In the first part of this series, S&P Global Ratings discussed the development of the green bond market in the U.S., some of the hurdles, how it differs from the European and Asian markets, and the opportunities that await investors as the American grid continues to transform. But underpinning the whole discussion is the torrent of renewable energy that continues to enter the U.S. market. Here, we’ll take the conversation beyond labelled green bonds to discuss several other factors influencing the growth of renewable energy in the U.S., including renewable portfolio standards, which mandate that power generators use renewable energy sources; production tax credits, which can help finance renewable projects; and feed-in tariffs, which can potentially heighten the demand for renewable energy.
Renewable Standards: The Forms They Take
Renewable portfolio standards (RPS) are legally binding policies that require retailers of eletric utilities to deliver a specified amount of electricity from renewable sources. Iowa established the first RPS in 1983, followed by Nevada and Massachussets in 1997 (see chart 1). Today, 29 states, three territories, and the District of Columbia have instituted RPS. In addition, eight states and one territory have instituted renewable energy goals, which provide nonlegally binding targets for renewable electricity generation. Absent a Clean Power Plan or similar carbon mandate, it’s not clear that this tally will be pressured to grow in the near term. But even as the Clean Power Plan has come under siege during the Trump Administration, states having renewable standards have expanded them, sometimes with more ambitious goals and more specific carve-outs for new asset classes.
The design of RPS differs by state. Most standards incorporate one or more of the following aspects:
Most often, states set a percentage of kilowatt hours of electric sales that must be generated from renewable sources. Some states diverge from this model, mandating instead that renewable energy sources satisfy a portion of energy capacity or peak demand, for example.