Changing the Energy Portfolio? An Empirical Evaluation of the Renewable Portfolio Standard Deborah Baker Brannan, Ph.D. Candidate University of Colorado Boulder 30 th USAEE/IAEE North American Conference October 10, 2011

Renewable Portfolio Standard Requires a certain percentage share of electricity generated by electric utilities use renewable energy sources E.g. Colorado’s RPS: Investor-owned utilities 30% by 2020, Municipal and cooperatively-owned utilities 10% by 2020 Considerable variation in policy design across states Target amount, target year, entities subject to policy, definition of renewable energy, non-compliance mechanism, treatment of Renewable Energy Credits Emerged as the preferred state-level renewable energy policy 1998 – 3 states 2011 – 29 states, DC (8 goals)

RPS Policies 2011 (DSIRE)

Motivation RPS Objectives 1.Increase deployment of renewable energy 2.Reduce pollution, improve national security, job creation, lower electricity prices Most secondary benefits achieved through fossil fuel displacement Secondary benefits vary with the type of fossil fuel that is displaced Displacement should differ – marginal cost, type of power plant Ex Ante Coal unlikely to be displaced, Natural gas likely to be displaced Anecdotal evidence suggests this is not always the case Natural gas manages intermittency Limited available supply of natural gas

Research Questions 1.What is the relationship between the adoption of an RPS policy and electricity generation using renewable energy sources? 2.What is the relationship between the adoption of an RPS policy and electricity generation using natural gas? Coal?

Preview of Results Strong and positive relationship between adoption of an RPS and renewable generation Negative relationship between adoption of an RPS and both natural gas and coal

Difference of Means RPS States (N=28) Non-RPS States (N=22) Difference MeanStd. Dev.MeanStd. Dev.Meant-Statistic Renewable Natural Gas Coal

Utility vs. Independent Power Producer RPS States (N=28) Non-RPS States (N=22) Difference MeanStd. Dev.MeanStd. Dev.Meant-Statistic Natural Gas, U Coal, U Natural Gas, IPP Coal, IPP

Empirical Approach G it is electricity generation M it are electricity market characteristics E it are political and environmental attitudes S it are socioeconomic characteristics α i are state fixed effects, and γ t are year fixed effects Specifications vary with type of energy resource Renewable Energy (wind, solar, geothermal) Natural Gas Coal ln(G it ) = α i + γ t + βRPS it + μM it + θE it + δS it + ε it

Endogeneity Model assumes the RPS policy is exogenous Ideal solution is an instrumental variable approach Unable to identify an instrument that is valid and excludable Assume the RPS policy is exogenous Factors affecting the adoption of an RPS (Chandler 2009, Lyon and Yin 2008, Huang et al. 2007) State and year fixed effects RPS policy variable is constructed as a binary variable

Data Panel data , 50 states Data Sources Electricity data Energy Information Administration (EIA) RPS data Database of State Incentives for Renewables and Efficiency (DSIRE) Electricity market characteristics EIA, Census Political and environmental attitudes DSIRE, Conservative Ideology (Poole and Rosenthal), Environmental Protection Agency Socioeconomic factors Bureau of Economic Analysis, Census

Renewable Energy Result Positive relationship between an RPS and electricity generated using renewable energy sources. (1)(2)(3) RPS (3.97)***(3.82)***(4.51)*** Electricity MarketYes SocioeconomicYes Environmental and PoliticalYes State, Year Fixed EffectsYes Observations 600

Utility vs. Independent Power Producer Renewable generation primarily driven by IPPs Evidence that utilities are owning and operating renewable generation facilities (1)(2) UtilitiesIPP RPS (1.90)*(3.15)*** Electricity MarketYes SocioeconomicYes Environmental and PoliticalYes State, Year Fixed EffectsYes Observations 600

Renewable Energy Credits Implications for both primary and secondary objectives E.g. Out-of-state REC purchases Important policy feature BUT no data Proxy for the size of the REC market Percent of neighbors with an RPS Wind development of other states in REC market (Bird et al. 2010) Installed wind capacity as a percent of potential wind capacity

REC Market Expect states with an RPS generate less renewable energy in a growing REC market Empirical evidence suggests otherwise Policy features to support in-state generation (1) (2) (3) (4) UtilitiesIPP RPS (1.90)*(0.75)(0.55)(3.15)***(3.46)***(2.77)*** Prcnt Nghb with RPS, Lag (1.98)**(2.81)*** RPSxPrcnt Nghb (1.73)*(1.20) Wind Development, Lag (4.12)***(0.84) RPSxWind Development (2.77)*** (0.04) Electricity MarketYes SocioeconomicYes Environmental and PoliticalYes State, Year Fixed EffectsYes Observations 600

Natural Gas and Coal Negative relationship between adoption of an RPS policy and both coal and natural gas generation by electric utilities (1)(2) (3)(4) Natural GasCoal UtilitiesIPPUtilitiesIPP RPS (2.04)**(1.32) (2.31)**(3.98)*** Electricity MarketYes SocioeconomicYes Environmental and PoliticalYes State, Year Fixed EffectsYes Observations 600

Conclusions A positive relationship between RPS policy adoption and renewable generation, driven primarily by IPPs, persistent even in a growing REC market Evidence of coal and natural gas displacement Fossil fuel displacement will be state-specific and vary with the composition of energy portfolio, energy prices. Research on displacement in particular RTO’s (e.g. Cullen 2011, Novan 2011) Inform policy makers on potential to achieve secondary benefits

Questions? Comments? Contact Information: Deborah Baker Brannan

Wind (1) (2)(3) RenewableWindSolar RPS (4.49)***(3.33)***(1.46) Electricity MarketYes SocioeconomicYes Environmental and PoliticalYes State, Year Fixed EffectsYes Observations 600 The positive relationship between an RPS and renewable generation is primarily driven by wind Anecdotal evidence that wind farms operate best at night Hourly wind farm data?

Wind and Solar Increase in wind dominated by IPPs Utilities increasingly owning and operating renewable generation facilities Increase in solar dominated by Utilities