Explainer: Renewable Portfolio Standards
California's state capitol in Sacramento, source of renewables legislation | Photo: Calwest/Flickr/Creative Commons License

In order to promote the development of a renewable energy infrastructure, many governments have passed laws that require a certain percentage of power used within their borders is generated via renewable energy. These laws, which set a standard for the amount of renewable energy in a region's energy generation portfolio, are referred to as Renewable Portfolio Standards (RPS).

California has had an RPS for a decade, and the law has been amended and strengthened over the years to increase the amount of renewable energy it requires. Under California's current RPS, last increased by former governor Schwarzenegger, 33% of the energy supplied by utilities, electric service providers, and community choice aggregators must come from renewable sources by 2020.

In order to comply with the RPS, power providers must track and verify which proportion of their output is renewable in origin. This is done using a market-based credit system. Every megawatt-hour of power verified by an independent agency to derive from renewables grants the owner of that power a Renewable Energy Certificate (REC). These certificates can be bought, sold, or traded. This provides an incentive for utilities and other energy companies to increase their renewables capacity, as they can then sell extra RECs to utilities who are lagging behind in meeting their RPS obligations. In California, the California Energy Commission (CEC) does the year-end accounting for the RECs and reports the results to the California Public Utilities Commission (CPUC), which uses those results to enforce compliance with the RPS.

A majority of US states have enacted some form of RPS, and all of them are different. Some don't incorporate a REC-type credit system. Some offer greater credit for energy generated with certain renewables such as solar or wind. The state of Ohio includes some advanced nuclear power technologies in their definition of "renewables." The percentage target for renewables varies widely from state to state: Hawai'i's, at 40% by 2030, is the highest.

One criticism that has been leveled at California's RPS is that it does not provide adequate incentives for distributed generation such as residential rooftop solar. In 2007 the CPUC decided that distributed generation should be included in the Renewable Energy Certificate program, and that the owner of the facility owns the Certificates rather than the utility that serves that customer.

But a typical homeowner with a 10 kilowatt solar installation is unlikely to earn even one REC a month. Some utilities offer to buy the rights to the certificates from their distributed generation customers, but not all of them do, and there's no legal requirement that they make the offer. If utilities don't offer to buy their customers' RECs, property owners may find they have trouble selling their RECs to anyone else: the market -- at least in California -- is secretive and complex. And much distributed generation in California is counted as energy efficiency or demand reduction rather than as renewable energy production, and thus doesn't even count toward the Renewable Portfolio Standard.