Limiting the Cost of Renewables: Lessons for California

The research paper evaluates four types of cost limits—alternative compliance payments, contract price caps, retail rate/revenue impact caps, and renewable energy fund caps—across several U.S. states. It finds that while cost limits can insure against unacceptably high costs, they often create market uncertainty, may act as price floors rather than ceilings, and can conflict with renewable energy targets if not aligned with expected costs. For California, the author recommends avoiding public contract-level benchmarks, ensuring the limit is consistent with expected RPS costs, and implementing a simple, clearly defined mechanism with a predictable review process.

• Cost limits act as a "release valve" that protects against unacceptably high policy costs by limiting renewable energy deployment when costs exceed a predetermined level, but this insurance can create uncertainty regarding the achievement of renewable energy targets.
• Alternative compliance payments (ACPs) provide a clear price ceiling for renewable energy credits (RECs), as seen in New Jersey's solar carve-out where 28 percent of the 2009-2010 obligation was met via ACPs. However, they allow for compliance without actual renewable energy generation.
• Public contract price caps can inadvertently function as price floors rather than ceilings, leading generators to bid higher prices. In New Mexico, such caps were eliminated in 2008 because they failed to reflect changing technology costs and market conditions.
• Retail rate and revenue requirement impact caps are often complex and ambiguously defined, which can lead to regulatory burdens and allow costs to be exceeded through changing interpretations or waivers, as observed in Colorado and Missouri.
• Renewable energy fund caps, such as California's previous Above-Market Funds (AMFs) of approximately $773 million, often fail to provide a hard limit because regulators frequently authorize new funding to ensure renewable energy targets are met.
• Cost limits that are politically determined rather than based on expected costs often conflict with policy goals or fail to provide a binding limit, as regulators may prioritize meeting renewable energy targets over arbitrary cost caps.

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} }