Background - News & Events (Landing) 2016
Climate Law & Environmental Finance Update

D.C. City Council Amends Renewable Portfolio Standard to Increase Solar Mandate

August 3, 2016

On July 25, 2016, District of Columbia Mayor Muriel Bowser signed the Renewable Portfolio Standard Expansion Act of 2016 (the “RPS Expansion Act”), a bill approved by the D.C. City Council (D.C. Council) that substantially increases the existing clean energy mandate on retail electric energy suppliers authorized to sell energy in the District. Under the RPS Expansion Act, by 2032 each energy supplier will have to demonstrate that 50 percent of its load is sourced from qualifying renewable sources.

Generally, retail electric energy suppliers have three compliance options to choose from at their discretion. They can (1) purchase or self-generate qualifying renewable energy, (2) purchase or acquire renewable energy credits (RECS) or solar renewable energy credits (SRECs) - both environmental commodities that are tradable proxies for the environmental attributes of renewable energy generated within the District, or (3) pay a statutory per MWh fee for such supplier’s shortfall (known as the “Alternate Compliance Payment” or ACP).

The RPS Expansion Act both increases the “solar carve-out” portion of the overall mandate to 5 percent from its current level of 2.5 percent, and also maintains the 50 cents per kWh ACP for retail electric energy suppliers’ solar energy purchases. (The ACP had been scheduled under existing law to decrease incrementally through 2023.) The market prices and costs associated with the different compliance options are correlated – i.e. an increase in the solar carve-out ACP price will increase energy supplier demand to buy solar energy at wholesale from facilities located in D.C. In turn, arguably more distributed solar energy generation resources will be deployed in the District to meet that increase in demand.

The ACP increase will also increase the market value of SRECs. The RPS Expansion Act therefore indirectly enhances the ability of solar project developers to sell SRECs and possibly use the revenue stream to help finance a new project.

However, there are also potential unintended consequences of the new program. The increased costs associated with new solar energy generated in D.C., and the higher SREC prices, are likely to be passed along to retail energy consumers – including companies and universities. Moreover, entities that purchase D.C.-based SRECs to satisfy environmental sustainability goals may face increased procurement costs.

Recognizing the potential retail cost impacts, the RPS Expansion Act provides the Public Service Commission with new authority and flexibility to adjust the solar carve-out ACP value in light of the progress of solar deployment in the District. Whether this added flexibility will benefit D.C. energy consumers remains to be seen. However, jurisdictions located within the regional footprint of PJM (which includes D.C., Maryland, New Jersey and eleven other states) all have mature RPS programs and are often viewed as national laboratories for clean energy policy. If the new D.C. RPS approach is successful in increasing deployment of solar energy resources in the District, other states could follow in implementing revisions to their own RPS programs. If the new D.C. RPS approach stalls, D.C. may need to consider allowing retail energy suppliers to procure RECs and SRECs from other jurisdictions.

Summer associate Karl Worsham (not admitted to practice law) also contributed to this alert.

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