WHAT ARE RENEWABLE PORTFOLIO STANDARDS?

As usually defined, Renewable Portfolio Standards are "standards" governing the "portfolio" of "renewable" energy sources, which a body of government identifies as means for reaching a targeted proportion of total electricity generated from "renewable" sources for the retail market's consumption. In other words, an electric utility or other electricity provider may be required to obtain a certain percentage of its electricity by using renewable sources

• Renewable Portfolio Standards concern electric power consumption in the retail market; they are not to be confused with Renewable Fuel Standards, which concern consumption of liquid fuel (such as ethanol, gasoline, or diesel).

Renewable Portfolio Standards, which are established on a state-by-state basis, generally include a definition of what energy sources are defined as "renewable." Generally, fossil fuel-based and nuclear power are excluded; wind, solar, geothermal, and tidal-generated power is included; hydro-electric power and biomass-based power are usually included, although often with qualifying stipulations reflecting political, economic, or ecological considerations.

• Apart from defining eligible energy sources, Renewable Portfolio Standards generally set a stepped timetable, for a given political jurisdiction, for achieving a stipulated proportion of total electric power generation from renewable sources, from a defined baseline year usually in the recent past. California's RPS, for instance, stipulates that the state's power generation plants must expand their renewable portfolio by 1% each year until reaching 20% of the state's total electric power supply in 2010. Some states do not mandate the 20% level until 2020.
• Many state RPS allow cooperatively owned power-generation enterprises to opt out of the Standard

Renewable Portfolio Standards may be voluntary, but they are usually mandatory. They may be enforced on the regulated electrical power industry by mandates or incentives or both; the enforcement mechanism may be statutorily spelled out in the standard or may be defined by regulation. Under a "cap-and-trade" system (available in some, although not all, RPS programs) a regulated electric power provider may opt out of all or part of its "renewable source" goal by buying "offsets" from another provider or generator that is exceeding its goal, or from some other source validated by the Chicago Climate Exchange or other body.

Several European countries have adopted Renewable Portfolio Standards. Within the United States, as of 2008, 27 states and the District of Columbia had adopted various RPSs, and none are identical. In 2007, an attempt to pass a federal RPS failed, largely because of objections from oil- and coal-rich states about the proposed RPS's placing them at a disadvantage; and from major electricity consumers (including forest product manufacturers), asserting that the Standard would drive up electricity prices. Forest products manufacturers also argued that an RPS, unless it contained provisions recognizing the forest industry's baseline consumption of renewable feedstocks for internal power generation, would unfairly tilt the woody biomass procurement environment, as well as threaten existing assumptions about forest sustainability.

Others, however, have supported adoption of state and national RPSs, on the grounds that, in creating new wood markets, an RPS would support land values, wood prices, and the market for harvesting services.

What do Renewable Portfolio Standards mean for the wood supply chain?

What do RPS mean for forest landowners?

Institutional and private landowners generally welcome the new market RPS create for woody biomass, and advocate RPS' applicability to "open-loop" forest material (as opposed to "closed-loop" dedicated plantation material), not only as expanding markets, market options, and timberland values but as providing economic incentives for thinnings and other forest management treatments conventionally considered to be uneconomic.

What do RPS mean for logging contractors and other wood supply businesses?

Wood suppliers, whether they buy their own stumpage or not, welcome the emergence of new markets and new opportunities for creating value through enhanced merchandising.

Do RPS that allow woody biomass as a defined "renewable" feedstock also allow higher-grade wood, such as pulpwood, as an eligible feedstock?

The answer depends on the specific RPS or subsequent qualifying legislation, but generally rules do not qualify eligible biomass feedstock in terms of "wood quality"; although rules may distinguish between "closed-loop" (dedicated plantation) and "open-loop" (residuals and other wood and woody biomass) sourcing.

What do RPS mean for forest products companies that already generate their own power from woody biomass?

The forest industry has objected that RPS discriminate against its longstanding use of renewable feedstocks for internal heat and power, because its mills, not being retailers of electricity, are excluded from the incentives available to new entrants in the market for woody biomass feedstock. Some states do, however, have various incentives for customer-side distributed generation.

Can a forest products company that sells excess biomass-generated power to the grid also sell "offsets" (or "renewable energy credits") to commercial power generators to meet RPS mandates, under cap-and-trade?

Rules vary among various states' RPS, but this practice is allowable in at least some states.

What do RPS mean for forest products companies that install new biomass-fueled power generating capacity specifically for sale to the grid, under an existing permit?

Again, rules vary, but this option appears to be available in some states.

How do RPS programs typically sanction power providers or generators that fail to meet "renewable source" goals?

Sanctions may range from negative rate adjustments and fines for regulated electric companies to actual withdrawal of a power plant's license to operate.

What is the basis of some existing wood consumers'-forest products companies'-opposition to RPS? What's wrong with more competition?

The concern is not with competition, but with fair competition on an even playing field. Existing forest product manufacturers compete in a world market and cannot readily pass on higher wood costs to customers. Regulated electric utilities can recover their costs from customers, and even in deregulated electricity markets, electric power supply is not subject to "global" competitive forces in the sense forest products are. If a power distributor's RPS obligation drives up the wood costs of the generators that supply it, it will likely be much more successful in raising the price of its electricity within its region than a pulp mill would be in raising the price of its product in the face of competition from producers in such geographically widespread areas as Brazil, Indonesia, and Sweden.

What positive incentives do RPS programs typically provide to induce power providers or generators to increase their use of renewable sources?

Federal Production Tax Credits may serve as incentives for renewably sourced electricity generation for state (or, potentially, federal) RPSs. According to the Energy Information Administration, the current PTC law provides a tax credit of 1.8 cents per kilowatt hour for the first 10 years of operation to new wind plants, dedicated biomass plants burning closed-loop (that is, dedicated crop) fuel or poultry litter, and a credit of 0.9 cent per kilowatt hour is provided for the first 5 years of operation to new dedicated biomass plants burning a wide variety of "open-loop" fuels, such as urban wood wastes, landscaping wastes, agricultural residues, and forestry residues. There may also be state incentives for RPS programs.

Forest Resources Association Inc. December 2008