Many state and local governments are working hard to attract renewable energy projects to their states. State, county and city leaders see this as an opportunity to create and retain jobs in an industry that provides some potential hope for growth, while many industries are struggling under the current economic conditions. Much of the grass-roots work of conceiving and developing renewable energy projects is completed by small and mid-sized companies that can only afford to take projects so far before enlisting the help of some larger, well-funded organizations to spend the capital to build the project. Most project developers at these small companies don’t get paid until they close an investment with larger funding organizations. Accordingly, renewable energy project developers are looking for the edge they need to develop projects that are investment worthy.
This article focuses on how renewable energy developers would, or should, evaluate the viability of their own project development efforts relative to the incentives and support provided by each state—if you were going to choose a state in which to develop a plant, which one would it be? We have provided a ranking based on some of the most important factors affecting renewable energy project development. However, if a state performs poorly in this ranking, it doesn’t mean that there will be no renewable energy projects developed in that state. It just means that there will be far fewer projects developed in that state and that the developers will have to work harder to amass the right combination of circumstances to get their project funded. The bottom line is that the lower your state is on the rankings, the fewer projects your state will have.
As a preamble to this analysis, it is important to consider how legislative actions in the past have affected the activities of the players and the outcome in the development of renewable energy projects. In 1978, Congress passed the Public Utility Regulatory Policies Act (PURPA), ostensibly, to promote the use of alternative energy. However, PURPA also provided a mechanism to keep in check the escalating costs associated with the construction of new, large nuclear and coal plants. One of the objectives of this legislation was to create a new class of “Independent Power Producer” (IPP) that could produce power under long term contract at rates comparable to the cost of building a new utility-owned plant. It was a federal law, but it was managed at the state level. Each state enforced and established “avoided cost rates” paid to IPP owners. California and New York had some of the highest rates in the country and the vast majority of all PURPA facilities landed in those two states.
So, here we are 40 years later with an eerily similar story. The nation is once again trying to promote the development and use of alternative energy to reduce green house gas emissions and to reduce our dependence on foreign oil. Legislation regarding renewable portfolio standards (RPS) and supporting regulations is one of the methods for states to encourage renewable energy projects. However, until, or unless, Congress passes an energy bill, there is no federal regulation governing renewable portfolio standards. Legislative incentives/dis-incentives for renewable energy have been left to each state to develop. As a result, the existing and proposed regulations related to these issues vary dramatically from state to state. As with the establishment of PURPA, and the state initiatives introduced to promote PURPA, more aggressive states will be successful in hosting the preponderance of the alternative energy projects, while states that are politically motivated to discourage alternative energy projects will avoid the subject altogether. A comparative evaluation of the renewable portfolio standard legislation in each state provides insight into the investment environment created and the potential to attract investment capital for renewable energy projects.