RPS

Renewable Portfolio Standards Fact Sheet

Last updated April 2009

Renewable Portfolio Standards: An Effective Policy to Support Clean Energy Supply

A Renewable Portfolio Standard (RPS) provides states with a mechanism to increase renewable energy generation using a cost-effective, market-based approach that is administratively efficient. An RPS requires electric utilities and other retail electric providers to supply a specified minimum amount of customer load with electricity from eligible renewable energy sources. The goal of an RPS is to stimulate market and technology development so that, ultimately, renewable energy will be economically competitive with conventional forms of electric power. States create RPS programs because of the energy, environmental, and economic benefits of renewable energy and sometimes other clean energy approaches, such as energy efficiency and combined heat and power (CHP).¹

How Does a Renewable Portfolio Standard Encourage Clean Energy?

An RPS creates market demand for renewable and clean energy supplies. Currently, states with RPS requirements mandate that between 4 and 30 percent of electricity be generated from renewable sources by a specified date. While RPS requirements differ across states, there are generally three ways that electricity suppliers can comply with the RPS:

• Owning a renewable energy facility and its output generation.
• Purchasing Renewable Energy Certificates (RECs).²
• Purchasing electricity from a renewable facility inclusive of all renewable attributes (sometimes called "bundled renewable electricity").

What Are the Benefits of a Renewable Portfolio Standard?

The policy benefits of an RPS are the same as those from renewable energy and CHP:

• Environmental improvement (e.g., avoided air pollution, global climate change mitigation, waste reduction, habitat preservation, conservation of valuable natural resources).
• Increased diversity and security of energy supply.
• Lower natural gas prices due to displacement of some gas-fired generation, or a more efficient use of natural gas due to significantly increased fuel conversion efficiencies.
• Reduced volatility of power prices, given stable or non-existent fuel costs for renewables.
• Local economic development resulting from new jobs, taxes, and revenue associated with new renewable capacity.

Because it is a market-based program, an RPS also has several operational benefits:

• Achieves policy objectives efficiently and at a relatively modest cost (ratepayer impacts range from less than 1 percent increases to 0.5 percent savings).
• Spreads compliance costs among all customers.
• Minimizes the need for ongoing government intervention.
• Functions in both regulated and unregulated state electricity markets.
• Provides a clear and long-term target for renewable energy generation that can increase investors' and developers' confidence in the prospects for renewable energy.

*Source: US EPA
**Additional reference availabe in Korean: KNREC