Report Title:

Renewables Portfolio Standards


Requires qualified electric utility companies to implement renewables portfolio standards. Requires the public utilities commission to establish a renewable energy credits program. Allow utilities to accumulate credits.



S.B. NO.












SECTION 1. It is the intent of the legislature to recognize the economic, environmental, and fuel diversity benefits of renewable energy resources and to establish a market for renewable energy in Hawaii using the State's significant renewable energy resources and to drive down the cost of renewable energy to consumers. The legislature finds that the benefits of electricity from renewable energy resources accrue to the public at large, thus consumers and electric utilities share an obligation to develop a minimum level of these resources in the State's electric supply portfolio.

The legislature finds that one way to achieve this objective is through the implementation of "renewables portfolio standards" -- a flexible, market-driven policy that seeks to ensure that the public benefits of wind, solar, biomass, geothermal energy, and other renewable energies continue to be recognized as electricity markets become more competitive. The policy ensures that a minimum amount of renewable energy is included in the portfolio of electricity resources serving the State. By increasing the required amount over time, the standard seeks to increase the sustainability of the electricity industry. Because it is a market standard, renewables portfolio standards rely almost entirely on the private market for its implementation. Market implementation will result in competition, efficiency, and innovation that seeks to deliver renewable energy at the lowest possible cost.

Renewables portfolio standards work through the establishment of renewable energy credits, which are tradable certificates of proof that one kilowatt-hour of electricity has been generated by a renewable-fueled source. Credits are denominated in kilowatt-hours (kWh) and are a separate commodity from the power itself. Renewables portfolio standards require all qualified electric utility companies to demonstrate, through ownership of credits, that they have supported an amount of renewable energy generation equivalent to some percentage of their total annual kilowatt-hour sales. For example, if renewables portfolio standards are set at five per cent, and a generator sells one hundred thousand kilowatt-hours in a given year, the generator would need to possess five thousand credits at the end of that year.

Investors and generators make all decisions about how to comply with this requirement, including the type of renewable energy to acquire, which technologies to use, what renewable developers to do business with, what price to pay, and which contract terms to agree to. Generators decide for themselves whether to invest in renewable energy projects and generate their own credits, enter into long-term contracts to purchase credits or renewable power along with credits, or simply to purchase credits on the spot market. The credit system provides compliance flexibility and avoids the need to "track electrons". Because renewables portfolio standards apply equally to all generators, they are competitively neutral.

The legislature finds that the renewables portfolio standards approach has several efficiency advantages, including the following:

(1) Renewables portfolio standards avoid the administrative dissemination of funds by government agencies, which can be bureaucratic and inefficient. In addition, government-administered programs almost always impose artificial constraints of various types, which increases costs;

(2) Under renewables portfolio standards, no renewable energy project is guaranteed a place in the market. Unlike a one-time competition for funds, each project must continually compete to keep its place in the market created by the standard;

(3) The certainty and stability of the renewables market created by properly-designed renewables portfolio standards will enable long-term contracts and financing for the renewable power industry, which will, in turn, lower renewable power costs;

(4) Least-cost compliance is encouraged through the flexibility provided to generators who are subject to the standard; they can compare the cost of owning a renewables facility to the cost of a credit and renewable power purchase package and to secondary-market credits. Those who are most efficient at generating renewable power will end up producing it, and those who cannot efficiently produce it will purchase credits on the competitive market; and

(5) Since large generation companies will be looking to improve their competitive position in the market, they will have an interest in driving down the cost of renewables to reduce their renewables portfolio standards compliance costs. They may do this by lending their own financial resources to a renewables project, by seeking out least-cost renewables applications, or by entering into long-term purchasing commitments. This fosters a "competitive dynamic" that is not achieved with policies that involve direct subsidies to renewable generators without involving the rest of the electric industry.

The purpose of this Act is therefore to require qualified electric utility companies to implement renewables portfolio standards, thereby requiring these utilities to possess a minimum percentage of minimum energy resources within their overall resource portfolios, and require the public utilities commission to establish a program to issue renewable credits to renewable energy generators.

SECTION 2. For the purposes of this Act:

"Biomass" means organic residue or crops that are grown for energy production.

"Qualified electric utility company" means a distributor of electricity to customers in the State that has sales of more than four hundred million kilowatt-hours of electricity per year.

"Renewable energy" means energy from wind, solar energy systems, biomass, including waste-to-energy and landfill gas recovery, geothermal resources, hydropower, or organic wastes, including refuse-derived fuel.

"Renewable energy credit" means a tradable certification of proof that one kilowatt-hour of electricity from renewable energy was either:

(1) Generated by a qualified electric utility company and sold to Hawaii consumers;

(2) Purchased by a qualified electric utility company from a renewable energy generator and sold to Hawaii consumers; or

(3) Purchased by a qualified electric utility company from one or more Hawaii renewable energy generators.

"Renewable energy generator" means a person owning a facility that produces electricity from renewable energy.

"Renewables portfolio standard" means the percentage of electric power consumed in Hawaii that must be derived from renewable energy.

SECTION 3. Each qualified electric utility company which sells electricity for consumption in the State shall implement a 7.5 per cent renewables portfolio standard effective January 1, 2003, and shall increase this percentage by .25 percentage points each succeeding year to a minimum of 9.5 per cent on January 1, 2011. Beginning on January 1, 2011, the renewables portfolio standard shall be increased by .5 percentage points each succeeding year to a minimum of        per cent by January 1, 2021. Any utility company which is not included in the term "qualified electric utility company" may participate voluntarily.

SECTION 4. The public utilities commission shall establish a program to issue renewable energy credits to renewable energy generators by January 1, 2002. The commission, or its duly authorized agent, shall:

(1) Inspect, certify, and audit renewable energy credits;

(2) Impose and collect a fee on renewable energy credit applicants to cover the administrative cost of issuing, recording, certifying, auditing, and monitoring the sale or exchange and tracking of renewable energy credits;

(3) Enforce this Act, including the imposition of administrative penalties; and

(4) Adopt rules pursuant to chapter 91 to carry out the purposes of this Act.

SECTION 5. On or before March 30, beginning in 2003 and each year thereafter, each qualified electric utility company shall submit an application to the public utilities commission which contains evidence of ownership of sufficient renewable energy credits to satisfy the renewables portfolio standard for the previous year. An application fee shall be submitted at the time of filing the application in an amount established by rule to be sufficient to cover the cost to process, monitor, and review the application and subsequent filings. Evidence of sufficient renewable energy credits shall be equal to the product of its total electricity sales to Hawaii electricity customers in the previous calendar year, denominated in kilowatt-hours, and the renewables portfolio standard for the same year. Renewable energy credits may only be granted for renewable energy generators located within the State.

SECTION 6. Renewable energy credits may be accumulated, sold, or exchanged by the person to whom the credits are issued or by any other person who acquires the credits. A sale or exchange of credit shall not be valid unless recorded with the public utilities commission within ninety days after the conclusion of the transaction.

SECTION 7. The public utilities commission may impose an administrative penalty against a qualified electric utility company for violating sections 3 to 6 of this Act. Failure to produce and receive approval of the required number of renewable energy credits shall result in a penalty which shall be equal to three times the market value of a renewable energy credit for each credit that is not produced.

SECTION 8. Any person may commence a civil action on the person's own behalf against any of the following:

(1) Any person in violation of sections 3 to 7 of this Act;

(2) The public utilities commission or its duly authorized agent for failure to perform any act or duty pursuant to sections 4 to 7 of this Act that is not discretionary; and

(3) Any person applying for renewable energy credits who provides false information.

SECTION 9. The public utilities commission shall annually provide a report to the legislature that includes the activities of the commission under sections 4 to 7 of this Act, program results, data, and any recommendations to achieve increased use and availability of renewable energy in the State.

SECTION 10. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 11. This Act shall take effect upon its approval.