Limiting the Cost of Renewables: Lessons for California

This research paper evaluates various cost-limiting tools used in U.S. state renewable energy policies—including alternative compliance payments, contract price caps, and retail rate impact caps—to provide recommendations for California's RPS cost limitation. The analysis finds that while cost limits can insure against extreme costs, they often create market uncertainty, may be set based on political rather than economic data, and can inadvertently act as price floors, potentially hindering the achievement of renewable energy targets.

• Cost limits in Renewable Portfolio Standard (RPS) policies act as a "release valve" that protects against unacceptably high costs by limiting renewable energy deployment when costs exceed a predetermined level. However, this insurance creates uncertainty regarding the achievement of renewable energy targets and can inadvertently increase procurement costs due to market effects.
• There is little evidence that cost limits effectively minimize the costs of procuring renewable energy. In some instances, public contract-level cost limits and benchmarks have been treated by market participants as price floors rather than price ceilings, leading to higher costs.
• Cost limits are frequently set based on political considerations rather than the expected costs of reaching policy targets. When these limits are inconsistent with cost expectations, they may conflict with policy goals or fail to provide actual insurance against high costs.
• Complexity and ambiguity in the definition of cost limits—particularly those involving incremental costs and baseline calculations—can lead to regulatory burdens, market uncertainty, and opportunities for regulators or market actors to avoid the limits.
• Alternative compliance payments (ACPs) are effective for insuring against high prices in tradable renewable energy credit (REC) markets, such as in New Jersey. However, they allow compliance without the actual delivery of renewable energy.
• Retail rate or revenue requirement impact caps are often complex and subject to mid-stream changes, which increases uncertainty for electricity suppliers and project developers. In some states, such as Colorado, these caps have been exceeded to meet renewable energy targets.
• Renewable energy fund caps, such as California's Above-Market Funds (AMFs), often fail to provide a hard limit because funding is typically increased or new sources are authorized when costs exceed the cap to ensure targets are met.
• California's previous use of Above-Market Funds (AMFs) and a Market Price Referent (MPR) was criticized because funds were fully allocated by 2009 while utilities continued to procure renewables, and the MPR may have distorted bid prices by encouraging low-cost resources to bid up to the benchmark.
• Under Senate Bill 1x 2, California is required to develop a cost limitation for its 33 percent RPS target by 2020. This limit must prevent "disproportionate rate impacts," include all procurement expenditures for RPS compliance, and exclude indirect expenses.

APA

Pierpont, B. (2012). Limiting the Cost of Renewables: Lessons for California. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2012/06/Limiting-the-Cost-of-Renewables-Lessons-for-California.pdf

Chicago

Pierpont, Brendan. Limiting the Cost of Renewables: Lessons for California. Climate Policy Initiative, 2012. https://www.climatepolicyinitiative.org/wp-content/uploads/2012/06/Limiting-the-Cost-of-Renewables-Lessons-for-California.pdf.

Wikipedia

{{cite report |last1=Pierpont |first1=Brendan |title=Limiting the Cost of Renewables: Lessons for California |publisher=Climate Policy Initiative |date=June 2012 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2012/06/Limiting-the-Cost-of-Renewables-Lessons-for-California.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{pierpont2012limiting, author = {Pierpont, Brendan}, title = {{Limiting the Cost of Renewables: Lessons for California}}, institution = {Climate Policy Initiative}, year = {2012}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2012/06/Limiting-the-Cost-of-Renewables-Lessons-for-California.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }