Analysis Summary

The key results of this analysis are:

• Although the proposed legislation indicates a 10 percent target, small utilities are exempt from holding renewable energy credits and all renewable generation is excluded from the generation base required to hold RPS credits. If targets are achieved, total renewable energy, excluding existing hydroelectric generation, would account for 8.8 percent of electricity sales by 2020.
• Under Reference case assumptions, the 8.8-percent target is not projected to be met because of the declining real value of the 1.5-cent per kilowatt-hour credit cap and the sunsetting of the program in 2030. As the end of the program approaches (December 31, 2030), electricity suppliers are projected to purchase credits from the Federal government rather than invest in additional renewables that would only be subsidized by the program for a few years. The level achieved of total renewable generation by 2025 is projected to be 5.6 percent of all U.S. sales, with maximum renewable share of generation achieved in 2019 at 6.2 percent ^3,4.
• This RPS requirement would lead to greater generation from wind and biomass resources. Conversely, the imposition of the RPS would lead to lower generation from natural gas and coal facilities.
• The retail electricity price impacts of the RPS are projected to be small because the price impact of buying renewable credits and building the required renewables is projected to be relatively small when compared with total electricity costs; also higher renewable costs are somewhat offset by lower natural gas prices that result from reduced natural gas use.
• Because of reduced demand for natural gas by the electric power industry, natural gas prices to all users decline slightly with the RPS. Wellhead natural gas prices by 2025 are 1.5 percent lower with the RPS than in the Reference case.
• Compared with the Reference case, total residential expenditures on electricity in 2025 are $540 million higher (year 2001 dollars) due to the RPS. Total residential expenditures on natural gas are lower by $290 million (year 2001 dollars) with the RPS compared to the Reference case.
• The total cost of electricity to the end-use sectors (residential, commercial, industrial, and transportation) in 2025 increases from $351.9 billion in the Reference case to $353.4 billion in the RPS case, an increase of 0.4 percent. For natural gas, total end-use expenditures in 2025 decline from $136.0 billion to $135.2 billion, a decrease of 0.6 percent. Combined total end-use expenditures are 0.1 percent higher in 2025 due to the RPS.
• The net increase in cumulative net-present-value resource costs to the electric power industry from 2003 to 2025 with the RPS when compared to the Reference case sum to $3.6 billion (year 2001 dollars), an increase of less than 1 percent.
• The total value of the credits received by qualifying renewable generators in 2025 is projected to be approximately $2.5 billion. The higher costs of renewables covered by the RPS are mostly subsidized by payments from nonrenewable facilities. In 2025, payments to the Federal government to purchase renewable credits total to $1.15 billion.

Notes and Sources