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Policies Spur Growth

Innovation in the electricity market does not occur as it would in other markets. For starters, most areas of the country are served by monopoly providers. This means there is very little incentive to seek innovative ways to create electricity. Secondly, most providers are heavily regulated, often compounding risk-reluctant utilities with risk-averse regulators. In fact, according to a recent report from the American Energy Innovation Council, electric utilities spend a paltry 0.1 percent of their revenue on research and development, far below the U.S. industrial average.

The upside of this conservativeness has been the creation of ubiquitous, reasonably priced, reliable service. This has served our society well for the last hundred years, but unfortunately the future is unlikely to be like the past. Many parts of our electric system are facing the end of their useful lives and need to be replaced. In addition, the fuels we use to power the electric system are subject to risky and disruptive price volatility. A new set of environmental considerations is forcing us to rethink the industry's nearly complete reliance on traditional fuels. If we are going to "win the future," we will need an electricity sector that is more 21st century and less 19th century. The challenge is how to innovate without jeopardizing the widely available, affordable, reliable service consumers have depended upon.

That's where renewable energy standards can come in to play. The basic principle is similar to a fundamental concept in financial planning - build a diverse investment strategy that can weather changes. Renewable energy standards introduce diversity by lowering market barriers and creating an opening for renewable technologies that have different attributes and risk profiles than traditional fuels. Colorado's experience shows that this approach has led to impressive results.

In six years, Colorado has diversified its electricity mix and built a thriving renewable energy industry while maintaining stable electricity bills. We have seen the cost of renewable energy credits for large photovoltaic solar projects decline by 75 percent, and wind in Colorado is now a least-cost energy resource.

In 2004, the voters of Colorado passed the renewable energy standard ballot initiative. This was the first voter-approved renewable energy standard in the country - and with legislative support it evolved over time to become one of the most progressive. The initiative set a requirement that Colorado's investor-owned utilities generate 10 percent of their retail sales from renewable resources by 2015. As it became apparent that the state's largest utility would meet the renewable requirements years ahead of schedule, the Colorado General Assembly has increased the standard twice to the now-existing 30 percent by 2020. Finally, the voters and the General Assembly both mandated the entire program be halted if it increased utility bills by more than 2 percent. You get the picture: Innovate but contain the risk.

In 2004, Colorado's IOUs had negligible amounts of wind and solar power. Today, 12 percent of their electricity comes from these resources. Colorado's utilities have integrated these variable resources with only minor costs and have led the country in techniques to integrate intermittent resources on the grid.

On the economic development side, Colorado is now home to one of North America's largest concentrations of wind turbine and tower production facilities. Our solar manufacturing cluster includes breakthrough thin-film technology that is revolutionizing the production of PV. As a first mover, Colorado is also home to many of the research, support, production and sales operations that are driving renewable energy expansion.

While Colorado's largest utility, Xcel Energy, has exceeded its goals, it has stayed within the 2 percent cap set by the legislature. In fact, despite Xcel making the major capital investments in its Colorado system, the average residential electricity bill has failed to keep up with inflation over the last five years.

Colorado's renewable energy standards proof is in the pudding. We have a much more diverse, robust, modern energy portfolio. We have seen significant economic development. We have kept costs reasonable. What else could you want?

Published In: EnergyBiz Magazine November / December 2011

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