Renewable Energy Standard - Arizona

Updated March 2006: In February 2001, the Arizona Corporation Commission (ACC) adopted a renewable portfolio standard [known as the Environmental Portfolio Standard (EPS)] requiring that utilities derive a portion of their electricity through renewable sources - topping out at 1.1 percent of sales in 2007. Sixty percent of the standard in 2007 was supposed to be met by solar energy.

Since the EPS goals were not being met, in August 2005 the ACC voted to change and expand the program. The ACC set a higher renewables requirement for the state's utilities, raised the rates that utilities may charge to administer the program and dropped the mandatory solar energy requirements of the previous program.

A final ACC ruling on the new proposal was made on February 27, 2006. Before taking effect, the rules must go through a review by the Attorney General’s Office and a formal rulemaking process with the Arizona Secretary of State’s office. It could be late in the third quarter or early in the fourth quarter of 2006 before the regulations are binding.

According to the ACC’s new plan, the state’s utilities must procure 15% of the state’s electricity from renewable resources by 2025 and submit to an annual review. The solar requirements have been dropped and a new requirement for local distributed generation was added. The ACC voted to require that 30% of the EPS requirement be met by local onsite renewables installed by homes and businesses.

The state's two largest utilities, Arizona Public Service and Tuscon Electric, had retail sales totalling about 34 billion kWhs in 2004. A 15 percent standard using this 2004 sales figure would require 5.1 billion kWhs of renewable electricity generation (or credits). Assuming an average capacity factor of 25 percent (estimate of combining solar, wind, biomass), these two utilities would need about 2,300 MW of renewable capacity.

The distributed energy requirement starts at 5 percent of the total portfolio in 2007 and grows to 30 percent of the total required renewable energy mix after 2011. The distributed energy portion of the standards allow utilities to count a variety of solar thermal projects towards the 30 percent requirement (e.g. solar hot water, solar industrial heating and cooling, solar space heating or cooling system). A solar thermal project that displaces the equivalent to 3,415 British Thermal Units (Btus) of heat is given one renewable energy credit - equivalent to 1 kWh of renewable electricity.

The new rules allow renewable projects installed before December 31, 2005, to receive "extra credit" up to twice the actual kWhs produced for various factors. The ACC is also allowing utilities to count out of state renewable energy development in meeting the standard. And renewable energy credits are allowed to be traded.

To help offset the increased cost of meeting the more aggressive standard, the current Environmental Portfolio Surcharge amount will change. Currently, customers pay $0.000875 per kilowatt-hour. The new surcharge amount is $0.004988 per kilowatt-hour. There are monthly caps in place to limit the total impact on customer bills. Currently, residential customers are capped at 35 cents. The new cap will be $1.05. Nonresidential customers currently have a cap of $13 but that will increase to a maximum charge of $39.00. For extremely energy-intensive commercial accounts (mines, heavy manufacturing, etc.) the surcharge is capped at $117, up from $39.

More:

• ACC's Environmental Portfolio Standard Developments web page

Other Resources:

• The Treatment of Renewable Energy Certificates, Emissions Allowances, and Green Power Programs in State Renewables Portfolio Standards - Edward Holt and Ryan Wiser, Lawrence Berkeley National Laboratory, April 2007
• Renewable Portfolio Standard Fact Pack - State Environmental Resource Center, 2004
• The Renewables Portfolio Standard in Texas: An Early Assessment - by Ryan Wiser, Lawrence Berkeley Laboratory, November 2001
• The Renewables Portfolio Standard: A Practical Guide - by Nancy Rader and Scott Hempling, February 2001
• A Powerful Opportunity: Making Renewable Electricity the Standard - by the Union of Concerned Scientists, August 1999
• Interstate Renewable Energy Council
• Database of State Incentives for Renewable Energy (DSIRE)