Analysis Summary

The key results of this analysis are:

• The sunset and civil penalty provisions of S. 1766 have a significant impact on the amount of renewables stimulated by the RPS. S. 1766 states that the RPS requirement ends (sunsets) on December 31, 2020. It also imposes a civil penalty of up to 3 cents per kilowatt-hour for retail electricity suppliers who do not submit their required number of renewable credits in any given year.

• Under the AEO 2002 Reference case assumptions, the 10-percent RPS called for in S. 1766 target is not projected to be achieved because of the 3-cent per kilowatt-hour credit penalty and the sunsetting of the program in 2020. As the end of the program approaches (December 31, 2020), electricity suppliers are projected to pay the penalty rather than invest in additional renewables that would only receive the credit for a few years. The level achieved by 2020 is projected to be 8.4 percent.⁴  If the sunset provision were removed the required RPS is projected to be achieved.

• A 10-percent RPS requirement would lead to greater generation from wind, biomass, and to a lesser extent, geothermal, resources. Conversely, the imposition of the RPS would lead to lower generation from natural gas and coal facilities.

• The S. 1766 RPS target is projected to be achieved if more optimistic cost and performance assumptions for new renewable technologies are used. A key uncertainty with respect to impacts of an RPS program is the future cost and performance of renewable generation technologies. If their costs fall and/or their performance improves more than is expected in the Reference case, the RPS program could be less expensive resulting in qualifying renewables reaching a share of 10 percent. Conversely, if the cost of new renewable technologies does not improve the share achieved is projected to be 6.9 percent. With these assumptions, the credit price is projected to reach the 3-cents per kilowatt-hour cap earlier than under Reference case assumptions.

• The retail electricity price impacts of the RPS are projected to be small because the price impact of buying renewable credits and building the required renewables is projected to be relatively small when compared with total electricity costs and to be mostly offset by lower gas prices that result from reduced gas use.

• The net increase in cumulative resource costs to the industry from 2000 to 2020 in the RPS 10 case when compared to the Reference case sum to $7 billion, an increase of approximately 1 percent.

• The total value of the credits received by qualifying renewable generators in 2020 is projected to be approximately $12 billion.  The renewables covered by the RPS are essentially supported by payments from nonrenewable facilities.

• The Indian lands provision could lead to fewer new renewables being built in response to the RPS because there are wind resources on Indian lands. If these resources were developed they would receive double RPS credits and reduce the amount of qualifying renewable generation needed to comply with the RPS.

• If a 20 percent RPS were imposed under the same provisions as S. 1766, the electricity price and cost impacts are projected to be larger. In 2020, the retail price of electricity is projected to be 3 percent above the Reference case with a 20 percent RPS and electricity supplier resource costs are projected to be $ 21 billion higher than in the Reference case.

• As in the 10 percent RPS case, the 20 percent RPS target is not projected to be achieved.  The level achieved is projected to be 12 percent. This mainly occurs because of the high cost of the level of renewables that would be needed to meet the RPS target.  Also, as the December 31, 2020, end of the program approaches, electricity suppliers are projected to pay the penalty rather than invest in additional renewables that would only receive the credit for a few years.

Notes