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Definitions of New Policy-Based Incentives

In addition to conventional incentives, such as tax incentives, several new policy mechanisms have emerged in the 1990's to foster renewable energy. These have emerged mostly in the context of electricity generation, to promote adequate competition and customer choice. These are:

Renewable Portfolio Standards (RPS): These are requirements that mandate utilities to add certain specified percentages of renewable energy to their mix. This is in response to overwhelming consumer interest in renewable energy. Characteristic features include:
· Percentages typically range anywhere from a fraction of a percent up to several tens of percents.
· A timetable is sometimes established for the gradual phasing in of renewable energy.
· In some cases utilities are mandated to actually build the renewable energy generation themselves. In other cases, they have the option to purchase renewable energy from a wholesale supplier or to purchase renewable energy certificates. If the latter option is used, the renewable energy does not necessarily flow to the customer, but the customer is guaranteed that their rates are supporting renewable energy generation somewhere.
· Penalties are usually established for utilities who lag behind, and sometimes special credits are awarded to utilities that meet targets ahead of time.
· For many utilities, the cost of building new generation is simply the cost of doing business - this is possible because the amount of new renewable energy generation is still a small fraction of their total generation. In other cases, the cost of building new generation is paid for through an extra tariff on electricity bills, which may be associated with a public benefits fund (see below), or a green pricing program.

So far, renewable portfolio standards have been implemented at the state level only, although proponents have been lobbying for a number of years for a federal RPS. A federal RPS is included in the Energy Bill passed by the Senate in 2002.

Green Pricing Programs: These are programs in which utilities file tariffs (request permission to charge particular rates) for green power and then market and provide green power to customers who request it. Characteristics include:
· These programs may be voluntary for utilities, or utilities may be mandated to offer these programs.
· Programs may involve both utility scale and/or residential scale systems.
· Nonprofit advocacy groups sometimes play a role in promoting these programs, and in signing up customers.

Green pricing programs have been enormously successful, because consumers are truly interested in them.

Renewable Energy Certificates: These certificates certify that given amounts of renewable electricity have been generated and transmitted to customers. Characteristics are:
· In some states utilities purchase these to satisfy their renewable portfolio standard requirements (Texas and Arizona).
· In some states (Texas) certificates are issued by a third party state agency, in others, the use of certificates is more informal and carried out by the utilities themselves (Arizona).

Public (or Systems) Benefit Funds: Are generated by imposing an extra tariff on consumer's electric bills. They are then used for a variety of purposes, such funding renewable energy demonstration projects; building of large scale renewable energy generation for RPS requirements; funding rebate programs for small scale solar systems; transmission line upgrades; studies of how best to upgrade the system; consumer education; and other similar purposes. The inspiration for these is the idea that under a deregulated electricity market, where competitive power suppliers can sell onto the open market and not necessarily to local customers, these suppliers will not have a sufficient incentive to make system improvements.

Disclosure Requirements: These require all electricity generators who are selling electricity into a deregulated (competitive) market to disclose to potential customers the content of their mix according to generation source or sources, emissions, and possibly even environmental and health impacts. This is essentially just product labeling.

Net-Metering: Net-Metering rules allow consumers to use their own on-site renewable energy generation to run their electricity meters backwards, i.e. generate a credit that can be used to offset their use of grid power.

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"In 1990 five U.S. National Laboratories reported that either fair competition plus restored research priority, or a proper accounting of its environmental benefits, could enable renewable energy to supply three-fifths of today's total U.S. energy requirements at competitive prices. Renewables could even supply one-fifth more electricity that the United States now uses."

--Natural Capitalism, 1989
Paul Hawken, Amory Lovins, and L. Hunter Lovins

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