Introduction, Energy Policy 1990-2001, Federal Policies, State Policies, Net Metering

American Energy Policy


The United States of America is the world's largest consumer and producer of electricity, and also the greatest emitter of greenhouse gases. At the same time it has a huge potential for renewable energy. The Energy sector in the USA is complicated due to the make up of the country and the different state policies and experiences. Under federal policy, the states are pulled together under various energy policies to fulfil the aims of the overall country. In this manner, the USA can be thought of as similar to the EU, in that it looks to meet its overall objectives by maximising the use of renewable energy where it is most economically feasible to meet the goals of the whole community of states.
Until 1935, the energy sector was made up of private companies operating in their own areas with a hold over the market. In 1935, the Public Utility Holding Company Act (PUHCA) was passed as a result of an investigation by the Federal Trade Commission. This regulated interstate wholesale marketing or transmission of electric power using the Federal power Commission (FPC), which today is known as the Federal Energy Regulatory Commission (FERC). In the 1920's, President Roosevelt initiated plans for four hydroelectric plants to be owned and operated by the federal government. This was the dawn of renewable energy in America driven by the need for the federal government to own and operate generating plant.

The American Energy Sector is made up of Utilities and Nonutilities. Utilities are defined as "privately owned companies and public agencies engaged in the generation, transmission, and/or distribution of electric power for public use."1 Utilities come in four categories; Investor owned, Federally owned, Publicly owned and cooperatively owned. Nonutilities are defined as "privately owned entities that generate power for their own use and/or for sale to Utilities and others." For more information see www.eia.doe.gov

In 1970 the government passed the "Clean Air Act", this was early recognition of the environmental concerns of emissions, for more information see the previous website link. The Oil Crisis of 1973 forced up oil and oil related products into a higher price range. This caused America, as it did with other dependant countries, to look at its energy sector and realise the need for diversity and versatility in an environmentally friendly manner. Renewable Energy can cater for this set of needs. In response to the crisis, the government introduced the "Energy Policy and Conservation Act" in 1975 to reduce dependence on imported oil and increase energy efficiency. 1977 saw the establishment of FERC, and then in the following year the "National Energy Act" was passed. Within this act, the "Public Utility Regulatory Policies Act" (PURPA) initiated competition in the electricity supply industry as it allowed Nonutility facilities that met certain criteria to enter the wholesale market. Also passed was the "Energy Tax Act" (ETA), which benefited renewable energy in that it allowed a tax credit on top of the investment tax credit, making the technologies more economically viable. This was initially targeted at Wind and Solar power but was later expanded to other renewables. This tax credit was stopped in 1986 under the Tax reform act, as part of the Electric Consumers Protection Act (ECPA), instead being only available for regulated and nonregulated taxpayers with the intention of making capital investments more attractive. ECPA did on the other hand increase the importance of environmental considerations for licensing hydroelectric schemes, involving wildlife agencies. FERC's powers grew and projects were made to satisfy strict environmental conditions.

The following section is split into two categories: Federal Policies and State Policies, which have been introduced to promote the use of renewable energy. The federal policies are given in a time line fashion to show how energy policy has developed throughout the last 12 years, and the drivers behind these changes and measures implemented. The State Policies are not given in a time line fashion due to the sheer number of states and the different measures they have adopted. Instead, the different options open to them are considered and then California is used as a case study due to its importance in terms of renewable energy resource and deployment.


Energy Policy 1990-2001

Federal Policies

In light of growing concerns about emissions of greenhouse gases and their detrimental effect on the environment, 1990 saw the passing of the Clean Air Act Amendments (CAAA). This was the introduction of a new emissions-reduction program. It employed specific targets, to reduce annual Sulphur Dioxide emissions by 10 million tonnes and annual Nitrogen Oxide emissions by 2 million tons compared to 1980 levels, how this affected the emissions throughout the 1990's can be seen in figure one. Title IV of the plan created a two-phased plan of action. The first starting in 1995 and running through to 1999, then phase two starting in 2000 which is much more stringent. This policy was driven by air quality problems and acid rain in the United States, Coal fired power stations were the main target of this legislation. It was implemented using a market based trading system to allow it to be done in the most cost effective manner. This led to the introduction of cleaner generation procedures for coal fired stations, but also recognised that cleaner, alternative forms of generation would be required in the future.

Figure One: SO2, NOx emissions from electricity generation, 1990's

The Gulf War in 1991 again raised questions over America dependence on imported oil. This shaped the 1992 "Energy Policy Act" (EPACT). The purpose of this act was to encourage competition within the sector, which would lead to a more diversity and less dependence on one method of generation. The act gives a production incentive and a tax credit to renewables. EPACT established several different incentives for renewable energy: A 10% energy tax credit for solar energy and geothermal projects, which is unavailable to utility owners, A 10 year, 1.5 cent/kWh Production Tax Credit (PTC) for wind and closed-loop (energy crop) biomass projects and a 10-year, 1.5 cent/kWh Renewable Energy Production Incentive (REPI). These payments are indexed for inflation. To qualify for REPI, the facilities must use solar, wind, geothermal or biomass (except for MSW combustion) generation technologies. This payment has been a huge incentive for the initiation of renewable energy projects. The act created an additional category of electricity generator, the exempt wholesaler generator. This reduced the restrictions that PUHCA placed on the development of Nonutility generation. EPACT also mandated that FERC open up the national transmission network to wholesale suppliers, considering each case individually. These measures made renewable energy more attractive for investors and helped to increase the share of renewable energy in the electricity sector throughout the 1990's.

The Department of Energy applied research program for renewable energy is undertaken through partnerships with other bodies who share the costs involved. This has been an important part of funding for R+D of renewables since the 1980's. More information and examples of projects can be found in the USA Research and Development section of this website. The majority of federal funds in this area have been in support of national laboratories and academia research.

The Kyoto agreement of 1997 was an international step towards combating climate change, by creating an obligation that would affect the energy policy of all those who are signed up to it. As the world's largest polluter, this agreement was very significant and if their obligation were to be attained then it would be a very costly proposition. The Kyoto Mechanisms allow the trading of emissions and also the joint projects between countries, this would help the USA manage their emissions and help with the global emissions problem. But this would be very expensive, and if the targets were not attained then the financial penalty for the country could be severe. For this reason, the US Government decided to pull out of Kyoto agreement in 2001. If the International community's objections were to be answered, then the USA needed a new energy policy that would meet the long-term goals of reducing emissions not only locally but also globally.

Figure two: USA Renewable energy Consumption, 1990-2000

The 1990's saw renewable energy generation grow by 29%2. The National Energy Policy of 2001 recognised that to increase this share, performance improvements of other technologies, such as PV would result in wider use. But also it is important to enforce market and regulatory constraints to accelerate the development and use of alternative energy in the market place. This Policy acknowledged that the Clean Air Act did not address the development of other technologies and mainly promoted the cheaper more advanced methods. The act also recognised that the previous tax credits were effective in providing an incentive in some renewable energy technologies but were limited in who they applied to and due to frequently expiring, created an unattractive proposition for investors.

The National Energy Policy of 2001 mainly concentrates on improving the funding of research and development into renewable technologies; $39.2 million from the FY 2002 budget and $1.2 million from the environmentally responsible leasing of ANWR. It recommends that the President direct the secretaries of the interior and environment to ease the access limitations to federal lands for renewable energy production such as Wind, Biomass, Geothermal and Solar. It also continues with the tax schemes in place concerning Wind and Biomass, but expands Biomass to include forest related sources, agricultural sources and certain urban sources. It also introduces the proposition of a credit for the co-firing of biomass with coal. The report introduces the possibility of a new 15% tax credit for residential solar energy property up to a maximum credit of $2000.

Although the USA pulled out of Kyoto, it has implemented an Energy Policy which heavily promotes research and development into renewable energy technologies with the aim to making them available world wide cheaper and sooner than would have been possible had they adhered to Kyoto or had to pay fines for not adhering to it. They have reduced the barriers to the implementation of renewables and made it easier for projects to get on their feet by reducing limitations and making them more economically viable for investors. Whether this is the appropriate course of action is under heavy debate in terms of international obligations and only time will tell what part the USA will play in the global environmental effort.


State Policies

The USA, as said before, is unique in that individual states have federal policy that they must adhere to, but also have their own internal and specific policies, which they implement independently. This means that different policies that are suited to particular environments can be implemented in the appropriate areas, this helps to target the deployment of renewable energy where it is the most cost effective. California energy issues have been hitting the headlines for a long time. There is huge potential within this state and it has a diverse energy generation sector. For these reasons the policies that helped to increase the use of renewable energy at the state level will be looked at within the case study at the end of this section.
State Mandate
This is where an individual state requires that Utilities ensure a certain share of their generation comes from renewable energy. The Utilities recover the investment through economic rates approved by the state public utility commission. This has been a successful technique for increasing the share of renewables. An example of this type of policy is the "Alternative Energy Law" passed by IOWA in 1991; this requires utilities that are investor owned to purchase 105MW from renewable and small hydropower sources. This was achieved mainly by utilising wind power and biomass.
System Benefits Charge
This is an initiative to benefit not only the renewable energy sector, but also encompasses other important measures which all contribute to a more sustainable existence, such as energy conservation and efficiency using what could be described as a subsidy. This aims to lower the financial barriers for entry for renewables enabling them to compete in the utility industry. Many states are approaching the development of the electricity-generating sector by restructuring their Utility Industry. A result of this is that the market sets the rate for electricity and therefore decides the rate of return. This leads to the cheapest technologies becoming popular as investors and companies want to reduce costs, meaning that the younger technologies perhaps do not get the funding to progress and become more commercially feasible. This is funded through a surcharge on electricity and allows renewable energy to compete with the relatively cheap established generating technologies such as fossil fuelled. For an example of this type of incentive, see the California Policy Case Study.
Renewable Portfolio Standard (RPS)
This is a market driven policy that aims to ensure that a minimum amount of renewable energy is included within the total generating resources of a certain state. This target can be raised at the appropriate time in order to ensure that the share continues to grow and the sector become increasingly diverse and sustainable. The private market oversees its implementation. This is similar to the previously proposed Green Market in Denmark, in terms of the reasons for its deployment and due to its likelihood of success, but despite this the RPS has not yet been proved successful in the USA.

Net Metering

This encourages eager or large consumers to invest in renewable energy. Not only can they utilise the electricity they generate but can also export power to the grid when the generation exceeds their required amount. This also works the other way, in that when not generating a sufficient amount of power, they can purchase from the grid. This means that they can not only sell electricity to the grid but also buy it. This is an appealing method at the state level as it provides an incentive for renewable energy that does not require direct funding. Net metering policy changes from state to state, variables include eligible technologies, generating capacity, net metering capacity and the way in which excess energy is dealt with (e.g. Purchased, credited to next month or granted to utility). For an example of Net Metering policy, see the California case Study.
Solar and Wind access Laws
States have been known to use laws to make the initiation of wind and solar energy projects. These come in many different forms, often specific to the state.
Miscellaneous Policy Initiatives
This is where states force disclosure rules, either related to emissions or say for a fuel mix from a fossil plant. There is also the possibility for states to pass laws on the incorporation of renewable energy technologies within state construction properties, and to ensure contractor training and certification.

CASE STUDY: California Energy Policy

California has long been in the headlines in terms of renewable energy. According to the LA Times, the average Californian resident uses 40% less electrical energy than the average American. What are the reasons for this? Californian state energy policies have been promoting renewables for many years in conjunction with efforts for efficiency and reduction. But Californians are increasingly paying more and more for their electricity and have suffered at the hands of black outs and brown outs. These were caused by many contributing factors; the blackouts have mainly been in the North where the grid is not capable of coping with the demand that air conditioning (requiring anything up to 30% of electricity used3), amongst other factors, put on it. The plant is old in California and no new power plants have been built in ten years, some are now under construction. The old generating plant is prone to technical problems, affecting availability. The generation sector in California is very diverse as the following figure shows for the period 1991 - 2000. Hydro is a huge part of the generating sector in the state and the Sierra snow pack that feeds many of these hydro schemes is depleting.


Figure Three: California Electricity Generation, 1991-2000

The Californian State Government offers many incentives to renewable energy. The state offers different grant programs, such as economic assistance in projects and R+D, to actual technological assistance. It also gives low interest loans to alternative energy and energy efficiency technologies. Nonuility generators were encouraged to invest in renewable energy due to avoided cost contracts. For example, between 1982 and 1988, Standard Offer 4 (SO4) contracts enabled Qualifying Facilities to sell renewable energy for 15-30 year periods. This was done at a fixed payment rate determined using projected oil prices for the first ten years, then at a variable rate after that. This enabled the initiation of renewable energy projects to become economically feasible and attractive for investment. But the predictions were too high and therefore a price and revenue drop occurred after the ten-year period and made projects uneconomic resulting in renewable projects not getting paid and therefore becoming unavailable. Instead of assessing the problems causing the California Energy Crisis, this short study will show the different policies implemented to aid the development and implementation of renewable energy at the state level.
Market Deregulation
The Electricity Market was deregulated in 1996. This enabled consumers to choose renewable energy as their generation source using what was called a customer credit account. If consumers decide to generate their own electricity from renewable sources then the state helps to pay for it using a buy down program, for more information see http://www.consumerenergycenter.org/buydown/


Net Metering

The state as an active net metering policy, which was initiated in 1995 with the following characteristics:

Allowable Technology and Size Solar Only 10kW
Allowable Customer Residential only
Statewide limit 0.1% 1996 Peak
Treatment of net excess generation (NEG) Purchased at avoided cost

Systems Benefit Charge (SBC)
As part of the restructuring of the electricity sector, Renewable energy is supported using a non-bypassable SBC. In the period of 1998-2001 it provided $540 million in rate subsidies1. This took a form similar to the federal REPI system payment.
Research and Development
Research and Development programs have been funded using an electricity surcharge of $0.0002/kWh. The California Energy Commission is responsible for this funding.
For more information on California visit the following web pages:



Policy, Denmark, UK, USA presentation