The renewable portfolio standard: design considerations and an implementation survey

Renewables have social and environmental benefits compared to conventional electricity sources, but are rarely competitive on a strict financial cost basis. This is because conventional sources are sometimes subsidized, their full pollution costs are ignored, and renewables involve newer, higher-cos t technologies whose relative costs will fall with commercialization. Gover nments use several mechanisms to support renewables, including direct finan cial support (grants, loans), indirect support (R&D, demonstrations), refor m of financial costs of conventional sources (subsidy removal, pollution ta xes), and the Renewable Portfolio Standard (RPS). The RPS requires a minimu m share of electricity from renewable energy sources. Its use is spreading because it maintains an incentive for renewable producers to reduce costs, links the regulated market outcome to an environmental target, and reduces government involvement. Although it is too early to evaluate fully its effe ctiveness, the survey for this study explored implementation issues in thre e European countries, nine US states, and Australia, and found the followin g. The RPS target is usually set to have environmental benefits without cau sing significant price increases (cost caps are sometimes used). Most juris dictions limit eligibility to grid-connected, domestic renewables. The RPS is usually applied to producers rather than consumers, and to energy output not capacity. Flexibility mechanisms are desired but a challenge to implem ent. Administration in the US and Australia is by government with delegatio n to independent utility regulators, while in Europe it is more the respons ibility of government. Everywhere, the RPS is applied alongside other mecha nisms of renewables support. (C) 2001 Elsevier Science Ltd. All rights rese rved.