Renewable Electricity Goals

States are committing to ambitious climate and energy goals.

In the United States today, climate policy is virtually non-existent at the federal level. To fill this gap, many states have implemented their own goals and mandates regarding climate change, renewable energy consumption, energy efficiency, greenhouse gas emissions, and decarbonization. This report focuses on a subset of those laws: state renewable portfolio standards, procurement mandates for renewable energy, and energy planning. Land use restrictions and siting incentives can be built into state climate and energy policies to protect farmland and agricultural uses.

Renewable Portfolio Standards

State renewable portfolio standards (RPS) mandate the increased production of renewable energy by requiring retail suppliers of electricity (your local electric utility) to obtain a specific percent of their supply of electricity from renewable sources by an identified year. RPS policies incrementally increase targets for renewable electricity. For example, an RPS might require utilities to increase total renewable electricity consumption by 3% each year for the next 15 years, resulting in renewable energy constituting 45% of the utility’s “portfolio” of electricity sold to customers. The specific goals, qualifying resources, and compliance requirements vary from state to state, as does treatment of Renewable Energy Certificates.

State RPS Policies Differ in Design

• States may set a total goal, like “100% renewable electricity by 2045,” may establish “classes” or “tiers” within their total goal for preferred energy sources, or may “carve-out” a percentage of the goal for a specific renewable technology, like solar.
• Classes or tiers might create different mandates for different renewable sources or for electricity generated by new sources versus existing sources of electricity.
• Electric utilities comply with RPS requirements by developing renewable generation (where permitted),* purchasing power from other renewable generators, or buying Renewable Energy Certificates.
• Some states may include “REC multipliers” for solar or other preferred energy characteristics.

*Many states have “unbundled” the electricity-supply functions of electric utility service from the distribution services in a process called restructuring. Distribution utilities may be prohibited from owning energy generating facilities, leaving power production to competitive suppliers.

Measuring Compliance with Renewable Portfolio Standards

RPS laws require electric distribution utilities (retail suppliers of electricity) to obtain escalating percentages of energy from renewable sources. Utilities comply with the RPS mandate by owning a number of Renewable Energy Certificates (RECs) equal to the required percentage of renewable electricity procurement each year. The utility may obtain required RECs by generating renewable energy (and the associated RECs) or by purchasing RECs generated by others. Purchasing RECs allows utilities to comply with RPS policies flexibly without needing to build or own the renewable generation infrastructure. The state public service or public utility commission usually administers RPS implementation and may be required to publish an annual report showing how utilities met the RPS mandate, though state reports vary in the level of detail included.

Renewable Energy Certificates (RECs)

RECs are digital certificates that represent the “environmental attributes” of electricity generated from renewable sources. Every time one megawatt-hour of electricity is generated by a certified renewable source, two products are created:

• the electricity, which generally flows to the grid, and
• the benefits, or “environmental attributes,” of that one megawatt-hour of renewable energy.

RECs represent the second product, and may be bought, sold, or traded, serving as a currency for environmental trading and investment incentives like RPS policies.

RECs can be sold separately, or “unbundled,” from the associated electricity, and only the REC owner may legally claim that their energy is renewable.

When a REC is used to comply with a regulatory requirement or make public claims about renewability, it is “retired” and may not be reused or resold. The market value of a REC differs based on how many state RPS obligations it satisfies, the source of renewable energy it represents, and the age, or “vintage,” of the facility generating the REC.

RECs have different shelf lives for RPS compliance, and must be used before they “expire” for compliance purposes, often a few years after creation. In some cases where RECs have shorter life spans, they can be banked from one year to the next to meet a certain percentage of the next year’s annual requirement. The percentage of RECs that may be banked for use in the future and for how long differs by state program.

In addition to providing flexibility for utilities in complying with RPS obligations, RECs help to promote renewable energy generation development by monetizing the environmental benefits of renewable energy. RECs provide an additional revenue stream for renewable energy developers and can help with financing renewable energy projects.

RPS Alternative Compliance

If a utility fails to generate or obtain RECs equal to the percentage of renewable electricity required by an RPS, it usually must pay an Alternative Compliance Payment, or a per-kilowatt-hour financial penalty for amount it fell short. Alternative compliance payments are often contributed to a state fund dedicated to promoting renewable energy development. The ACP rate sets a ceiling price on RPS compliance because utilities are only willing to purchase RECs at amounts lower than the ACP rate.

Tracking and Trading RECs

There is no mandatory federal system for tracking generation or exchange of RECs, but several regional authorities have been developed to track the attributes of all the electricity contributed to the grid from all fuel sources, not just renewable generators.

The regional authority issues a digital certificate recording the emissions profile, fuel source, and other attributes, or generator characteristics, associated with each megawatt-hour of generation and manages the accounting of RECs used for compliance obligations or voluntary commitments. Certificates are called RECs when they are issued to a renewable generator. Electric utilities use the system’s certificates to report their compliance with RPS and other fuel disclosure requirements set by states. Policymakers define required REC attributes, like project capacity size, vintage, and energy source, for each class or tier of energy established through the RPS.

The regional tracking authorities all define one REC to represent the attributes of one megawatt-hour of energy, and the tracked attributes are very similar. These tracking systems list the state RPS programs and detail the specific tiers or classes for which each registered energy generator’s RECs may be eligible. Tracking systems that serve a single state’s RPS program may be more limited–only tracking data required by that state’s RPS. Data collection requirements may be modified to track different or additional REC characteristics in response to policy changes.

By tracking RECs from issuance to retirement, these systems ensure against double counting the environmental benefits of renewable energy generation. 

One limitation of the digital certificate system arises when grid-tied renewable energy is consumed on-site or “behind the meter.” When this occurs, RECs are not issued a digital certificate, but generally still may be sold or assigned to the utility within the state’s net-metering program or other power purchase program, and the utility assumes responsibility for accounting for these RECs. In states without a regional system for coordination of RECs, accounting systems for the renewable attributes of energy vary.

Renewable Energy Procurement Laws

In addition to Renewable Portfolio Standards, states may require utilities to procure a certain amount of renewable energy capacity by a target date, and offer a special rate for the purchase of energy from desired projects.

Renewable energy procurement laws usually

• identify a desired renewable energy technology (i.e. solar and/or wind);
• mandate the purchase of a specific quantity of renewable energy generating capacity (i.e., “up to 300 megawatts of installed capacity”);
• identify eligible project characteristics (i.e., “community solar” or “projects up to 1 megawatt”);
• establish a term of years for contracts (usually 10-25 years); and,
• establish a rate or rate calculation method for the purchase of energy generated by eligible projects (i.e., “10 cents per kilowatt-hour”).

Some state energy procurement laws may allocate RECs generated by eligible projects to the connecting utility for use in meeting its renewable energy obligations under the state’s RPS or may allow the utility to sell the RECs into other markets. Other state procurement laws do not address REC ownership, and by default, RECs are owned by the owner of the renewable energy generating project. See our Payment for Solar Energy pages for additional detail about state laws offering special rates for the purchase of solar energy.

Other Climate and Energy Goals

States have designed a variety of clean energy and climate action mandates across the country, including requirements to reduce greenhouse gas emissions, reduce fossil fuel consumption, and produce or consume clean or renewable electricity. As solar energy does not emit greenhouse gases and qualifies as a renewable energy source, state climate and energy policies tend to incentivize and accelerate solar development.

While these mandates may not directly affect solar siting, policymakers should be aware of the full framework of climate and energy policy that exist (or could exist!) in their state when considering changes to solar development laws.

Climate and Energy Planning

State RPS policies are usually one part of a larger energy plan in each state. States use comprehensive energy planning to create a roadmap for meeting future energy needs, and these plans may provide additional information about implementation of the state’s RPS policy and other renewable energy initiatives.

State Comprehensive Energy Plans usually set out state priorities for energy management and identify sector-specific and technology-specific strategies for meeting the state’s energy goals. Some states identify goals for protection of agricultural land or uses within their comprehensive energy plan.

In addition to statewide planning, laws may require local and/or regional energy planning, including the identification of specific land parcels that are preferred for solar development and ineligible for solar development. Local and regional energy planning decisions are likely to receive deference within state and local permitting processes for solar development.

Some states are working to map land use considerations using GIS technology that allows layering of detailed information about every land parcel. Mapped characteristics might include the location of energy transmission and distribution infrastructure, electric substations, prime agricultural soils, farmland, wetlands, endangered species habitat, and other protected lands and natural resources. Detailed mapping helps to identify beneficial locations for solar development, as well as potential siting conflicts.

Renewable portfolio standards and other climate and energy goals affect the quantity and characteristics of solar arrays sited on farmland.

RPS Carve-outs for Solar Energy

Most or all RPS policies include solar as a qualifying source of renewable energy, which has driven expansion of the solar industry. Some states use a solar or distributed generation “carve-out” to further accelerate solar energy deployment. When an RPS policy includes a solar carve-out, or a mandate that a portion of the RPS be met using solar energy, utilities must obtain RECs specifically generated by solar energy, called SRECs.

SRECs work the same way as RECs, but are more narrowly defined as RECs generated by a specific category of solar installations defined by law. SRECs have a higher market value than RECs generated by less-preferred sources of renewable energy, like hydro or biomass, because there is generally a higher demand for SRECs within regional REC markets. The value of SRECs can vary significantly depending the cost of “alternative compliance payments” utilities must pay if they fail to obtain required SRECS, the number of solar facilities producing SRECS (supply) and RPS mandates for solar development (demand).

RPS Credit Multipliers for Solar Energy

As an alternative to carve-outs for solar or distributed renewable energy, some states have established “RPS credit multipliers” to incentivize desired project characteristics. RPS credit multipliers allow eligible projects to generate an additional per-kilowatt-hour compliance credit that may be used to meet RPS obligations.

For example, an RPS might specify that for every kilowatt-hour of solar energy actually generated by solar arrays less than 1 megawatt in capacity, two kilowatt-hours will be counted for purposes of RPS compliance.

While the extra credits may be referred to as “RECs,” these compliance-only credits are not generally tradeable or saleable on regional exchanges. Like solar carve-outs, RPS credit multipliers for solar energy increase demand for solar development.

Renewable Portfolio Standards can separate clean energy benefits from land use impacts.

Regional and Out-of-state Development

Because it is generally unconstitutional under the Dormant Commerce Clause for states to “discriminate” against businesses located out-of-state, RPS mandates may be met through purchase the of renewable electricity or RECs from either in-state or out-of-state sources. While each state has individual clean energy goals and mandates, these policies are driving renewable energy development across the nation. Out-of-state solar projects are incentivized to sell qualifying SRECs into states with a solar carve-out, and a resulting higher SREC value, to maximize solar project profitability.

Land Use Competition

Without land use protections built into state permitting and siting processes for solar development projects, the rapid regional development of solar is likely to occur on agricultural land and other greenfields, as these generally provide ideal conditions for easy construction and operation of a solar array and are less expensive than other development options.

Policymakers should be aware that ambitious clean energy goals increase land use pressure across a region. Every state should examine its land use and siting requirements for new solar arrays to steer development toward previously developed land and structures and to ensure rules are in place to preserve our best farmland for food production and agricultural use, while promoting access to clean energy for farmers, including solar arrays that contribute to farm viability.

→ Use thoughtful regulatory definitions to differentiate classes of required or preferred renewable energy technology.

State lawmakers may designate preferred or required sources of renewable energy electric distribution utilities must use to meet regulatory obligations under an RPS or other mandate for clean electricity. Using smart regulatory definitions for eligible solar projects ensures that a certain percentage of incentivized energy comes from projects of a preferred size or type.

Lawmakers can define needed or wanted solar arrays by creating classes or tiers of energy based on project size or location, while ensuring that regulatory definitions comply with constitutional limitations under the Dormant Commerce Clause.

Carve-Outs based on Project Size

Rather than using a carve-out based on technology alone, which incentivizes any kind of solar development, policymakers can incentivize smaller-scale solar development by designating that a certain percentage of their RPS obligation be met by obtaining RECs from projects of a limited capacity size. RPS laws may target solar development specifically, or may incentivize smaller-scale distributed renewable energy generation without identifying a required technology.

Carve-outs based on Project Location

States should consider writing land use requirements into RPS carve-outs for solar energy. While in-state geographic limitations on eligible projects are likely to be unconstitutional,* carve-outs could be established for solar arrays on rooftops, brownfields, parking lot canopies, or other preferred site-types, regardless of the geographic location of such projects.

The digital information included in Renewable Energy Certificates can be tailored to record precise details about the type and location of solar projects. Requiring that projects occur on preferred site-types should increase the REC value for such projects, providing a financial incentive for this development type. This strategy helps to extend in-state land use protections, like preferred sites policies, to out-of-state projects contributing RECs used to meet state RPS mandates.

→ Consider equity and transparency in REC ownership.

Even though each REC usually has its own serial number assigned by a state or regional tracking authority, it can be difficult for consumers, lawmakers, and the public to determine  whether specific RECs have been retained, sold, or retired.

The Federal Energy Regulatory Commission has concluded that in creating RECs, states have the power to determine who owns the REC in the initial instance, and how they may be sold or traded.

States must be absolutely clear about REC ownership and transfer rules within renewable energy development policies, including whether contracts or subsidies for renewable generation require any transfer of RECs in return for the funding.

Individuals and businesses hosting solar arrays may not clearly understand how their ability to make “green claims” about the energy they use changes depending on whether RECs are kept or sold.

Policymakers should ensure that RPS-defined REC attributes are clearly defined in law, and require disclosure and consumer education about REC allocation and sales in net-metering and solar development incentive programs.

→ Require data collection and robust compliance reporting

State RPS laws and other climate and energy goals are intended to achieve environmental and energy benefits, and mechanisms to evaluate whether and how intended benefits are achieved should be written into program laws and regulations.

Policymakers should require data collection on the size, location, and design of renewable energy sources used to meet regulatory requirements and other goals.

Opportunities for stakeholder feedback and program review should also be established. Data collection and reporting are crucial for benchmarking progress toward achievement of climate and energy goals and help to identify challenges in program implementation. Such policies improve administrative transparency and help developers, utilities, consumers, and lawmakers alike understand and evaluate the costs and benefits of renewable energy development.

Granular reporting requirements for farmland could include data on solar arrays sited on prime agricultural land, farmland of state or local importance, land in agricultural use, land enrolled in current use taxation programs, and/or land subject to conservation or preservation restrictions.