How Do State Renewable Energy Requirements Impact Your Electric Bill?

Following a global summit in Paris, President Barack Obama and world leaders from 190 countries set national goals to combat climate change.

The Paris Agreement, adopted on Dec. 12, 2015, establishes a standardized process for countries to review their progress on reducing greenhouse gas emissions every five years.

The United States has committed to upholding its end of the deal through America’s Clean Power Plan, which sets carbon pollution standards for power plants and specifies individual goals for each state. States have the flexibility to determine how they achieve those goals, and many have already begun to make progress. One way they’ve done this is by establishing mandates for power suppliers to provide a designated portion of their electricity from renewable technologies.

These mandates are known as Renewable Portfolio Standard (RPS) requirements, and they vary from one state to the next. Twenty-nine states currently have Renewable Portfolio Standards in place. Iowa was the first state to establish an RPS, and Hawaii’s program is the most aggressive.

Here’s a look at how renewable energy requirements impact the price you ultimately pay for electricity and how you can adjust your energy purchasing strategy accordingly.

New Jersey’s Renewable Requirements: A Case Study

States have been requiring power suppliers to provide a larger portion of their electricity from renewable sources for years. As a result, more of the grid’s capacity is coming from renewable technologies. For instance, the PJM Interconnection—the regional transmission operator that serves 13 states in the north and southeastern portion of the United States—had 6,310 megawatts of renewable capacity in 2000. By the end of 2014, its renewable capacity had more than doubled to 17,675.

Depending on the state, RPS related charges can have a substantial impact on the customer’s total price. In New Jersey, as a result of legislation passed in 2010 to increase RPS requirements to account for the anticipated solar capacity being installed in the 2014 energy year, this impact was significant. As a result, RPS now accounts for about 15 percent of the total cost of electricity for a typical commercial/industrial customer, as shown in the chart below.

New Jersey RPS requirement has two distinct parts.

The first requires each supplier in the state to procure 20.38 percent of the electricity sold in New Jersey from qualifying renewables by June 2021.The second part requires suppliers to procure an additional 4.1 percent of sales from qualifying solar electric generation facilities by June 2028.

Solar Energy’s Supply and Demand Problems

In the past year, New Jersey has seen a substantial increase in its RPS costs, largely driven by a 30 percent year-over-year increase in solar energy due to the state’s renewable requirements that include specific provisions for solar electric.

New solar installations have not been installed fast enough to keep up with New Jersey’s demand for them, which has made electricity more expensive.

Other states have encountered similar issues. In 2014, Ohio Gov. John Kasich effectively froze the state’s Renewable Portfolio Standard requirements because of concerns about the cost of funding renewables, bringing solar projects and Solar Renewable Energy Credits to a halt.

What Do Renewable Standards Mean for Your Energy Purchasing Strategy?

Renewable Portfolio Standards vary substantially by state and change over time. While you can’t control these standards or the impact they have on your electric bill, they should prompt broader considerations about your energy purchasing strategy. You can’t control costs related to renewable standards, which may be passed through from your energy provider, but you can control when and how you purchase energy.

A blended purchasing strategy that incorporates both fixed and index pricing is one way to mitigate other pricing risks that could impact your bill and achieve greater budget certainty. Constellation offers a variety of energy purchasing solutions to help you prepare for increased costs and better manage your energy use. That includes Flexible Index Solutions that allow you to purchase percentages of your load in advance or Index Plus Block Solutions, which allow you to purchase specific quantities ahead of time.

To determine which options are best to help you meet your business goals, contact us today.