric power.222 Although thecost of producing renewable energy has been falling,it has not yet reached the cost of fossil fuel electric-ity. The combination of market reforms and fossilfuel electricity, could result in a collapse of the ex-isting renewable energy industry, as well as a cutbackin investment in research and development on renew-able technologies. The short-run economic gains frommarket reform could block long-run efforts to achievea sustainable energy future.

To integrate commercially-ready renewables intoa competitive market, a number of jurisdictions have,as described in Appendix C, adopted or proposed arenewables portfolio standard (RPS). This simplemechanism would assure that a minimum percentageof all electricity consumed comes from renewablesources.

Who Participates in the RPS andWhat Do They Do?The renewables portfolio standard (RPS) is a re-quirement that a minimum percentage of each elec-tricity generator’s or supplier’s resource portfoliocome from renewable energy. The RPS uses renew-able energy credits (RECs)—tradable credits awardedfor each unit of renewable energy produced—as away for companies to meet the minimum standard forrenewables easily and efficiently. Without RECs, thisstandard would be more difficult to meet, since re-newable resource generators and retail providerscould have to enter into thousands of small power

purchase contracts. This process could be relativelytime-consuming and expensive. RECs would makecompliance simple and transactions more efficient.

Three types of players will be involved in tradingrenewable energy credits.

• Energy generation companies—These are the“power factories,” making electricity and sellingit at wholesale rates to retailers. When they userenewable sources, they will receive renewableenergy credits, which they can sell.

• Retailers—These companies sell power to con-sumers. They will be required to have a certainnumber of RECs each year. Depending on marketrules adopted in different places, one companycould be both a retailer and a generation owner.

• Program administrator—The administrator,probably a state or federal government agency,will dispense credits to renewable generationcompanies; ensure that everyone complies withthe law and files truthful reports; keep records,and set the price cap, if any.

Other entities could participate as well. Brokersare likely to emerge who buy and sell RECs, offeringone-stop shopping for retailers and renewable gen-eration companies. Also, environmental groups orfoundations that want to promote renewables couldbuy RECs and remove them from the market to in-crease demand, just as they have done with sulfur di-oxide credits.

Note that RECs and energy can be traded sepa-rately. Buying power from a generator that uses re-newable sources is only one way of obtaining RECs.Instead, a retailer may buy power from a generationcompany that uses only coal and nuclear power orfrom a spot market (whatever is available at the time),then buy the necessary RECs from a broker. In this

B-2 P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

way, all retailers can meet their requirements andsupport renewable energy without having to dealdirectly with multiple companies. Conversely, a re-newable generation company can sell power to a localretailer at the going rate for generic electricity, butsell its credits to a broker to make up for higher pro-duction costs. In this way, the renewables companygains income from two sources: the sale of its elec-tricity and the sale of RECs, as shown in Figure B-1.

Renewable energy credits are proof of generationand sale, so to comply with the RPS, all a retail pro-vider has to do is purchase RECs. Figure B-2 is anexample of the one-page compliance form a retailprovider would have to submit to the program ad-ministrator once a year. It simply lists how muchpower was provided the previous year, how manyRECs are needed to comply with the standard, andhow many RECs are attached. There are also a coupleof lines related to the price cap (discussed below).

In this case, a power retailer who sells 10 millionkWh already has half the required RECs at the timeof the reporting and buys the other half from the pro-gram administrator at the level of the price cap, hereset at 2.5¢ per kilowatt-hour (¢/kWh).

Price Caps. One criticism that has been made ofthe renewables portfolio standard is that the cost ofthe requirement is not known in advance. If a directsubsidy to producers or a cash incentive to customersis used to promote renewables, it can be budgeted in

advance, down to the penny. However, in such cases,a bureaucrat rather than market forces would makethe decision about who to support and how much topay them. Though the decisions may be wise, theymay not be economically “optimal” and may be un-wieldy to implement.

One way to retain the simplicity of using renew-able energy credits, while limiting the cost of the RPSprogram is to set a price cap. If REC prices get toohigh, as a result of low supply or high demand, theprogram administrator can offer “proxy credits” forsale at a fixed price. The price would be set slightlyabove the expected price of RECs. Look again at Part3 of the Sample Compliance Sheet in Figure B-1. Thepower retailer can comply with the RPS simply bywriting a check to the program administrator for therequired number of RECs multiplied by the postedprice cap. With a single transaction and a single pay-ment, the retail provider has complied with the RPS.Of course, if RECs are cheaper on the open market, aretailer will save money by buying RECs.

The money collected by the program administra-tor would not simply disappear into the bureaucracy.Rather, the program administrator would spend themoney on RECs in the market, seeking the lowestprice and buying RECs until the fund is exhausted. Inthe example shown in Figure B-1, the administratorwould use the $6,250 received from Green Power Inc.to buy RECs. If RECs were selling for 3¢ apiece, the

administrator would buy 208,333 RECs, rep-resenting 208,333 kilowatt-hours of renewableenergy production, instead of the 250,000kilowatt-hours for which Green Power wasresponsible. This would save Green Power$1,250 in compliance costs, while supportingrenewables to the greatest possible extent.

With a price cap, power retailers are pro-tected against unanticipated shortages in theREC market, while generators (and their fi-nancial backers) are assured of a thrivingmarket for RECs. To date, however, no statethat has adopted the RPS has felt the need toadopt a price cap. Regulators have not judgedthe added costs for purchasing renewable en-ergy to be burdensome enough to require one.

Figure B-1: Two Sources of Incomefor Renewable Generators

00.5

11.5

22.5

33.5

44.5

5

Conventionalgeneration

cost

Renew ablegeneration

cost

cent

s pe

r kW

h

Income from REC

Income from market

Market price


From Good Idea to Good Policy:Filling in the Details of the RPSThe renewable portfolio standard has the potential tomove the United States along a path to sustainableenergy, but only if the state and national governmentsmake a commitment to it. This section examines someof the practical issues that could move the RPS froma good idea to good policy.

Choosing the Right Percentage for the RPS.The portfolio standard should be set at a level that

can create a viable, predictable and safe market for astill young renewable energy industry. What is thatlevel? At a minimum, it would maintain the currentlevel of renewable generation we have now and leadto slow but steady growth over time. Retaining thelevel of existing generation does not necessarily meanretaining the same generators, since low-cost newgeneration should be able to compete against and dis-place high-cost existing generation. The RPS shouldalso grow slowly over time, to allow the market for

Figure B-2: Sample Compliance Sheet

Renewables Portfolio Standard Compliance Form

Company Name and Address: Green Power Inc., Sheboygan, Wisconsin

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Part One: Total REC Requirement

Total kWh sold in 1999: _10,000,000___kWh

x RPS requirement percentag _ 5%_ ___

equals Total Requirement for RECs ____500,000__ kWh

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Part Two: RECs Purchased

Total Requirement for RECs (from above) ____500,000___kWh

less RECs attached to this form ____250,000 __kWh

equals Remaining Requirement = ____250,000___kWh

(If Remaining Requirement is equal to or less than zero, stop here.)

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Part Three: Price Cap Purchases

Remaining Requirement (from above): ____250,000___kWh

x price cap ($0.025/kWh) x $0.025/kWh__

equals Total remittance to the REC Purchase Fund = $______6250____

(Please attach check payable to REC Purchase Fund to this form.)


renewables to develop. Finally, the level should re-flect societal values and goals for environmentalprotection, economic independence, and sustain-ability.

A study by the Union of Concerned Scientists andothers, Energy Innovations, found that by followingan “innovation path” of energy efficiency and low-polluting technologies, the United States could reducegreenhouse-gas emissions to 10 percent below 1990levels by 2010, while reducing air pollution, savingmoney, and promoting economic development.223 Un-der that scenario, renewable electricity would makeup 14 percent of the US power supply by 2010. Buteven a 10 percent standard by 2010 would assure suf-ficient development of renewables to contribute sub-stantially to that goal, while allowing market forces toincrease renewables penetration further if they are thelow-cost compliance option. (For details about stateand federal standards enacted or proposed as of Sep-tember 1998, see Appendix C.)

Costs of an RPS Program. Costs associated withrenewable portfolio standards fall into four catego-ries: the cost to consumers, the public costs of ad-ministering the program, the cost of the renewableenergy credits, and the costs to private firms of car-rying out the program.

Costs for public administration of the programwould stem from handling claims for RECs fromgenerators and retailers; overseeing, reviewing, andenforcing the program; and administering the pricecap fund. These costs could be covered by fees col-lected for processing REC claim forms or by the gen-eral funds of the agency charged with administeringthe program. The process could be largely computer-ized, as the Environmental Protection Agency’s sulfurdioxide allowance trading program is, thereby reduc-ing management costs considerably. The combinationof participant fees, computerization, straightforwardforms and accounting, and stiff penalties to deterfalse claims means this program should not be costlyto administer.

Prices for RECs will be a function of supply anddemand. The portfolio standard will set the demandfor RECs, a demand that will increase slightly eachyear. Power producers will determine the supply of

RECs. Producers and retailers, through negotiation,will set the price.

Finally, the administrative cost to companies fortrading RECs and complying with the standard shouldbe small. Retailers will have numerous options fortrading or may simply rely on brokers. The primarycost of an RPS program is the cost of the RECs,which directly supports renewables generation; lowadministrative cost is one of the distinguishing bene-fits of market-based regulation.

Regional Issues. If RECs are traded nationwide,some critics have argued that regions with a substan-tial base of renewables already in place, such as Cali-fornia, would be the sole or primary beneficiary ofthe RPS. This needn’t be the case. A federal RPS canbe designed to promote regional or state developmentof renewables. Current federal bills allow states totailor the RPS to fit their needs.

For example, a sunny state like Nevada could re-quire that 1 percent out of a 5 percent national RECrequirement come from Nevada-based solar genera-tors. Or it could require retailers to obtain 1 percentof their power from in-state solar plants, on top of thefederal standard. And, to keep costs down, a state orregion could set its own price cap.

Due to interstate commerce rules, state-level RPSlaws probably cannot now require in-state siting ofrenewable generators. Such a law would arguably re-strict interstate commerce. However, a federal lawthat allows for state-specific siting could overrule in-terstate commerce considerations.224

With or without a local standard, states couldpromote renewables development by providing taxincentives or development grants to energy develop-ers. Public universities could provide research toidentify renewable resources within a state. Thesecomplementary inducements would attract renew-ables developers to any state inclined to pursue them.

States also have the option of allowing the stan-dard to be met entirely through nationally tradableRECs. This option permits states with less attractiverenewable resources to contribute to meeting the na-tional standard at the lowest possible cost.

Automatic Sunset and Ongoing Adjustments.In the transition to a fully competitive retail electric-ity market, some policymakers are worried about how


long they should support renewables, energy effi-ciency, and low-income issues. They worry that theseissues won’t just go away in a competitive market,but that political support for ongoing funding may.Thus, many policy measures include sunset provi-sions or at least sunset reviews. California’s $540million “transition fund” for renewables ends afteronly four years, implying that renewables must befully competitive by then.

Because of the way in which the RPS is designed,policymakers needn’t worry about picking an enddate for it. A goal of an RPS is to drive down the costof the renewable energy through competition. If anRPS is successful and renewables become competi-tive with conventional generators, the value of theRECs will be driven down to almost nothing. In otherwords, a renewable power producer that can be prof-itable selling its power at market rates will be able tosell its RECs for less than any other generator on themarket. Eventually, the RECs will be worthless, andthe RPS will be obsolete.

If the renewables standard remains at the samelevel, the RPS requirement is likely to become in-creasingly irrelevant as prices for renewable energydecline. But the RPS approach also allows regulatorsto continue raising the standard so as to develop morerenewables. Just as the Clean Air Act tightened emis-sion standards over time, so too can an RPS requiremore clean energy production over time. If a 5 per-cent standard is met ahead of schedule and undercost, regulators can increase it to 6 or 7 percent, cre-ating continual improvements. Renewables will al-ways provide public goods that future legislators maywant to continue to credit.

The RPS and Resource Diversity. By develop-ing a market for nonfossil fuel and nonnuclear elec-tricity, the RPS would take an important step towarddiversifying the nation’s energy supplies. Further in-creasing the variety among renewable energy sourceswould also provide diversity benefits. The RPS is de-signed to promote the technologies that are closest tobeing market-ready, such as wind, landfill gas, and insome areas, geothermal. But if other types of renew-ables—such as biomass and solar—are also devel-oped, the stability of the entire US energy programwill increase.

The RPS could be designed to explicitly promotedifferent technology types. Arizona’s standard, forexample, focuses exclusively on solar energy, whileNevada’s requires that half of new production to befrom solar technologies. In California, RPS propo-nents recommended that part of the overall RPS per-centage be set aside for biomass power, to support thelarge and troubled biomass industry in that state.

An alternative mechanism would be to set a limiton the use of any one or two technologies to meet thestandard. Thus, a supplier could be limited to meetingthe standard with no more than 60 percent of creditsfrom any one technology, or 90 percent from any twotechnologies. This mechanism would preserve diver-sity without requiring government officials to picktechnology winners.

A related issue is the conflict between existingand new renewable power plants. Some existingpower plants may have already recovered their capitalcosts and need less support, while others may need topass their costs along to the consumer. In most cases,new renewable plants will have difficulty competingwith older plants. One proposed federal bill (Bump-ers-Gorton) would use adjust the RECs to favor newrenewables: it proposes giving energy from new re-newables two credits, that from existing renewablesone credit, and energy from large hydro dams a halfcredit.

Another solution (adopted in Connecticut andMassachusetts and proposed in Vermont) is to createseparate portfolio standards for different tiers orclasses of renewables. New renewables are assigned aseparate minimum, growing standard. This mecha-nism allows new renewables to receive a price pre-mium different from that needed to preserve existingrenewables. New renewables are also allowed tocompete to displace the class of existing renewables,ensuring that existing renewables continue to be sup-ported only as long as their operating costs are lessthan the cost of building and operating new renew-ables.

Linking the RPS with the Public Benefits TrustFund. The RPS is designed to bring a minimum per-centage of renewables into the market at the lowestcost to society. The least-cost renewables will be thewinners. But emerging technologies like photovol-


taics and fuel cells—which cost more now but mayhave important future benefits—would not be viablein the near-term based solely on the value of renew-able energy credits. A public benefits trust fund, cre-ated by a small charge on each kilowatt-hour of elec-tricity, could support the research, development, andcommercialization of innovative renewable technolo-gies. It could also help to overcome specific marketbarriers, provide financing for renewables projects,and build renewable industry infrastructure.Connecticut and Massachusetts have adopted bothportfolio standards and renewable energy trust funds.

The Relationship Between the RPS and“Green Marketing” of Electricity. A federal orstate RPS is not incompatible with green marketing. Itis a supply-side requirement—it doesn’t specify howthe power is sold, only that retailers must include it intheir product mix. In a competitive market, retailerswill sell renewable energy for whatever the marketwill allow, and many are likely to try to charge apremium for it as an “environmentally friendly”product. Since the RPS is a minimum standard, strongconsumer demand could result in more power beingproduced than the RPS requires.225 If demand is weakdue to high prices, the RPS would ensure that thepublic desire for a clean environment is being ad-dressed, at least at a minimum level.

The RPS is likely to affect the content of productsoffered as “green.” If every power product has aminimum 10 percent renewable content, then greenmarketers will have to go beyond the minimum to at-tract a premium from environmentally-concernedconsumers.

To Whom Should the Standard Apply: Retail-ers or Generators? Some of the legislative proposalsrequire that retailers comply with the RPS, while oth-ers put the standard on electricity generators. It seemsto make more sense to have retailers meet the RPSrequirement, using RECs created by generation com-panies.

Power retailers will operate as intermediates be-tween generation companies on one side and retailcustomers on the other, essentially assembling a“portfolio” for their customers. It would be a naturalfunction of their business to incorporate renewableresources and RECs into their portfolios. They will be

in the best position to decide whether they should buyRECs, buy power and RECs, or invest in their ownrenewable resource facilities and create RECs.

Generation companies will have a very differentrole. Their job will be to provide power to the whole-sale market. In some cases, this could involve col-lecting a number of different power plants into a sin-gle product, but in many cases it wouldn’t.Generators may or may not have regular contact withother generation companies, so may have limitedability to incorporate REC trading into their everydayoperations.

Financial Effects on Renewable ResourceGenerators. The RPS does not pick winners and los-ers, and it does not guarantee an income for a powerproducer. It does guarantee that a share of the powermarket will come from renewable energy, but re-quires individual companies to fight for a piece ofthat share. Renewable energy companies will surviveand thrive according to their ability to compete.

This competition, like competition in the broadermarket for electricity, will drive down costs and in-crease innovation. It will cause some generation com-panies, if they don’t innovate to lower their costs, togo out of business. Likewise, low-cost generators thatare already competitive could earn additional reve-nues from an RPS program. This is not necessarily abad outcome for a number of reasons. First, it wouldreward the most cost-effective generators and providethem with incentives to expand low-cost output orbuild new plants. Second, it would provide an incen-tive to high-cost generators to work hard to lowertheir costs. And third, it would compensate these re-newable generators for the environmental benefitstheir power provides. As with other industries, thosethat find ways to lower costs profit more and offer acost target for others to pursue.

The RPS in Regulated Markets. The portfoliostandard will work well in competitive markets, but itcan be used to lower the cost of renewables in regu-lated utility markets as well. Without retail competi-tion, an RPS is similar to a “set-aside,” which a num-ber of state legislatures and utility commissions haveimplemented. But instead of each company, or spe-cific companies, complying with the standard, thesuppliers can collaborate by means of tradable re-


newable energy credits. For example, one companymay have superb wind or geothermal resources thatothers lack. By developing that resource and sellingcredits to other companies so that they can meet theirshare of the standard, the industry as a whole canmeet the goal at the lowest cost to state consumers.

By having an RPS up and running under the cur-rent regulated system, utilities and regulators will beready to implement renewable credit trading if com-petitive markets take over.

The RPS and Current Laws and Regulations.Because the RPS is not a subsidy program, it wouldnot necessarily come into conflict with governmenttax credits or production credits for renewable gen-eration. For example, a company producing renew-able energy credits could still receive Renewable En-ergy Production Incentives authorized by the EnergyPolicy Act of 1992. The RPS also would not directlyaffect existing contracts formed under the PublicUtilities Regulatory Policy Act (PURPA). It is possi-ble that the RPS could cause generators or utilities tomutually end or change existing contracts, if the op-portunity for added revenue from selling renewableenergy credits (perhaps under a new long-term con-tract for credits) is more attractive than maintainingthe existing power contract.

Unless specified otherwise, the Internal RevenueService is likely to declare RECs to be taxable in-come for the renewable generators. Taxing RECs willreduce their value to the generators and produce ad-ditional tax revenues for the government. It would bepreferable to declare RECs nontaxable. Alternatively,an offsetting tax cut could be implemented.

Choosing a Program Administrator. Candi-dates for administering a federal RPS include the De-partment of Energy, the Federal Energy RegulatoryCommission, and the Environmental ProtectionAgency. Their state-level counterparts would be thestate energy office, utility commission, and depart-ment of natural resources. One argument in favor ofthe DOE is that it does not have an adversarial rela-tionship with potential RPS participants. FERC hasextensive knowledge of the wholesale electricity in-dustry. The EPA might also be an appropriate placeto manage the program. First, the EPA has experiencemanaging the acclaimed sulfur dioxide trading pro-

gram. The RPS would be a similar but simpler un-dertaking, since there would be no emissions moni-toring. Second, RECs represent the “clean” in cleanpower (among other attributes), so a case can bemade for an environment-oriented agency to admin-ister the program.

States have made differing choices. Massachu-setts chose the state Division of Energy Resources(the governor’s policy office) to administer the pro-gram. Connecticut chose the Department of PublicUtility Control. See Appendix C for more detailsabout state RPS programs.

Whoever is chosen, the approach should benonadversarial, problem-solving, promarket, and goaloriented. That is, the program administrator shouldset performance goals and seek to live up to them.Some of the administrative functions—such as RECpurchases from the price cap fund or site audits—could, under appropriate circumstances, be contractedout to private firms.

Alternatives to the Price Cap Mechanism. Byoffering “proxy” credits at a price slightly abovewhere RECs are expected to sell, as described above,the program administrator would limit the total costof an RPS. As competitive forces drive down theprice of RECs, the likelihood that retailers would everpay this maximum decreases. The price cap optionretains the cost-reducing power of market incentiveswhile protecting buyers from unexpected upswings inREC prices.

The price cap is unlikely to become the “goingprice” for all RECs. First, retail providers have nu-merous options for acquiring RECs, so they will ac-tively seek out lower-cost credits. Second, there aretoo many generators to coordinate a “REC cartel” andgame the market. With dozens (perhaps growing tohundreds) of renewable resource generators spread allover the country, individual generators could easilylower their prices slightly and obtain the most securecontracts for RECs and power. Third, if renewablegeneration exceeds demand for RECs, some genera-tors will not be able to sell the RECs they created,thus driving down prices. Finally, as a result of mar-ket-based innovation, the price for sulfur dioxidecredits in the EPA’s acid rain reduction program has


never risen to the “penalty” price cap; the RPS aimsto stir the same market forces.

An alternative to the price cap would be to allowretail providers to petition the program administratorto reduce their REC targets or extend compliancedates. This approach has three weaknesses. First, itwould require a bureaucratic investigation and deci-sion, a process likely to be costly and time consum-ing. Second, the process would introduce uncertaintyinto REC markets. Renewable energy sellers (and in-vestors) would not know how much of a market ex-ists. Should they or should they not invest in a newplant? If they do, and then enough retail providersmanage to postpone compliance, the generator couldgo bankrupt for lack of a REC market. Third, such anoption would give retailers an incentive to resistcompliance and violate the spirit of the law. It is farsimpler to set a reasonable price cap and let the mar-ket decide which is the least-cost provider.

Penalties for Noncompliance. If a generatorattempts to falsely certify RECs, a penalty couldrange from simply denying the request to imposing afine to excluding the generator from certifying anyRECs for a given period of time (thus missing out oncredit payments). Penalties should be severe enoughto deter submission of false claims. If a retail providerfails to comply—unlikely, given the price cap mecha-nism—the program administrator could impose a sig-nificantly higher penalty per required REC.

Self-Generators and Hybrid Fossil Fuel/Re-newable Generators. Some companies have theirown electricity generators that do not provide powerto the larger electricity grid. Most self-generators usepolluting, nonsustainable fuels, just like conventionalgenerators. They should be required to participate in

the RPS program just like any retailer of power. Toease administration and compliance, companies withsmall generators, perhaps 1 MW or less, might be ex-empted from participation.

Some power generation companies use both re-newable power and conventional power in hybridpower plants. For example, solar thermal powerplants in California use gas-fired turbines to providepower when needed. Renewable energy credits wouldonly result from the renewable energy portion of ahybrid technology. Maine has chosen this approachfor fossil fuel hybrids in draft RPS regulations.

Issues Relating to Energy Use across NationalBoundaries. The RPS is analogous to any otherproduct safety or performance standard. For example,no matter where an airplane is manufactured, if it isused in the United States, it must meet US safety andperformance standards. The RPS covers all powerwhose end use occurs in the United States, regardlessof where the power or the power sales originate.Since all countries are treated equally under the RPS,it is unlikely to conflict with NAFTA or GATT traderules.

Both Mexico and Canada have renewable energygenerators that could qualify for RECs. Mexico has a100 MW geothermal facility that has historically soldpower into the US market, while Canada has somewind facilities and some small-scale hydropower. Ifthese companies are supplying power to the UnitedStates, they should be allowed to apply for and re-ceive RECs from the program administrator. Simi-larly, retailers located in Canada or Mexico who sellpower in the United States would need to acquirecredits for the US portion of their sales.

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s C-1

Appendix C

The Renewables Portfolio StandardImplementation Status as of November 1998

StatusAs of December 1998, renewables portfolio standardshad been adopted in Arizona, Connecticut, Maine,Massachusetts, and Nevada, passed by the Vermontsenate, and filed in bills in Nebraska, New Jersey,New Mexico, Delaware, Kansas and Wisconsin (seetable C-1).226 In Pennsylvania, some individual utilitysettlements have been adopted which provide for aminimum renewables requirement for a default pro-vider to serve up to 20 percent of non-switching cus-tomers.227 A number of federal restructuring bills alsohave RPS provisions, including those proposed byRepresentative Daniel Schaefer (R-Colorado), Repre-sentative Edward Markey (D-Massachusetts), SenatorDale Bumpers (D-Arkansas), Senator James Jeffords(D-Vermont), and the Clinton Administration (see ta-ble C-2).

Implementation IssuesRenewables portfolio standards can be implementedin a variety of ways, as discussed below. No twostates adopting renewables portfolio standards (RPS)have chosen the same approach to date.

Credit Trading. As originally proposed by theAmerican Wind Energy Association, the RPS wouldallow companies to meet their obligation by generat-ing or purchasing renewable energy, or by buyingtradable credits from other suppliers. Credits wouldbe created as renewable power is created, with onecredit representing one unit of electricity. Renewableenergy generation companies would sell credits toretailers who need them to meet the RPS standard.This approach is based on the credit-trading programfor sulfur dioxide emissions instituted by the CleanAir Act: utilities that can make low-cost reductions ofsulfur dioxide can sell excess credits to utilities fac-ing higher compliance costs, resulting in an economi-cally optimal result. Appendix B discusses in detail

how an RPS credit trading system would work andthe advantages of this approach.

All federal bills introduced to date have includedrenewables credit trading. The National Associationof Regulatory Utility Commissions has passed aresolution endorsing credit trading for implementingany minimum renewable energy requirements. So far,however, no states adopting an RPS have requiredcredit trading. The Connecticut restructuring law al-lows the Department of Public Utilities Control toimplement credit trading. Arizona and Nevada areconsidering tradable credits. The Massachusetts lawrequires the Division of Energy Resources to studycredit trading and report to the legislature, whichwould need to adopt new legislation to implementcredit trading. The Maine Public Utilities Commis-sion tentatively decided against credit trading in itsdraft RPS regulations, stating that it is inconsistentwith the intention of New England state commissionsto track kilowatt-hour sales in order to inform cus-tomers of each utility’s fuel mix and emissions.228

However, if the national system to verify sulfur di-oxide emission reductions—which uses credits todetermine compliance with regulations—does notconflict with the proposed disclosure mechanism, it isunclear why a credit system to verify compliance withan RPS would either.

Cost Caps. One potential disadvantage of renew-ables portfolio standards is that the cost of the policyis not defined. Appendix B describes a cost capmechanism that can address this issue where it maybe a concern. To date, however, no state adopting aportfolio standard has enacted a cost cap, althoughindividual utility settlements in Pennsylvania includecaps. Originally, the RPS passed by the Massachu-setts House of Representatives included a cap, but theSenate and conference committee discarded it. At thefederal level, the administration’s restructuring bill

C-2 P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

includes an RPS with a cost cap, which sets a 1.5 centper kWh maximum price for renewable energycredits.

Level of the Standard. Determining the level ofthe standard may be the most difficult decision inRPS implementation. In Maine, the legislature set therequirement at 30 percent of retail sales. BecauseMaine had the highest level of renewables generationin the country (approximately 50 percent of genera-tion) in 1995, its RPS was intended to ensure thata large portion of existing renewables generationcontinues to operate after restructuring. It could alsolead to development of new renewables if sales in-crease over time.

Connecticut and Massachusetts adopted separatestandards for existing renewables and for new renew-ables. The Connecticut law clearly requires existingrenewable technologies, labeled Class II technologies,to maintain their current 5.5 percent of sales and toincrease to 7 percent of sales by 2009. Class I tech-nologies—which are new, emerging technologies—must increase yearly to 6 percent of sales by 2009.Class I technologies can also displace existing ClassII renewables if they are more cost-effective.

The Massachusetts law is somewhat ambiguousabout the level of existing renewables included in theRPS. The law directs the Division of Energy Re-sources to set a standard for renewables, with new re-newables (built after 1997) increasing to “an addi-tional” 1 percent by 2003, 4 percent of sales by 2009and 1 percent per year thereafter. Some Massachu-setts stakeholders have interpreted the requirement toapply only to new renewables. Others believe that thephrase “an additional” means that the state must pro-tect the existing level of renewables and ensure thatnew renewables add to that level, requiring in effect atwo-tier standard.

The Vermont Senate has passed a two-tier RPSthat would preserve existing sales of 15 percent re-newables and add 4 percent from new renewables by2007.

The advantage of a two-tier proposal is that it as-sures the continued development of new projects andtechnologies. Without such a requirement, the entireRPS in Connecticut, Massachusetts, or Vermontcould be met by existing renewables in Maine or

Canada, without stimulating any new renewables de-velopment. In addition, the two tiers mean that theincremental cost of meeting the standard in each tiercan be different. If the cost of continuing to operateexisting renewables is much lower than the cost ofdeveloping new renewables, the credit price forexisting renewables will also be much lower, therebyreducing the cost of the RPS to customers.

The level of the RPS passed in Connecticut andMassachusetts, and proposed in Vermont, isapproximately the level that the Union of ConcernedScientists had recommended, based on the availabilityand cost of renewables in the region and on an analy-sis of the regional contribution to goals for sustainedorderly development nationwide.229 UCS estimatedthat the RPS should increase gradually to 1 to 2 per-cent of electricity revenues by the end of the 10-yearperiod. A preliminary estimate by the MassachusettsDivision of Energy Resources was also about 2 per-cent in 2009.

The renewables portfolio standards passed inArizona and Nevada focus on developing new renew-ables. Nevada would increase new renewables gen-eration to 1 percent of sales by 2009. The ArizonaCorporation Commission originally approved a solarportfolio standard of 0.5 percent of sales by 1999 and1 percent of sales by 2002. This proposed Arizonastandard would have increased rates by 0.6 percent to1.7 percent by 2010, according to the state energyoffice.230 The requirement was subsequently modifiedto 0.2 percent by 1999 and 1 percent by 2003,remaining in place until 2012.

Pennsylvania utility settlements start with thedefault provider supplying 2 percent renewables,increasing at 0.5 percent per year, with a cost cap.

The federal bills would all begin at approximatelythe level of existing renewables generation—about2.5 percent of generation—and increase over time.They would reach at least 4 percent of sales by 2010in the Schaefer bill, 10 percent of sales by 2010 in theMarkey and Jeffords bills, and 20 percent of sales by2020 in the Jeffords proposal. The national Sustain-able Energy Coalition has recommended that the levelbe set at 10 percent of sales by 2010, based on gen-eral considerations of sustained orderly development,environmental protection, fuel diversity, and national

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s C-3

security. Over 200 environmental, consumer, andbusiness organizations have endorsed a platformincluding this goal.231

In-State vs. Out-of-State Generation. Nevadaand Arizona have required that the RPS be met usinggeneration located in the state. The New Englandstates allow the requirement to be met with any gen-eration sold to customers in the state, whether gener-ated in state or not. A standard in which all generatorscan compete to meet the RPS, irrespective of loca-tion, may be more likely to withstand potential chal-lenges to the Commerce Clause of the US Constitu-tion.232

Eligible Resources and Technologies. Stateshave adopted very different RPS eligibility require-ments, depending on resource availability and costs.Arizona, for example, has required that its standardbe met exclusively by solar technologies. At least halfof Nevada’s requirement must be met by solar.

Each New England state has adopted slightly

different eligibility requirements. Maine allows theRPS to be met using hydroelectric generation fromplants smaller than 100 MW, as well municipal solidwaste (MSW) facilities, and cogeneration plants un-der 100 MW, even if fueled by natural gas. Massa-chusetts and Connecticut allow MSW and hydroelec-tric plants to meet the requirement for existingrenewable technologies, but not the requirement fornew technologies. All three New England states allowfuel cells to qualify as new renewables, even if natu-ral gas is used as the fuel.233 Some environmentalgroups had urged fuel cells to qualify as a low-emission bridge to a renewable hydrogen fuel tech-nology. Connecticut is also home to a major fuel-cellmanufacturer.Most federal proposals exclude hydropower. Theproposal by Senator Bumpers includes hydropower,but grants large hydro plants only half the creditgranted to other existing renewables. New renewableswould earn double credit under the Bumpers bill.

U n i o n o f C o n c e r n e d S c i e n t i s t s P o w e r f u l S o l u t i o n s D-1

Appendix D

Public Benefits FundingImplementation Status as of November 1998

StatusAs of December 1998, Arizona, California, Connecti-cut, Illinois, Massachusetts, Montana, New Mexico,New York, Rhode Island and some Pennsylvaniautilities have set specific funding levels for eitherrenewables or for a range of purposes that includerenewables (see table D-1). California and RhodeIsland have begun disbursing funds to renewablesdevelopers. On the federal level, bills by Representa-tive Edward Markey (D-Massachusetts), SenatorJames Jeffords (D-Vermont), and the ClintonAdministration have included public benefits fundingfor renewables.

Implementation IssuesThere are many methods of raising and spendingpublic benefit funds. The funding variations reviewedhere are those that had been proposed and adopted invarious jurisdictions as of September 1998.

Level of the Fund. Thus far, in most statespostrestructuring funding levels for public benefitsprograms have approximated the level of fundingprovided by regulated utilities prior to restructuring.Some states, such as Massachusetts and Rhode Island,have reduced funding for energy efficiency some-what, but increased funding for renewables, on theassumption that the market would stimulate more ef-ficiency investment, especially for commercial andindustrial customers.234 Illinois instituted modestfunding for efficiency and for renewables in restruc-turing legislation, despite no previous utility spendingin these areas.

Most states have implemented uniform, statewidepublic benefits funding in legislation and regulation.In New York, however, where the Public ServiceCommission approved individual utility restructuringsettlements, public benefits funding levels have also

been set company by company to approximate pre-restructuring levels.

Connecticut’s restructuring legislation signifi-cantly increased public benefits funding from earlierlevels. Energy efficiency funding was restored topeak historical levels of 0.3 cents per kWh(3 mills/kWh), reversing cuts that had been madeover several years prior to restructuring. In addition,Connecticut adopted funding for renewable energy of0.5 mills/kWh for the first two years of restructuring,followed by two years at 0.75 mills/kWh and1 mill/kWh thereafter. The Union of Concerned Sci-entists had proposed a minimum level of funding of1 mill/kWh in New England, based on analysis of aregional contribution to a national scenario for sus-tained orderly development of renewables.235

Arizona has established a system benefit chargeto fund a solar hot water heater rebate program, with$200,000 in 1999, increasing by $200,000 annually to$1 million in 2003. The state’s SBC also includesenergy efficiency, nuclear fuel disposal, and publicbenefit R&D, in addition to the low income, envi-ronment, renewables, and nuclear power plant de-commissioning.

New Mexico has established a charge equal to 0.5percent of each customer’s bill, approximately thesame percentage of revenues as in Massachusetts andConnecticut. Funding would go half to solar and halfto a bidding process for other renewables.

Duration of the Fund. States have variedgreatly in the duration established for public benefitsfunding. California and Rhode Islands, the first twostates to restructure, approved public benefits fundingfor four years. New York set funding levels for onlythree years. Massachusetts and Connecticut estab-lished efficiency funding levels for five years, but

D-2 P o w e r f u l S o l u t i o n s U n i o n o f C o n c e r n e d S c i e n t i s t s

indefinite funding for renewables. Illinois approved aten-year funding plan.

Structure of the Charge. Most of the publicbenefits funds adopted and proposed at the state levelcharge distribution company customers a fee for eachkilowatt-hour of electricity consumed. Illinois struc-tured its public benefit funding on a flat charge perclass of customer. Residential electricity customerspay 2.5 cents per month; nonresidential customersusing less than 10 MW pay 25 cents per month, andcustomers using over 10 MW pay $17.75. Becausethe Illinois charge is so small, the state’s flat chargeper residential customer approximates what a chargebased on usage would cost. However, large commer-cial and industrial customers pay significantly lessthan they would if charged per kWh.

Administering Entity. States have generally cho-sen either state energy offices or economic develop-ment agencies to administer renewables funds. Cali-fornia and New York have designated state energyagencies—the California Energy Commission and theNew York State Energy Research and DevelopmentAgency—to administer their renewables funding, be-cause both of these agencies had significant renew-able energy development programs prior to restruc-turing. The Connecticut, Illinois, and Massachusettsrestructuring bills designated quasipublic economicdevelopment agencies to implement their funds, re-flecting a desire to stimulate new renewables businessdevelopment. Boards with stakeholder representationwill provide input and oversight to fund managers. InRhode Island, a collaborative stakeholder process,with oversight by the Public Utilities Commission,guides both renewables and energy-efficiencyspending. In most other states, distribution compa-nies—with oversight by the utility commission—re-tain responsibility for administering energy-efficiencyspending.

Funding Strategies and Mechanisms. A num-ber of different funding strategies have been proposedand implemented to date. California’s strategy is themost developed, with different mechanisms created tosupport different states of renewables development.California’s restructuring law (AB 1890) established$540 million in funding for existing, new, andemerging renewables in the state over a four-year pe-

riod. Following the recommendations of the Califor-nia Energy Commission, with stakeholder input, SB90 adopted specific allocation and distributionmechanisms. Existing technologies are eligible for$243 million, with monthly generation payments.Based on their competitiveness, technologies areclassified in three tiers, with different maximum sup-port payments for each tier. New renewables projectsare eligible for $162 million awarded by an auctionfor price supports. Awards have been made to a totalof 600 MW of new wind, geothermal, biomass, land-fill gas and small hydro, at an average level of1.2 cents per kWh.

For emerging technologies (photovoltaics, smallwind turbines, solar thermal and fuel cells), $54 mil-lion is being used to reduce the price of new installa-tions. Decreasing incentives are provided each yearover five years, in the maximum incentive per watt ofsystem output and the maximum incentive as a per-centage of the total system cost.

A customer credit account of $75.6 million paysan incentive of 1.5 cents per kWh to customerschoosing to buy power from in-state renewables. Fi-nally, $5.4 million was allocated to a consumer edu-cation account, for which expenditures are still in theplanning stage.236

In Rhode Island, a $20 million annual energy ef-ficiency and renewables fund is expected to spendabout $2 million on renewables in 1998. A renewableenergy collaborative first sponsored studies of themarket potential of specific technologies in RhodeIsland and Massachusetts. Rhode Island made initialproject awards in June 1998. One helped a solar com-pany to buy down the cost of installing photovoltaicsat 500 homes, schools, and nonprofit organizations.The other enables a wind energy developer to investi-gate coastal wind sites. Money for permitting andproject development has also been allocated, pendingcompletion of the feasibility study.

The New York State Energy Research and De-velopment Authority has published a notice an-nouncing it will co-fund one or two wind develop-ments of at least 4 MW for up to $6 million.237

The Massachusetts Renewable Energy TrustFund was established to support renewable energy forelectricity customers and the development of Massa-


chusetts renewable energy businesses. The fund willcollect approximately $200 million over five years,and $20–25 million each year thereafter. For the firstfive years, about $10 million each year is dedicated toretiring waste-to-energy plants or installing pollutioncontrols on them.

The restructuring law authorized a broad range offunding mechanisms to support renewables productand market development, pilot and demonstration ac-tivities, production incentives, training and public in-formation, research and development, and investmentto support renewables projects, enterprises and insti-tutions. The Massachusetts law seeks to leverage pri-vate investment to create a larger pool of capital andto familiarize private investors with renewable en-ergy.

A lawsuit challenging the constitutionality of theMassachusetts fund has been filed alleging that it isan unconstitutional discriminatory tax, since fundingis provided by investor-owned utility customers butnot by municipally-owned utilities, which are notsubject to the electricity restructuring law. Until thelawsuit has been resolved, the fund is unlikely to sup-port projects. Nevertheless, the Massachusetts Tech-nology Collaborative, a quasipublic agency desig-nated by the legislature to manage the fund, hasassumed that the lawsuit will be resolved and hashired consultants, Bain & Co. and Arthur D. Little, todevelop a business plan.238

At the national level, Richard Cowart, chair ofthe Vermont Public Service Board, proposed a Na-tional System Benefits Trust that would providematching funds to states to support energy efficiency,low-income energy assistance, and research and de-velopment on renewables.239 This approach is parallelto the Universal Service Support in the telecommuni-cations industry and the Airport and Airway TrustFund, which provides for public safety in air transit.Federal bills introduced by Representative Peter De-Fazio, Representative Kucinich, Senator James Jef-fords, and the Clinton Administration include such aprovision.

References1 For up-to-date status on electricity restructuring, see USDepartment of Energy, Status of State Electric Utility Deregu-lation Activity, updated monthly on line atwww.eia.doe.gov/cneaf/electricity/page/restructure.html.2 For an overview of restructuring see, Timothy Brennan,Karen Palmer, Raymond Kopp, Alan Krupnick, Vito Staglianoand Dallas Burtraw, A Shock to the System: RestructuringAmerca’s Electricity Industry, Resources for the Future,Washington, DC, 1996; also, an important series of papershas been published as the Electric Industry Restructuring Se-ries by the National Council on Competition and the ElectricIndustry on-line atwww.ncsl.org/public/catalog/envicat.htm#electric. Web siteswith comprehensive information include the National Coun-cil of State Legislatures on-line atwww.ncsl.org/programs/esnr/restru.htm and the U.S. EnergyInformation Administration on-line atwww.eia.doe.gov/cneaf/electricity/page/restructure.html3 See W. Golove and J. Eto, Market Barriers to Energy Effi-ciency: A Critical Reappraisal of the Rationale for PublicPolicies to Promote Energy Efficiency, Lawrence BerkeleyNational Laboratory, LBL-38059, March 1996. Available on-line at eetd.lbl.gov/EA/EMP/emppubs.html.4 For more information on energy efficiency programs andpublic benefits funding, see Joseph Eto, Charles Goldman,and Steven Nadel (ACEEE), Ratepayer-Funded Energy-Efficiency Programs in a Restructured Electricity Industry: Is-sues and Options for Regulators and Legislators, LawrenceBerkeley National Laboratory, LBNL-41479, May 1998; J.Eto, The Past, Present, and Future of U.S. Utility Demand-Side Management Programs, LBNL-39931, December 1996.Available on-line at http://eetd.lbl.gov/EA/EMP/emppubs.htmland the American Council for an Energy Efficient Economyweb site at http://www.aceee.org/.5National Resources Defense Council, Breath Taking: Pre-mature Mortality due to Particulate Air Pollution in 239American Cities (May 1996), p. 1, on line atwww.nrdc.org/find/aibresum.html.6 For an overview of air pollution health problems, see CurtisA. Moore, Dying Needlessly: Sickness and Death Due to En-ergy-Related Air Pollution, Renewable Energy Policy ProjectIssue Brief, College Park, Md.: University of Maryland, Feb-ruary 1997, on line at http://www.repp.org/index_ar.html. Seealso Irving M. Mintzer, Alan S. Miller, Adam Serchuk, TheEnvironmental Imperative: A Driving Force in the Develop-ment and Deployment of Renewable Energy Technologies,REPP Issue Brief No. 1, April 1996.7 See also US EPA, Office of Air and Radiation, EPA's Up-dated Clean Air Standards: A Common Sense Primer, Sep-tember 1997, online at www.epa.gov/oar/primer8 Likens et al. “Long-Term Effects of Acid Rain: Response andRecovery of a Forest Ecosystem,” Science, 1996: 272:244-246.9US Environmental Protection Agency, “Revised Ozone Stan-dard,” fact sheet, Office of Air and Radiation, July 17, 1997,on line at http://www.rtpnc.epa.gov/naaqsfin.10 Intergovernmental Panel on Climate Change, Summary forPolicymakers: The Science of Climate Change, IPCC WorkingGroup I, on line at http://www.ipcc.ch.


11 Goddard Institute for Space Studies, Global TemperatureTrends, on line atwww.giss.nasa.gov/research/observe/surftemp. See alsoNOAA's National Climate Data Centre atwww.ncdc.noaa.gov/ol/climate/research/1998/jun/us/us.html.12 See the web page on global warming at the US Environ-mental Protection Agency’s web sitewww.epa.gov/globalwarming/impacts/index.html.13 US Environmental Protection Agency, “Revised ParticulateMatter Standard,” fact sheet, Office of Air and Radiation, July17, 1997, on line at www.rtpnc.epa.gov/naaqsfin.14 US Environmental Protection Agency, Office of Air QualityPlanning and Standards, 1997, National Air Pollutant Emis-sion Trends Report, 1900–1995, on line atwww.epa.gov/oar/emtrnd.15U.S. Environmental Protection Agency, Mercury Study Re-port to Congress, Vol. III, December 1997, on line atwww.epa.gov/oar/mercury.html.16 US Environmental Protection Agency, Mercury Study Re-port to Congress, Vol. I Executive Summary, January 5, 1998,on line at www.epa.gov/ttncaaa1/t3/reports/volume1/pdf.17 For information about water contamination from coalcombustion waste, see the Hoosier Environmental Councilweb site atwww.enviroweb.org/hecweb/archive/coal/coal.htm.18 Office of Technology Assessment, US Congress, Studies ofthe Environmental Costs of Electricity, October 1994, on lineat www.emanifesto.org/OTAEnvironmentalCost. See also USEnergy Information Agency, Electricity Generation and Envi-ronmental Externalities Case Study, on line atwww.eia.doe.gov/cneaf/electricity/pub_summaries/ext_sum.html19 State of Minnesota in Court of Appeals, CX-97-1391, In theMatter of the Quantification of Environmental Costs, Pursuantto Laws of Minnesota 1993, Chapter 356, Section 3, filedMay 19, 1998. Affirmed and motion granted, Randall, Judge,Minnesota Public Utilities Commission Agency File No.E999/CI93583, on line at

391.htm. See also Minnesotans for an Energy Efficient Econ-omy, Environmental Costs of Electricity, on line atwww.me3.org/projects/costs.20 Pace University School of Legal Studies, EnvironmentalCosts of Electricity, New York: Oceana Publications, 1991, p.209. See also James S. Cannon, “The Health Costs of AirPollution: A Survey of Studies Published 1984–1989,” pre-pared for the American Lung Association, Washington, D.C.,1990.21 George Lobsenz, “EPA Orders Utilities to Assess, DiscloseMercury Emissions,” Energy Daily, November 18, 1998.22 See the US Environmental Protection Agency web site atwww.epa.gov.23 These results are based on a hypothetical “climate policy”scenario that assumes carbon dioxide emissions would bereduced 15 percent below 1990 levels in developed coun-tries and 10 percent below 1990 levels in developing coun-tries. See The Hidden Benefits of Climate Policy: ReducingFossil Fuel Use Saves Lives Now, Resources for the Future,1997.24 Reactor Safety Study—An Assessment of Accident Risks inU.S. Commercial Power Plants, U.S. Nuclear RegulatoryCommission WASH-1400 (NUREG 75/014), Washington,D.C., October 1975, Cited in The Risks of Nuclear PowerReactors: A Review of the NRC Reactor Safety Study, Union

of Concerned Scientists, Cambridge, MA, Aug. 1977.25 David Lochbaum, The Good, the Bad, and the Ugly: A Re-port on Safety in America’s Nuclear Power Industry, Union ofConcerned Scientists, June 1998, on line at www.ucsusa.org.26 US General Accounting Office, Nuclear Regulation: Pre-venting Problem Plants Requires More Effective NRC Action,RCED-97-145, May, 1997.27 US Nuclear Regulatory Commission, Independent SafetyAssessment Report for Maine Yankee Atomic Power Com-pany, 1996.28 US Department of Energy, Integrated Data Base Report—1995: US Spent Nuclear Fuel and Radioactive Waste Invento-ries, Projections and Characteristics, DOE/RW-0006, Rev. 12,December 1996.29 US Environmental Protection Agency, Low Level Radioac-tive Waste, p. 3, on line atwww.epa.gov./radiation/radwaste/llw.htm.30 US Environmental Protection Agency, “Setting Environ-mental Standards for Yucca Mountain,” fact sheet, on line atwww.epa.gov/radiation/yucca/factrev.htm.31 Jim Riccio, Questioning the Authority, Public Citizen,April, 1998. On-line at www.citizen.org32 Washington International Energy Group, Need for NaturalGas Increases With More Nuclear Shutdowns, WashingtonInternational Energy Group, May 1998, on line athttp://www.wieg.com/nu/narchive.htm#Nuclear Indus-try/Regulation.33 For example, in the winter of 1995–96, natural gas pricesrose to $31 per million Btu, an increase of about 15 timesabove normal prices. Strategic Energy Ltd., “Weathering theWinter Without Interruptions,” Energy Watch, March 11,1996, on line at www.sel.com/ew031196.html. See also JohnHerbert, James Thompson, and James Todaro, “Recent Trendsin Natural Gas Spot Prices,” Natural Gas Monthly, December1997.34 Comments of Associated Industries of Massachusetts, to theMassachusetts Department of Public Utilities, 96-100, April24, 1996, p. 12.35 New England Governors’ Conference, Assessing New Eng-land’s Energy Future, A Report of the Regional Energy As-sessment Project (REAP), December 11, 1996, p. V-6.36 Colin Campbell and Jean Laherrere, “The End of CheapOil,” Scientific American, March 1998, pp. 78-83.37 US Department of Energy, Dollars from Sense: The Eco-nomic Benefits of Renewable Energy, 1998, on line athttp://www.eren.doe.gov/utilities/pdfs/dollars.pdf. Includesmany excellent examples of renewables/economic develop-ment synergy.38 The US geothermal industry as a whole employs about40,000. According to the National Corn Growers Associationthe corn-to-ethanol industry employs about 55,000 people(5,800 direct and 48,900 indirect).39 Michael Brower, Michael Tennis, Eric Denzler and M.Kaplan, Powering the Midwest: Renewable Electricity for theEconomy and the Environment, Union of Concerned Scien-tists, 199340 Jamie Chapman, OEM Development Corp. and Steven Wi-ese, Planergy, Inc., Expanding Wind Power: Can AmericansAfford it?, Renewable Energy Policy Project Research ReportNo. 6, October 1998. Available on-line athttp://www.repp.org/index_ar.html41The Effect of Wind Energy Development On State and LocalEconomies, National Wind Coordinating Committee, Wind


Energy Series No. 5, January 1997.42 Brower et al., Powering the Midwest, Union of ConcernedScientists, 1993, pp. 107–108. The study assumed 400 MWof wind, 110 MW conventional biomass, and 300 MW ad-vanced biomass. Energy-employment studies are necessarilyresource- and region-specific.43A.K. Sanghi., Economic Impacts of Electricity Supply Op-tions, New York State Energy Office, July 1992.44 Skip Laitner and Marshall Goldberg, Energy Efficiency andRenewable Energy Technologies as an Economic Develop-ment Strategy, April 1996. on line athttp://solstice.crest.org/renewables/era/index.html. Similarconclusions were found for the US and for nine other statesstudied.45 Jan Smutney-Jones and John Stewart, San Jose MercuryNews, November 22, 1998,46 American Wind Energy Association, Wind Energy and Cli-mate Change: A Proposal for a Strategic Initiative, October1997, on line at www.igc.org/awea/pol/ccwp.html.47 For an overview of international renewables policies, seeChristopher Flavin and Seth Dunn, Climate of Opportunity:Renewable Energy after Kyoto, Renewable Energy PolicyProject, July 1998.48 T.E. Hoff, H.J. Wenger, and B.K. Farmer, “The Value of De-ferring Electric Utility Capacity Investments with DistributedGeneration,” Energy Policy, March 1996. H.J. Wenger, T.E.Hoff, and B.K. Farmer, Measuring the Value of DistributedPhotovoltaic Generation: Final Results of the Kerman Grid-Support Project, First World Conference on Photovoltaic En-ergy Conversion, Waikoloa, Hawaii, December 1994.49 Michael Tennis, Alan Nogee, Paul Jefferiss, and Ben Pau-los, Renewing Our Neighborhoods: Opportunities for Dis-tributed Renewable Energy Technologies in the Boston Edi-son Service Area, Union of Concerned Scientists, August1995.50 Utility Photovoltaic Group, Utility Planning for PV Systems,Part 3, June 1994, p. 29.51 T. Hoff, H.J. Wenger, and B.K. Farmer, The Value of Grid-Support Photovoltaics in Providing Distribution System Volt-age Support, presented at the Solar 94 Conference, AmericanSolar Energy Society, San Jose, Calif., June 1994.52 Barbara Farhar, Trends in Public Perceptions and Prefer-ences on Energy and Environmental Policy, National Renew-able Energy Laboratory Report TP-461-4857, February 1993.See also Energy and Environment: The Public View, Renew-able Energy Policy Project Issue Brief, November 1996, online at www.repp.org.53 US Energy Information Administration, Renewable EnergyAnnual 1997, Volume I, October 1997, DOE/EIA-0603(97).54 Michael Brower, Cool Energy: Renewable Solutions to En-vironmental Problems, MIT Press, 1992.55 Steven Clemmer, Alan Nogee and Michael C. Brower, APowerful Opportunity: Making Renewable Electricity theStandard, Union of Concerned Scientists, November 1998.56 Energy Information Administration, Office of IntegratedAnalysis and Forecasting, Analysis of S. 687, the ElectricSystem Public Benefits Protection Act of 1997, prepared forSenator James M. Jeffords, February 1998, SR/OIAF/98-01.EIA also modeled two RPSs gradually increasing over time to5 percent and 10 percent of total US electricity generation in2020 for Annual Energy Outlook—1998: With Projections to2020, December 1997, DOE/EIA-0383(98), on line athttp://www.eia.doe.gov/oiaf/aeo98/homepage.html..57 Consumers gas savings and the impact on electricity sales

from higher electricity prices under the RPS were calculatedby UCS based on the detailed results of EIA’s analysis, gener-ated by the National Energy Modeling System and providedto us by EIA staff.58 Alliance to Save Energy, American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Tel-lus Institute, and Union of Concerned Scientists, Energy In-novations: A Prosperous Path to a Clean Environment,Washington, DC: Alliance to Save Energy, 1997.59 The cost per ton of carbon dioxide saved comes from anupdate to Energy Innovations called Policies and Measures toReduce CO2 in the United States: An Analysis of OptionsThrough 2010, by the Tellus Institute and the World WildlifeFund, 1998.60 Interlaboratory Working Group on Energy-Efficient andLow-Carbon Technologies, Potential Impacts of Energy-Efficient and Low-Carbon Technologies by 2010 and Beyond,Oak Ridge, Lawrence Berkeley, Argonne, Pacific Northwest,National Renewable Energy Laboratory, 1997, on line atwww.ornl.gov/ORNL/Energy_Eff/CON444.61Barbara Farhar and Ashley Houston, Willingness to Pay forElectricity from Renewable Energy, National Renewable En-ergy Laboratory, 1996, on line atwww.eren.doe.gov/greenpower/willing.html.See also Kari J. Smith, Customer-Driven Markets for Renewa-bly Generated Electricity, California Regulatory ResearchProject, 1-96, 1996.62 See David Moskovitz, Renewable Energy: Barriers and Op-portunities, Walls and Bridges, World Resources Institute,July 1992.63 Utility Photovoltaic Group, The Utility Experience Basewith PV Systems, Part 2, June 1994, p. 21.64 Paul Maycock, “Spire PV Module Manufacturing Cost at$1.78/Watt,” PV News, Jan. 1998, p. 365 For example, suppose a wind turbine installed today looksmore expensive than a natural gas plant for the first fiveyears, but is projected to be less expensive than the gas plantas fuel prices rise over the 20- to 30-year life of the wind tur-bine. Suppose also that wind turbines are projected to bemuch cheaper five years from now than they are today,based on increasing wind production volumes. In this case, adeveloper might select the gas plant, which is cheap in theshort-run, and wait for the less expensive wind turbines toemerge later. But if all developers wait, the production vol-umes would not be achieved and the wind costs would nevercome down.66 For an analysis of subsidies to oil, principally in the trans-portation sector, see Roland Hwang, Money Down the Pipe-line: Uncovering the Hidden Subsidies to the Oil Industry,Union of Concerned Scientists, September 1995.67 Fred J. Sissine, Renewable Energy: A New National Com-mitment? Science Policy Research Division, CongressionalResearch Service, Library of Congress, updated August 26,1994. Figures are in 1992 dollars.68 Ibid.69 Public Citizen, “DOE Releases FY 1997 Budget,” March19, 1996.70 Dallas Burtraw, Renewable Energy Tax Issues, Resourcesfor the Future, US Department of Energy, Office of UtilityTechnologies Analysis Workshop, July 23, 1996.71 Note that this credit is available only through July 1999,and only for closed-loop facilities, none of which are cur-rently under construction or planned. Efforts are under wayto try to extend and expand the tax credits.


72 Dallas Burtraw, US Department of Energy Office of UtilityTechnologies Workshop, Washington D.C., July 23, 1996.See also Alec F. Jenkins, California Energy Commission, Sac-ramento, California, Richard A. Chapman, Consulting Engi-neer, San Jose, California, Hugh E. Reilly, Sandia NationalLaboratories, Albuquerque, New Mexico, Tax Barriers to FourRenewable Electric Generation Technologies,http://www.energy.ca.gov/development/tax_neutrality_studyandStanton Hadley, Lawrence Hill, and Robert Perlack, Reporton the Study of the Tax and Rate Treatment of RenewableEnergy Projects, Oak Ridge National Laboratory, ORNL-6772, December 1993. This study found net tax penalties forutility-owned solar and hydro, but net incentives for utility-owned wind and biomass energy crops, thanks to productiontax credits that expire in 1999. For nonutility generators,which are responsible for most renewables development, allrenewables have net tax penalties compared with conven-tional sources, even with production tax credits.73 US Energy Information Administration, Federal Energy Sub-sidies Direct and Indirect Interventions in Energy Markets,DOE/EIA-EMEU/92-02, on line atwww.eia.doe.gov/bookshelf/multi.html.74 Nancy Rader and Richard Norgaard, “Efficiency andSustainability in Restructured Electric Utility Markets: TheRenewables Portfolio Standard,” Electricity Journal, July1996.75 Ryan Wiser and Steven Pickle, Green Marketing, Renew-ables, and Free Riders: Increasing Customer Demand for aPublic Good, Lawrence Berkeley National Laboratory, LBNL-40632, September 1997.76 For a good case study in small business purchases of re-newable energy, see Edward Holt, Green Power for Business:Good News from Traverse City, Renewable Energy PolicyProject, Washington, D.C., July 1997. Available on-line athttp://www.repp.org/index_ar.html77 Evan Jones and Joseph Eto, Financing End-Use Solar Tech-nologies in a Restructured Electricity Industry: Comparing theCost of Public Policies, LBNL-40218, UC-1321, September1997. Also Ryan Wiser and Edward Kahn, Alternative Wind-power Ownership Structures: Financing Terms and ProjectCosts, Lawrence Berkeley Lab, LBNL-38921, May 1996. Bothon line at eande.lbl.gov.78 Kevin Porter, “Open Access Transmission and RenewableEnergy Technologies,” Topical Issues Brief, National Renew-able Energy Lab, NREL/SP-460-21427, September 1996. Seealso Steven Stoft, Carrie Webber and Ryan Wiser, Transmis-sion Pricing and Renewables: Issues, Options and Recom-mendations, Lawrence Berkeley National Lab, LBNL-39845,May 1997.79 Farhar, ibid. For up-to-date information on green markets,also see the Green Power Network web site:http://www.eren.doe.gov/greenpower/80 Marketing Intelligence Service, Naples, NY, cited in Landand Water Fund of the Rockies and Community Office forResource Efficiency, Promoting Renewable Energy in a Mar-ket Environment: A Community-Based Approach for Aggre-gating Green Demand, May 1997, p. 981 Steven Rothstein and Jeffrey Fang, Green Marketing in theMassachusetts Electric Company Retail Competition PilotProgram, National Renewable Energy Laboratory, NREL/TP-260-23507, October 1997. The pilot program was only con-ducted in four towns, one of which was a very liberal collegetown. Participants in the pilot were self-selected. Conse-quently, many of those choosing to participate did so be-cause of interest in the green products.

82 Barrett Stambler and Andrea Kelly, "The Portfolio Approachto Green Power," Third National Green Power Conference,Sacramento, CA, June 25-26, 1998.http://www.eren.doe.gov/greenpower/3gp_conf.html. seealso Blair G. Swezey, Ashley H. Houston and Kevin L. Porter,“Green Power Takes Off With Choice in Electricity,” PublicUtilities Fortnightly, August 1998.http://www.eren.doe.gov/greenpower/pufweb.html#6fn.83 Edward Holt, Green Power for Business: Good News fromTraverse City, Renewable Energy Policy Project Research Re-port No. 1, July 1997.84 Rudd Mayer, "The Value of Marketing Partnerships," ThirdNational Green Power Conference, Sacramento, CA, June25, 1998http://www.eren.doe.gov/greenpower/3gp_conf.html85Jim Cooke, Toyota Motor Sales USA, "Toyota's Green PowerCommitment,” Third National Green Power Conference, Sac-ramento, CA, June 25, 1998http://www.eren.doe.gov/greenpower/3gp_conf.html86For surveys of green pricing program results and design is-sues, see Edward Holt, Green Pricing Resource Guide, TheRegulatory Assistance Project, Gardiner, ME, February 1997.www.rapmaine.org. See also Edward Holt, “Green Power:Where We’ve Been, Where We’re Going,” Third NationalGreen Power Conference, Sacramento, CA, June 25, 1998and Terry Peterson, “Green-Pricing Scorecard,” Third Na-tional Green Power Marketing Conference, Sacramento, CA,June 25-26, 1998.http://www.eren.doe.gov/greenpower/3gp_conf.html.87 Tom Rose, TU electric, “TU Electric Deliberative PollSummary Results: Residential Participants”, October 23,1988.88 In the Massachusetts pilot program described above, where31 percent of participating residential customers chose greenoptions, only 3 percent of commercial customers did. Ibid.89 Yankee Group market research cited in Marci Bailey, "Di-aling a better deal," Boston Globe, Sept. 15, 1997, p. B4.90 Ryan Wiser and Steven Pickle, Selling Green Power inCalifornia: Product, Industry, and Market Trends, LawrenceBerkeley National Laboratory, LBNL-41807, May 1998.91 For a comprehensive guide to existing state financial in-centives and regulatory policies on renewables, see theNorth Carolina Solar Center, Database of State Incentives forRenewable Energy, Interstate Renewable Energy Council,New York, January 1998, on line at www-solar.mck.ncsu.edu/dsire.htm.92 See Jan Hamrin and Nancy Rader, Investing in the Future,A Regulator’s Guide to Renewables, The National Associa-tion of Regulatory Utility Commissioners, Washington, D.C.,February 1993 for a thorough description of pre-restructuringstatus of renewables development and policies. Among themost important policies for aggressively implementingPURPA were providing standard long-term contracts, basingthe long-run contract price on the cost of avoiding new util-ity power plants, allowing front-loaded payments, or settingspecial rates for renewable electricity.93 Mark Crawford, “Tax Credit Expiration Threatens GustingWind Power Industry, Energy Daily, November 2, 1998, p. 1.94 State Renewable Energy News, NARUC Subcommittee onRenewable Energy, Fall 1998. Order (Docket No. 97A-297E)available on-line at: http://www.sni.net/~pucsmith/new.htm95 The Iowa mandate is for 105 MW of average production,not peak production. An intermittent resource like windpower has a low “capacity factor,” which means it would


require more than 105 MW of peak or “nameplate” capacityto meet the Iowa law. For example, if a wind power plantproduces full power 33 percent of the time, it would require315 MW of peak capacity to produce 105 MW of averagecapacity. Biomass power plants can produce power at fulloutput more often—typically around 75 percent of the time.So a biomass plant could produce 105 average MW with a140 MW plant.96 State Renewable Energy News, NARUC Subcommittee onRenewable Energy, Fall 1998.97 For a detailed analysis of how these and other policies af-fect the potential for wind energy especially, see also NancyRader and Ryan Wiser, Strategies for Supporting Wind En-ergy: A Review and Analysis of State Policy Options, Pre-pared for the National Wind Coordinating Committee, 1998release pending.98 Because most of the minimum requirements are based onelectricity sales, the renewables capacity is estimated basedon an assumed mix of resources. Actual capacity will differbased on which technologies win the competition to fill theRenewables Portfolio Standards. The Maine renewables esti-mate drops in the year 2000 because the RPS which takeseffect that year is equal to 30% of sales, whereas existing re-newables in Maine are 45-50% of sales. The Massachusettsestimate assumes that an ambiguity in the restructuring law isresolved to require preserving the existing level of renew-ables, as well as requiring development of new renewables.99 Janice Massy and Lyn Harrison, “Fixed Quotas Most Fa-vored Option: European Union takes first step for Directiveon renewables,” Windpower Monthly, Denmark, April 1998.P. 22. Abstracts available on-line at http://www.wpm.co.nz/.100 UCS Senior Scientist Donald Aitken popularized the con-cept of sustained orderly development in "Sustained OrderlyDevelopment of the Solar Electric Technologies," Solar To-day, May/June 1992.101Regulatory Assistance Project, Making Room for Renew-ables, Issues letter, July 1996, on line atwww.rapmaine.org/issue.html. A Non-Fossil Fuel Obligation(NFFO) levy of up to one percent of revenues goes into apool, which the system administrator distributes to the win-ning bids, using a request-for-proposals (RFP) process. Theadministrator establishes the amount of power to be acquiredand the RFP criteria. The NFFO levy was designed to enableenough new renewables to be developed to supply 3 percentof system capacity by the year 2000, as well as to preserve atleast 20 percent of generation from all nonfossil fuel sources,including nuclear.102 An overview of the public benefits at risk in utility re-structuring—and mechanisms to protect them—can be foundin Nancy Brockway and Michael Sherman, Stranded Benefitsin Electric Utilities Restructuring, The National Council onCompetition and the Electric Industry, National Conferenceof State Legislatures, October 1996, on line atwww.ncsl.org/public/catalog/envicat.htm#electric.103 Massachusetts previously allowed utility funding of re-newables, but did not require it. The Department of PublicUtilities had approved Massachusetts Electric recovery of in-cremental costs from a “Green RFP.”104 Alan Nogee, “Renewables in Utility Restructuring: NewEngland’s Fair Share,” DOE Office of Utility TechnologiesWorshop, June 23, 1996.105 Dan Kirshner, B. Barkovich K. Treleven and R. Walther, “ACost Effective Renewables Policy Can Advance the Transitionto Competition,” The Electricity Journal, October 1997.106Ryan Wiser, “Evaluating the Impacts of State RenewablesPolicies on Federal Tax Credit Programs,” Prepared for Cali-

fornia Energy Commission Renewables Program Committee,December 1996.107 Kirsten Engel, “The California Electrical Industry Restruc-turing Law as Applied to the Renewable Energy Industry: AnAnalysis of Commerce Clause Issues,” Memorandum for theAmerican Wind Energy Association, February 21, 1997.108 Howard Wenger, California Net Metering Program Impact:Net Present Value Economic Analysis, (unpublished paper),January 8, 1995. Available from the Renewable Energy PolicyProject.109 Public Utilities Commission Rulemaking Docket No. 97-794, March 10, 1998. On-line athttp://solstice.crest.org/renewables/wlord/.110 For more information, see Yih-huei Wan and H. JamesGreen, NREL , Current Experience With Net Metering Pro-grams, WINDPOWER '98, Bakersfield, CA, April 27 - May 1,on-line athttp://www.eren.doe.gov/greenpower/netmetering/current_nm.html, and Thomas J. Starrs, Net Metering: New Opportuni-ties for Home Power, Issues Brief, Renewable Energy PolicyProject, September 1996 on-line athttp://www.repp.org/index_ar.html. States with net meteringpolicies are included in the DSIRE database atwww.dsire.org.111 MidAmerican Energy Company, Federal Energy RegulatoryCommission Docket No. EL99-3-000. Filings available on-line at http://rimsweb1.ferc.fed.us/rims/112 See EPRI, PG&E, and NREL. An Introduction to the Dis-tributed Utility Valuation Project, Monograph, 1993;Coles, R.L., et al. Analysis of PV benefit Case Studies: Resultsand Method Used, NREL Draft Report, May 1995.113 Union of Concerned Scientists, 1995. Renewing OurNeighborhoods: Opportunities for Distributed RenewableEnergy Technologies in the Boston Edison Service Territory,August., 1995114 Opportunities in Photovoltaic Commercialization: Reportof the UPVG’s Phase I Efforts, Part 4, CommercializationStrategies Work Group, Utility Photovoltaic Group, Wash-ington, DC, June 1994, p. 38115 See, for example, Taylor Moore, “Emerging Markets forDistributed Resources,” EPRI Journal, March/April 1998,cover story, p. 8.116 For a thorough treatment of distributed generation legaland regulatory issues, see John Nimmons, Thomas Starrs, RenOrans, Joel Swisher and Joel Singer, Legal, Regulatory & In-stitutional Issues Facing Distributed Resources Development,Prepared for the National Renewable Energy Laboratory,Central & Southwest Services, Inc., Cinergy Corp., FloridaPower Corp., San Diego Gas & Electric, National RenewableEnergy Laboratory NREL/SR-460-21791117 Oregon Public Utilities Commission, PacifiCorp-Distribution Only AFOR, Order No. 98-191, May 5, 1998.Available on-line at www.puc.state.or.us/orders/98orders/98-191.htm.118 Henry Yoshimura, Robert Graham, and Christopher He-bert, La Capra Associates, An Incentive Regulatory Frame-work to Encourage Cost-effective Investment In Transmissionand Distribution System Resources in a Restructured ElectricUtility Industry in Massachusetts, Boston Edison Demand-Side Management Settlement Board, September 28, 1995.Summary and order information available on-line athttp://www.magnet.state.ma.us/doer/utility/orderreg.htm.119 Nimmons et. al., ibid.120 Federal Energy Regulatory Commission, Open Access


Rule, Order 888, April 27, 1996. Promoting WholesaleCompetition Through Open Access Non-DiscriminatoryTransmission Services by Public Utilities (RM95-8-000).121 Federal Energy Regulatory Commission, Capacity Reser-vation Open Access Transmission Tariffs, Notice of ProposedRulemaking, FERC Docket No. RM96-11-000, April 24,1996.122 For more detail about the effects of transmission issues onrenewables, see Kevin Porter, National Renewable EnergyLaboratory, “What is Happening with Independent SystemOperators?” Presented to Windpower ’98, American WindEnergy Association, Bakersfield, CA, April 30, 1998. Avail-able on-line at http://www.nrel.gov/analysis/emaa/isos.pdf;Steven Stoft, Carrie Webber, and Ryan Wiser, TransmissionPricing and Renewables: Issues, Options and Recommenda-tions, Lawrence Berkeley National Lab, Berkeley, Calif., May1997.Available on-line athttp://eetd.lbl.gov/EA/EMP/emppubs.html; Kevin Porter,“Open Access Transmission and Renewable Energy Tech-nologies.” National RenewableEnergy Laboratory Topical Issues Brief NREL/SP-460-21427.September 1996 Available on-line athttp://www.nrel.gov/research/ceaa/emaa/open_access/index.html; Steven Stoft, Carrie Webber, and Ryan Wiser, Transmis-sion Pricing and Renewables: Issues, Options and Recom-mendations, Lawrence Berkeley National Lab, Berkeley,Calif., May 1997.Available on-line athttp://eetd.lbl.gov/EA/EMP/emppubs.html.123 Soft et. al., ibid.124 Porter, Windpower ’98, ibid.125 Porter, Windpower ’98., ibid.126 Porter, Windpower ’98, ibid127 Soft et al, ibid.128In some jurisdictions, regulators have employed a tradi-tional standard which only allowed utilities to recover andearn a return on investments which are “used and useful.”They have required utility investors to bear or to share thecosts of unneeded or uneconomical investments. The FederalEnergy Regulatory Commission, and many states, have al-lowed utilities to recover and earn a return on bad invest-ments, however, as long as they were prudent, i.e., reason-able at the time they were made, irrespective of how theymay have turned out.129 For extensive analysis and discussion of this issue, seeBruce Biewald, David White and Tim Woolf, Synapse EnergyEconomics, and Frank Ackerman and William Moomaw,Global Development and Environmental Institute, Grandfa-thering and Environmental Comparability: An EconomicAnalysis of Air Emission Regulations and Electricity MarketDistortions, Prepared for the National Association of Regu-latory Utility Commissioners, July 11, 1988. Available on-lineat www.naruc.org.130 Energy Information Administration, 1995. Annual ElectricGenerator Data, EIA-860 Data File.131 Biewald et. al., ibid., pp 22-24.132 Id., p. 29133 ibid. These results vary widely in different regions, how-ever. The percent of coal capacity at risk for retirement is lessthan 4% in most regions, but 18% in the in the Mid-AmericaInterconnected Network (most of IL, eastern WI; 19% in themid-Atlantic; and 60% in the northeast.134 An Oak Ridge National Laboratory study also found thatcoal plant retirements in the Midwest would not be induceduntil carbon taxes reached $50 per metric tonne of carbon

($13.67/metric ton CO2). Stanton Hadley, The Impact ofCarbon Taxes or Allowances on the electric Generation Mar-ket in the Ohio and ECAR Region, ORNL/CON-463, July1998.135 Federal Energy Regulatory Commission, Open AccessRule, Order 888, April 1996. 27. Federal Energy RegulatoryCommission, Final Environmental Impact Statement - Pro-moting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities(RM95-8-000) and Recovery of Stranded Costs by PublicUtilities and Transmitting Utilities (RM94-7-001). FERC/EIS-0096, April 1996, Tales 5-1 and 5-4 (indicating that coal-fired generation could increase by 31 percent between 1993and 2010, from 1,639 to 2,152 billion kWh, even assumingno change in total power-plant capacity).136 Air Pollution Impacts of Increased Deregulation in theElectric Power Industry: An Initial Analysis, Northeast Statesfor Coordinated Air Use Management (NESCAUM), January15, 1998. On-line at http://www.nescaum.org/pdf/dereg.pdf137 Dallas Burtraw, 1998. Cost Savings, Market Performance,and Economic Benefits of the U.S. Acid Rain Program, Re-sources for the Future, Discussion Paper 98-28, April.138 Utility Environment Report, 1996b. “Vermont Official Pro-poses Regional ISOs as Emission ‘Cap-and-Trade’ Overseers,”March 15, Pg. 1.139 Richard H. Cowart, Chair, Vermont Public Service Board,1997. Statement Before the Committee On Energy and Natu-ral Resources, United States Senate, March 20, WashingtonD.C., online at http://www.senate.gov/~energy/comp3a.htm.140 Douglas R. Bohi and Dallas Burtraw, Resources for theFuture,. SO 2 Allowance Trading: How Experience and Ex-pectations Measure Up, Discussion Paper 97-24, February,1997.141 In theory, allowance prices should be reflected in themarket price of generation, allowing cleaner generation toreceive a higher market price. The extent to which this willoccur in practice is uncertain, due to market imperfections.142 See for example, Citizens Guide to Environmental TaxShifting - Friends of the Earth, June 1998. Price It Right: En-ergy Pricing and Fundamental Tax Reform - Alliance to SaveEnergy, January 1998 Available on-line, along with manyother green tax resources, athttp://www.me3.org/projects/greentax/. Also David Rood-man, Getting the Signal Right: Tax Reform to Protect the En-vironment and the Economy. Worldwatch Paper 134 Wash-ington, DC: Worldwatch Institute, 1997. Available topurchase on-line athttp://www.worldwatch.org/titles/titlesp.html .Robert Repettoet al. Green Fees: How a Tax Shift Can Work for the Envi-ronment and the Economy, Washington, DC: World Re-sources Institute, 1992. Available to purchase athttp://www.wri.org/cat-econ.html#gfees.143 Biewald et al., ibid, p. 48.144 David Morris, Green Taxes, Institute for Local Self-Reliance, 1994. Available on-line athttp://www.me3.org/projects/greentax/.145 The Economic Efficiency and Pollution Prevention Act(EEPRA) of 1998 (HF 1190), Minnesota. On-line athttp://www.me3.org/projects/greentax/. Vermont: H. 736http://www.leg.state.vt.us/docs/1998/bills/intro/H-736.HTM.A national conference of environmental advocates interestedin tax shifts convene in Seattle in December 1998: GreeningState Taxes: National Conference on State Tax Reform for aSustainable Economy, Energy Outreach Center and Center forSustainable Economy, December 10-11, 1998, Seattle,Washington. See http://www.eoc.org/greening.html


146Barbara Farhar, Energy and Environment: The Public View,Renewable Energy Policy Project Issue Brief No. 3, CollegePark, MD, October 1996. Available on-line athttp://www.repp.org. See Barbar Farhar and A.H. Houston,Willingness to Pay for Electricity from Renewable Energy,NREL/TP-460-21216.,Golden, CO: National Renewable En-ergy Laboratory., September 1996. Available on-line athttp://www.eren.doe.gov/greenpower/willing.html#table4.Also For a comprehensive review, see Barbara Farhar, Trendsin Public Perceptions and Preferences on Energy and Envi-ronmental Policy, National Renewable Energy Laboratory,March 1993.147 Kenneth Winneg, et. al., Baseline Survey: ConsumerKnowledge, Practices, and Attitudes, Electric Utility Deregu-lation and Consumer Choice, Consumer Information Disclo-sure Project, Regulatory Assistance Project, January 1998, online at http://www.rapmaine.org/baseline.html. See also ErinKelly / Gannett News Service, “Americans 'clueless' aboutenvironment: Survey finds that two of three people don'tknow causes of pollution,” Detroit News, November 23,1997. Available on-line athttp://www.detnews.com/1997/outlook/9711/25/11230014.htm.148 Resolution in Support of Customer “Right-to-Know” andProduct Labeling Standards for the Retail Marketing of Elec-tricity, Passed by NARUC Executive Committee, November1996.149 See National Council, Synthesis Report: A Summary of Re-search on Information Disclosure, Consumer InformationDisclosure Project, DRAFT, April 1998, on line at.http://www.rapmaine.org/nccei/altindex.htm. The NationalCouncil includes the National Association of RegulatoryCommissioners, the National Conference of State Legisla-tures, the Department of Energy, and the Environmental Pro-tection Agency.150 Edward Holt and Jeffrey Fang, The New Hampshire RetailCompetition Pilot Program and the Role of Green Marketing,National Renewable Energy Laboratory, NREL/TP-260-23446, November 1997.151 Joint comments of Green Mountain Energy Resources, En-ron Corp., AllEnergy, PG&E Energy Services, Sun PowerElectric Company, Union of Concerned Scientists and Natu-ral Resources Defense Council on the draft New EnglandTracking Study (NETS) Report, Submitted to New EnglandGovernors’ Council, September 2, 1998.152 Disclosure: A Vital Tool for Consumers: A Policy Paper onElectricity Source Disclosure, Renewable Energy Alliance,October 1998 Available on-line, along with regulatory com-ments at http://www.realliance.org/disclosure.153 National Disclosure Conference, Chicago, May 14, 1998.154Center for Clean Air Policy, Disclosure in the ElectricityMarketplace: A Policy Handbook for the States, March 1998.http://www.ccap.org/pdf/wwwhand.pdf. See also DSIRE da-tabase on line at www.dsire.org.155 Massachusetts includes the price, contract term, and un-ion status of the generators on the label, for example. TheIllinois disclosure law, and a voluntary disclosure labeladopted by Portland General Electric, includes nuclearwaste. Illinois commission order approving label availableon-line at: http://icc.state.il.us/icc/Dereg/.156 See the Consumer Energy Education project on line at thePACE University Energy Project web site.http://www.law.pace.edu/env/energy/.157 Defined consistent with California law to include solar,wind, geothermal, biomass, and hydro facilities smaller than

30 MW. Green-e is facilitating discussions to try to developenvironmental criteria for certifying “low impact hydro” fa-cilities.158 Karl Rabago, Ryan Wiser, and Jan Hamrin, “The Green-eProgram: An Opportunity for Customers,” Electricity Journal,January-February 1998. Green-e standards are reviewed by anational advisory board, which includes Alan Nogee, the En-ergy Program Director at the Union of Concerned Scientists.159An updated list of Green-e certified products is availableon line at http://www.green-e.org.160 Green-e criteria in Pennsylvania exclude municipal solidwaste burning facilities, and provide an option for energyefficiency to meet a portion of the renewables requirement.161 Nancy Rader, Green Buyers Beware: A Critical Review of"Green Electricity" Products, Public Citizen, Washington, DC,October 1998. Executive summary available on-line athttp://www.citizen.org/Press/greenreport.htm.162 Stanley Rhodes, 3rd Annual Green Power Conference, Sac-ramento, June 25–26, 1998.163 For a comprehensive web site with news, resources andlinks on green pricing and green marketing, see the Depart-ment of Energy site at http://www.eren.doe.gov/greenpower/.164 Edward Holt, “Green Power: Where We’ve Been, WhereWe’re Going,” Presentation to the Third National GreenPower Conference, Sacramento, CA, June 25, 1998.165 Edward Holt, Green Pricing Resource Guide, RegulatoryAssistance Project, Gardiner, ME, February 1997. Availableon-line at http://www.rapmaine.org/green.html.166 State Renewable Energy News, NARUC Subcommittee onRenewable Energy, Fall 1998. Texas green pricing rule isavailable at:http://www.puc.texas.gov/rulemake/19087main.HTM167CEERT: http://ceert.org. Environmental Defense Fund:http://www.edf.org/programs/Energy/green_power/. NaturalResources Defense Council:http://www.nrdc.org/worldview/fwguid.html. UCS:http://www.ucsusa.org/energy/buy.green.html168 Ryan Wiser, Steven Pickle and Joseph Eto, Details, de-tails…The Impact of Market Rules on Emerging “Green” En-ergy Markets, Lawrence Berkeley Laboratory, LBNL-41812,September 1998. Available on-line athttp://eetd.lbl.gov/EA/EMP/emppubs.html169 Ryan Wiser, William Golove, and Steve Pickle, “Califor-nia’s Electric Market, What’s In it for the Customer, PublicUtilities Fortnightly, August 1998.170 Tom Rawls, Green Mountain Energy Resources, EnergyWorkshop, National Conference of State Legislatures, Boul-der, CO, November 19, 1998.171 Cheryl Harrington, Regulatory Assistance Project, Pre-sented at National Association of Regulatory Utility Commis-sioners conference, Orlando, FL. November 9-11, 1998.172 For a guide to aggregation benefits and models, see KayGuinane, Group Buying Power: Meaningful Choices for En-ergy Consumers, Environmental Action Foundation andAmerican Public Power Association, Washington, DC, May1997.173 http://www.acwanet.com/archives/ACWA-USA/aggregatenr.html174 Promoting Renewable Energy in a Market Environment: ACommunity-Based Approach for Aggregating Green Demand,Land and Water Fund of the Rockies and Community Officefor Resource Efficiency, Boulder, CO,, May 1997.175http://www.mhefa.state.ma.us/


http://www.poweroptions.org/index.htm.176 Concept proposed by Scott Ridley, “Consumer-BasedFranchises,” Electricity Journal, May 1995. Available on-lineat http://www.local.org/.177Request For Proposals is available athttp://www.vsa.cape.com/~cccom/county/rfp.htm. RequestFor Qualifications athttp://www.vsa.cape.com/~cccom/county/rfq.htm.178 For more information on the status of municipal aggrega-tion in Massachusetts, and links to other states, see the website of Cape and Islands Self-Reliance, the leading municipalaggregation advocacy organization, athttp://www.reliance.org/dereg.htm.179 Prospectus: Community Energy Cooperative: Comprehen-sive Energy Services Competitive Prices Through a Networkof Regionally Linked Buyers Cooperatives, Draft, February 2,1997.180 Procurement Guide for Renewable Energy Systems: AnHandbook for Government, Interstate Renewable EnergyCouncil, January 1997.181 State Renewable Energy News, NARUC Subcommittee onRenewable Energy, Summer 1998. Available on-line athttp://www.nrel.gov/analysis/emaa/projects/sren/.182 State Renewable Energy News, NARUC Subcommittee onRenewables, Fall 1997 (CO) Winter 1998 (NE).http://www.nrel.gov/analysis/emaa/projects/sren/.183 Ibid.184 Chapter 164 of the Acts of 1997, Section 330.185 Ryan Wiser, Steven Pickle and Charles Goldman, Law-rence Berkeley National Laboratory, “Renewable energypolicy and electricity restructuring: a California case study,”Energy Policy, Vol. 26, No. 6, 1998, p. 465.186 Energy Information Administration, Renewable EnergyAnnual 1997, Vol. I, February 1998. Available online atwww.eia.doe.gov/fuelrenewable.html.187 Office of Utility Technologies, DOE and Electric PowerResearch Institute, 1997. Renewable Energy TechnologyCharacterizations, October, online atwww.eren.doe.gov/utilities/techchar.html.188 “Historic Public-Private Partnership Brings Solar Enginesto Reality,” Solar Energy Industries Association Press Release,June 8, 1998. For more info see www.seia.org/main.htm.189 Michael Brower, Cool Energy: Renewable Solutions to En-vironmental Problems, MIT Press: Cambridge, MA, 1994.Order online at www.ucsusa.org/publications/index.html.190 Richard Perez, “The Value of Renewables in Restructur-ing,” Toward Tomorrow, Northeast Sustainable Energy Asso-ciation, Westfield, MA July 23, 1998. Proceedings can beordered from NESEA at www.nesea.org.191 Richard Perez, Christy Herig. and Howard Wenger, Valua-tion Of Demand-Side Commercial PV Systems In The UnitedStates. See also NREL web site athttp://www.nrel.gov/ncpv/documents/pv_util.html.192 Michael Tennis, Alan Nogee, Paul Jefferiss, and BenthamPaulos, Renewing Our Neighborhoods, Union of ConcernedScientists, June 1995. May be ordered online atwww.ucsusa.org/publications/index.html..193 John Berger, Charging Ahead: The Business of RenewableEnergy and What it Means for America, New York: HenryHolt, 1997. See www.charging-ahead.com.194 DOE/EPRI, ibid.195 DOE/EPRI, ibid.

196 Michael Tennis et. al., ibid. See also T. E. Hoff, H. J. Wen-ger, and B. K. Farmer, “Distributed Generation: An Alterna-tive to Electric Utility Investments in System Capacity,” En-ergy Policy 24(2): 137–147, 1996. For a number of abstractson distributed generation, seewww.leland.stanford.edu/~tomhoff/abstract.htm#IDG.197 Utility Photovoltaic Group, Significant and Diverse Mar-kets Exist for PV Systems, Part I, June 1994. May be orderedonline at www.upvg.org/upvg/pv_pubs.htm.198 DOE/EPRI, ibid.199 DOE/EPRI, ibid.200 “The Windicator,” Windpower Monthly, April 1998, p. 62.online at www.wpm.co.nz..201 D.L. Elliott and M.N. Schwartz, Wind Energy Potential inthe United States, DOE, Pacific Northwest Labs, 1991, onlineat www.nrel.gov/wind/potential.html.202 Julie P. Doherty, “US Wind Energy Potential: The Effect ofProximity of Wind Resources to Transmission Lines,” MonthlyEnergy Review, Energy Information Administration, February1995. , online at www.nrel.gov/wind/potential.html203 DOE/EPRI, ibid.204 Energy Information Administration, Annual EnergyOutlook, 1998. On line atwww.eia.doe.gov/oiaf/aeo98/homepage.html; Union of Con-cerned Scientists et al., Energy Innovations, Alliance to SaveEnergy, 1997. Available on line atwww.ucsusa.org/energy/index.html?ei.exec.html.205 James Palmer, “Public Acceptance Study of the SearsburgWind Power Project: Year One Post-Construction,” Submittedto Vermont Environmental Research Associates and GreenMountain Power Corporation, South Burlington, Vt., Decem-ber 1997.206 “Major Repowering of Altamont Pass—Bankruptcy CourtApproves Sale of Kenetech Wind Plant,” WindpowerMonthly, December 1997.207 Energy Information Administration, Annual Energy Out-look, 1998. On-line atwww.eia.doe.gov/oiaf/aeo98/homepage.html.208 EPRI/DOE Technology Characterizations, "Biomass ElectricPower Systems" and "Gasification Based Biomass." Online atwww.eren.doe.gov/utilities/techchar.html.209 James Cook, Jan Beyea, and Kathleen Keeler, “PotentialImpacts of Biomass Production in the United States on Bio-logical Diversity,” Annual Review of Energy and the Envi-ronment, 16:401–431, 1991. May be ordered online atwww.annualreviews.org.210 Jane Turnbull, Strategies for Achieving a Sustainable,Clean and Cost-Effective Biomass Resource, Electric PowerResearch Institute, January 1993. Available on-line atwww.epri.com/EPRI_Journal/may_jun96/biomass.html.211 R. L. Graham, E. Lichtenberg, V. O. Roningen, H.Shapouri, and M.E. Walsh, “The Economics of Biomass Pro-duction in the United States,” Proceedings, Second BiomassConference of the Americas: Energy, Environment, Agricul-ture, and Industry, 1995, on line atwww.esd.ornl.gov/bfdp/papers/bioam95/graham3.html.212 Biomass resource maps are on line atwww.rredc.nrel.gov/biomass/bricmaps.html.213 Margaret K. Mann and Pamela L. Spath, Life Cycle As-sessment of a Biomass Gasification Combined-Cycle PowerSystem, National Renewable Energy Lab, Golden, Colo.,NREL/TP-430-23076, December 1997. Available online atwww.eren.doe.gov/biopower/life_cycle.html.


214 Wendell Duffield, John Sass, and Michael Sorey, Tappingthe Earth’s Natural Heat, US Geological Survey Circular1125, 1994. May be ordered online atwww.nmd.usgs.gov/esic/esic.html.215 Duffield, Sass, and Sorey, ibid.216 Energy Information Administration, Annual Energy Out-look, 1998, DOE/EIA-0383(98).217 Federal Energy Regulatory Commission, HydroelectricPower Resources of the United States, 1991. See alsowww.ferc.fed.us/hydro/hydro2.htm.218 National Renewable Energy Lab, The Potential of Renew-able Energy, an Interlaboratory White Paper, 1990.219 Michael Brower, Cool Energy: Renewable Solutions to En-vironmental Problems, MIT Press, 1992.220 Michael Brower, Cool Energy: Renewable Solutions to En-vironmental Problems, Cambridge, Mass.: MIT Press, 1992.221 Oak Ridge National Lab, “Hydropower: Licensed to Pro-tect the Environment,” ORNL Review, Summer/Fall 1993, online at www.ornl.gov/ORNLReview/rev26-34/text/hydmain.html.222 Energy Information Administration, Renewable EnergyAnnual 1997, February 1998.223 Alliance to Save Energy, American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Tel-lus Institute, Union of Concerned Scientists, Energy Innova-tions: A Prosperous Path to a Clean Environment, Alliance toSave Energy, June 1997.224 See Kristen Engle, Tulane Law School, “The Federal Con-stitution and State Implementation of Renewables PortfolioStandards: An Analysis of Commerce Clause Issues,” Memo-randum for the American Wind Energy Association, March13, 1996; Steven Ferrey, “Renewable Subsidies in the Age ofDeregulation,” Public Utilities Fortnightly, December 1997;and Scott Hempling and Nancy Rader, “State Implementationof Renewables Portfolio Standards: A Review of Federal LawIssues,” American Wind Energy Association, January 1996.225 It would also swamp the market for RECs. If demand is 10percent and the RPS only requires 8 percent, say, there willbe an oversupply of RECs, driving down their value, andmaking the RPS somewhat obsolete.226 For updates (3 times/year) of regulatory activity on re-newables seehttp://www.nrel.gov/analysis/emaa/projects/sren/.227 State Renewable Energy News, NARUC Subcommittee onRenewables, Summer 1998.

228 The Maine PUC order is available on-line at:http://www.state.me.us/mpuc/ordtbl98.htm.229 Alan Nogee, “Renewables in Utility Restructuring: NewEngland’s Fair Share,” DOE Office of Utility TechnologiesWorkshop, June 23, 1996.230 Ray Williamson and Howard Wenger, “Solar PortfolioStandard Analysis,” Proceedings of the 1998 Annual Confer-ence, American Solar Energy Society, Albuquerque, June 14–17, 1998.231 For more information about the Sustainable Energy Coali-tion, contact Ken Bossong, Sustainable Energy Coalition, SunDay Campaign, 315 Circle Ave. Suite 2, Takoma Park, MD20912-4836; 301-270-2258; [email protected] Kirsten Engel, “The Federal Constitution and State Imple-mentation of Renewables Portfolio Standards: An Analysis ofCommerce Clause Issues,” Memorandum for the AmericanWind Energy Association, Washington D.C., March 13, 1996.233 Fuel cells convert hydrogen to electricity using an electro-chemical process. They are thus like large batteries with acontinuous fuel supply. Fuel cells using pure hydrogen pro-duce only water as a by-product. When the hydrogen is de-rived from natural gas or biomass, other emissions, includingsome carbon dioxide and very low levels of nitrogen oxides,are produced.234 Massachusetts previously allowed utility funding of re-newables, but did not require it. The Department of PublicUtilities had approved Massachusetts Electric recovery of in-cremental costs from a “Green RFP.”235 Alan Nogee, “Renewable Energy Sustained Orderly De-velopment: Determining a N.E. Regional Goal.” Presentationto US Department of Energy Office of Utility TechnologiesAnalysis Workshop, Washington, D.C., July 23, 1996.236 California Energy Commission, Renewable TechnologyProgram, on line at www.energy.ca.gov/renewables.237 State Renewable Energy News, NARUC Subcommittee onRenewable Energy, Fall 1998. Notice is available on-line at:http://www.nyserda.org/437pon.html.238 “Bain & Company Named Strategic Consultants for theMassachusetts Renewable Energy Initiative,” MassachusettsTechnology Collaborative press release, May 27,1998, online at www.mtpc.org/mtc/renew/management.htm.239 Hon. Richard H. Cowart, “Restructuring and the PublicGood: Creating a National System Benefits Trust,” ElectricityJournal, April 1997, pp. 52–57.

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