State renewable portfolio standards (RPS) will be the most critical driver determining the pace of U.S. renewables growth, according to a new IHS Emerging Energy Research market study.
IHS estimates that cumulative renewables demand across all states with binding RPS policies will grow from an expected 137 TWh in 2010 to 479 TWh by 2025 – an increase of approximately 250% by 2025.
As of June, mandatory RPS policies, which require states to procure a percentage of generation from renewable energy, have been passed in 31 U.S. states and the District of Columbia, with six additional states approving conditional or non-mandatory renewables goals.
While utilities in a few states – led by Washington, Maine, Colorado and New Hampshire – are already well on their way toward meeting their 2015 RPS targets, the majority of states will require rapid renewables growth if they are to meet near-term objectives, the report notes.
The U.S. renewables market has experienced explosive growth since 2005, expanding from a total installed base of 30 GW to over 60 GW at the end of 2009. ‘With increasing challenges – including low power pricing and uncertain federal policies – escalating RPS demand will define the timing and location of renewables growth across the U.S. over the next few years,’ says IHS Renewable Power Research Director Alex Klein.
RPS policies are estimated to require more than 1,000 investor-owned utilities, load-serving entities and competitive retail suppliers to procure renewable power over the next decade, according to the study. Beginning this year, significantly escalating RPS demand will create gradually intensifying compliance pressure across the U.S.
‘The next five years will be especially critical as the industry faces its first real test of a significant ramp-up in RPS demand,’ predicts Klein. ‘Before the industry can attempt to reach already lofty longer-term renewable energy goals, utilities and regulators must prove in the next few years that they can reach initial compliance with the RPS targets coming due in many U.S. states.’
Utilities' strategies are rapidly evolving in response to RPS, as they weigh compliance-driven mandates in the broader context of their regional strategies, competitive positioning, and longer-term generation-mix objectives. Power purchase agreements will remain the predominant mechanism for utility RPS compliance, expected to account for approximately 70% of total renewable energy added to the U.S. supply mix over the next three years, according to the study.
Spurred on by long-term state mandates, utilities are increasingly moving toward development and ownership of renewable energy assets in several key renewables markets, such as the Midwest, Northwest and California.
According to IHS, state RPS would be significantly strengthened if complemented by a federal renewable electricity standard or energy policy that addresses transmission bottlenecks and siting issues on federal lands, both of which will be critical to sustaining renewables growth toward the middle of the next decade.
‘The passage of a national RPS, currently being considered in Congress, would substantially broaden renewables growth compared with existing state RPS policies, with the potential for more transparent mechanisms for enforcement across the U.S.,’ Klein says.