Impacts of Renewable Portfolio Standard Compliance on Retailer Supplier Costs

Impacts of Renewable Portfolio Standard Compliance on Retailer Supplier Costs

by: Ariel Lager 

As retail suppliers know, renewable energy is a critical part of serving load in today’s markets. Voluntary or Green programs allow retailers to offer a differentiated product and a value add for customers, but even the most budget-focused retail offering will need to account for costs associated with Renewable and Alternative Energy Portfolio Standard compliance. Building and managing a renewable energy portfolio that meets the needs of customers and satisfies the requirements of state compliance obligations is an important part of a well-run retail business. 29 states and DC have Renewable or Alternative Energy Portfolio Standards in effect, and an additional 8 states have non-binding goals, ranging from modest inclusion of renewable technologies to complete transition to renewable energy in Hawaii by 2045. Every deregulated state has a renewable standard, some mandating that as much as 50% of energy be derived from renewable or alternative technologies by 2030:

Maintaining compliance with these increasing standards can be an expensive component of overall costs. Compliance costs are higher than $10 per MWh of total load served at Alternative Compliance Payments in many states. In Massachusetts, meeting RPS obligations via ACP would have added $21.47 to every MWh of load served in the state during calendar year 2015. Fortunately, a well-managed compliance strategy can allow retailers to better control these costs. Understanding regulatory and market developments impacting the Renewable Energy Credit markets in each state provides an opportunity to make smart procurements, which can slash compliance costs significantly. Nearly 200 RPS-related bills have been introduced in state legislatures since 2016, most of which seek to strengthen, increase, or extend an existing RPS policy. Gauging the impacts of these policy changes is only one factor in understanding the dynamics of volatile REC markets. Renewable resource build rates, output of eligible technology units, and distribution of RECs between overlapping state and voluntary REC markets all influence pricing and availability of compliance RECs. The impacts of policy changes on PJM Class I REC pricing over the years illustrates how dramatically these factors influence costs for compliance buyers:

Volatility in REC market pricing can also provide an opportunity for retail suppliers to participate more creatively in renewable energy by incorporating community solar, distributed generation, and customer-sited renewable installations.  Retail suppliers looking to diversify and maximize their renewable portfolios can and should evaluate whether investment in renewable projects or longer term REC contracts are consistent with their mission, business strategy, capital constraints, risk tolerance, and the needs and preferences of their customers. Although keeping up with RPS requirements can be complex and costly, smart strategies and a well-managed renewable portfolio can provide retail suppliers cost savings and new opportunities for growth.

Customized Energy Solutions is a leading service provider for competitive load serving entities throughout the US. CES offers a full suite of operational and consulting support to retail suppliers and other market participants, including RPS compliance strategy development and implementation. Services include complete REC procurement management services, contracting, retirements, and tracking system administration, as well as price tracking, position management and optimization through our hosted platform.  In addition, we provide federal, state, and utility compliance management and issue resolution, and RPS informational support and market intelligence.

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Ariel Lager of  Customized Energy Solutions