Renewable Portfolio Standard
In summer 1999, Texas Governor George Bush signed legislation (SB 7) that restructured the Texas electricity industry. A key part of this legislation is a minimum renewable energy requirement, the Texas Renewable Portfolio Standard (RPS). The legislation targets an additional 400 megawatts by January 2003, 850 megawatts by 2005, 1, 400 megawatts by 2007, and 2, 000 megawatts by 2009. Two thousand megawatts are equal to about 3 percent of Texas's generating capacity. The renewable requirement applies to all electricity providers: competitive retailers, municipal electric utilities, and electric cooperatives. Each provider is required to obtain renewable energy capacity based on the provider's market share of energy sales times the renewable capacity goal. For example, a competitive retailer with 10 percent of the Texas retail electricity sales in 2009 would be required to obtain 200 megawatts of renewable energy capacity. The renewable energy capacity required by the electricity sellers can be provided directly or through the Renewable Energy Credit (REC) market. This market enables renewable energy producers to sell energy and renewable energy credits separately. It also allows retailers to buy credits instead of owning or contracting for electricity from renewable sources. Thus, an electricity provider that does not own or purchase enough renewable energy capacity may purchase credits instead of capacity. The price premium for RECs is intended to help finance timely construction of renewable energy capacity at the lowest social cost using market-based incentives. The concept is working: the development of new renewable energy resources is well in advance of target milestones. Currently, 600 megawatts of new wind energy projects and 100 megawatts of other renewable energy projects are proposed or under development in Texas. Solar, wind, hydro, wave, tidal, biomass, and landfill gas projects within Texas are eligible to receive RECs. Also eligible are renewable energy sources on the customer side of the meter that offset electricity demand (e.g., PV and solar water heating). Municipalities operating a gas-distribution utility can count landfill methane toward the renewable energy requirement. REC credits are earned for each megawatt-hour produced by all renewable energy generators started after September 1, 1999. They are also earned for all renewable generation less than 2 megawatts and for metered "generation offset" technologies (e.g., solar water heating and geothermal heat pumps). The REC market is administered by ERCOT, the Texas electric grid operator. RECs are issued quarterly, based on meter readings. RECs are good in the year created and can be banked for two years. However, they must be used or they will expire.