Renewable Portfolio Standards (RPSs), using Renewable Energy Credits (RECs) to track and commoditize renewable energy generation, have made significant contributions to renewable energy deployment. A truly clean electricity grid, however, will need to rely on zero-carbon energy throughout the day and year, and everywhere electricity is used. RPSs have been unable to achieve these goals due to inherent limitations of a market for RECs.
In states with the most aggressive clean energy policies, the shortcomings of RPSs are becoming more acute. In areas of high solar penetration, for example, solar power generates electricity during the day, but fails to provide energy during the evening hours when demand peaks. The resulting overproduction and waste of renewable energy — and related symptoms of poor renewable energy integration — call for a dramatic change to clean energy policy development.
Our research team proposes a new policy framework called the value-based renewable portfolio standard, or VRPS. The currency of a VRPS is the value of renewable energy credit, or VREC, which integrates the time- and location-dependent value of electricity into clean energy subsidies. Overall, we found that a VRPS will:
- Incentivize renewable energy where and when it is most valuable.
- Increase profitability of storage investments by valuing the time-dependent characteristics of electricity.
- Encourage renewable energy siting near high-priced markets.
- Support a robust, transparent inter-state market while preserving climate change mitigation benefits.
Policymakers have recognized the challenges posed by mismatched load and renewable energy generation resulting from the REC-based RPS approach. In response, they have proposed modifications to RPS markets, such as geographic limitations and time-of-use multipliers, to deliver meaningful environmental outcomes. These proposals tend to fragment markets, resulting in poor economic efficiency. Meanwhile, proposals to make renewable energy subsidy markets more robust result in REC markets that overlook critical characteristics of electricity markets which do not deliver desired climate change mitigation. The VRPS bridges the gap between market function and environmental outcomes through transparent time- and location-dependent valuation of renewable energy.