State RPS Policies Will Drive 250% Increase in Renewable Energy Generation by 2025

IHS estimates that cumulative renewables demand across all states with binding RPS policies will grow from an expected 137 TWh (terawatt-hours) in 2010 to 479 TWh by 2025 – an increase of approximately 250 percent.

As of June 2010, mandatory RPS policies, requiring states to procure a percentage of generation from renewable energy, have been passed in 31 U.S. states and the District of Columbia, with six additional states approving conditional or non-mandatory renewables goals. While utilities in a few states, led by Washington, Maine, Colorado and New Hampshire, are already well on their way toward meeting their 2015 RPS targets, the majority of states will require rapid renewables growth if they are to meet near-term objectives.

The U.S. renewables market has experienced explosive growth since 2005, expanding from a total installed base of 30 GW to over 60 GW at the end of 2009. “With increasing challenges including low power pricing and uncertain federal policies, escalating RPS demand will define the timing and location of renewables growth across the U.S. over the next few years,” says IHS Renewable Power Research Director Alex Klein.

RPS policies are estimated to require more than 1,000 investor-owned utilities (IOUs), load-serving entities (LSEs) and competitive retail suppliers to procure renewable power over the next decade, according to the study. Beginning in 2010, significantly escalating RPS demand will create gradually intensifying compliance pressure across the U.S.

“The next five years will be especially critical as the industry faces its first real test of a significant ramp-up in RPS demand. Before the industry can attempt to reach already lofty longer-term renewable energy goals, utilities and regulators must prove in the next few years that they can reach initial compliance with the RPS targets coming due in many US states,” added Klein.

Utilities’ strategies are rapidly evolving in response to RPSs, as they weigh compliance-driven mandates in the broader context of their regional strategies, competitive positioning, and longer-term generation mix objectives. Signing power purchase agreements will remain the predominant mechanism for utility RPS compliance, expected to account for approximately 70 percent of total renewables added to the U.S. supply mix over the next three years, according to the study. Spurred on by long-term transparent state mandates, utilities are increasingly moving toward development and ownership of renewable assets in several key renewable markets such as the Midwest, Northwest and California.

According to the study, state RPSs would be significantly strengthened if complemented by a federal RPS or energy policy that addresses transmission bottlenecks and siting issues on federal lands, both of which will be critical to sustaining renewables growth toward the middle of the next decade. “The passage of a national RPS, currently being considered in Congress, would substantially broaden renewables growth compared with existing state RPS policies, with potential for more transparent mechanisms for enforcement across the U.S.,” according to Klein.

Released in May 2010, this 208-page study provides critical insight into US renewable energy markets, evaluating the impact of state and federal policies on renewable energy development, and assessing evolving utility strategies for compliance, and measuring the key challenges to meeting RPS targets. Emerging Energy Research, now IHS Inc. (NYSE: IHS), is the leading provider of analysis on clean and renewable energy markets.

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