Limiting the costs of renewable portfolio standards: A review and critique of current methods

Over half of U.S. states have renewable portfolio standards (RPSs) mandating that a minimum percentage of electricity sold derives from renewable sources. State RPSs vary widely in how they attempt to control or limit the costs of these RPSs. Approaches utilized include alternative compliance payments, direct rate caps, and cost caps on resource acquisitions, while some states employ no specific limitation at all. This paper describes how states attempt to control RPS costs and discusses the strengths and weaknesses of these various cost controls. There is no one best method; however the experience to date suggests that the most important factors in implementing an effective mechanism to curtail costs are clarity of the rule, consistency in application, and transparency for customers.

▶ We review states' RPS statutes and regulations for mechanisms that attempt to control overall compliance costs. ▶ We categorize the major cost curtailment mechanisms. ▶ For each mechanism, we describe policy designs that are or could be implemented by states. ▶ We identify strengths and weaknesses of the various designs for consideration by policymakers.