David Loomis & Adrienne Ohler, Associate Professors of Economics, Illinois State University
Illinois is an interesting case study for renewable portfolio standards for many reasons. First, the state has a 25% by 2025 Renewable Portfolio Standard (RPS) with 75% carve-out for wind. This is significant because Illinois is the 5th largest electricity consuming state and the state has been deregulated. In 1997 the state passed the Restructuring Act entitled the Electric Service Customer Choice and Rate Relief Act with allowed Alternative Retail Electric Suppliers who marketed to customers. As a result generation companies owned the power plants (and were deregulated) while distribution companies owned the lines into homes (which continued to be regulated). In 1998, rates were cut and a rate freeze ensued for ten (10) years. After the ten years, there were rate increases which caused sticker shock (minimum increase of 26%). Later in 2007 Illinois passed the Renewable Energy and Energy Efficiency Standards which were expanded in 2009. The state also has a net metering program which allows customers to sell their excess energy which they generate on their property with renewable devises back to the utility. This gives homeowners an incentive to install these devices.
Illinois RPS has a target of 2% in 2008 which will increase to 10% by 2015, and 25% by 2025 (with an in-state preference). To meet these targets, Illinois has designated solar electric, wind, solar thermal, biomass, geothermal, landfill gas, existing hydro, trees and tree trimmings, and biodiesel, as eligible renewable resources. There is also a consumer protection clause to protect consumers from their rates escalating too high. The implementation of the Illinois standard includes the 2010 procurement plan with includes long term contracts for approximately half of the 210-2011 RPS requirements.
In 2008 there was consumer backlash because the wind prices for wind that was produced in Illinois was twice as expensive as wind energy form adjoining states. However, this was not a result of it actually being more costly to produce, instead it resulted from the in-state preference which caused the higher prices. As a result, in the 2009-2010 year, Illinois will try to moderate the price through creating a market benchmark.
Illinois has determined the positive economic impacts of wind energy development in Illinois to be sizable, with job creating being very important (construction jobs are the largest category). Wind is also very good for Illinois because it is surprisingly a windy state and more importantly, this source of energy is located near a major population source (Chicago). Ohler and Loomis have concluded that wind is the most economically feasible energy source for Illinois and is the best renewable resource for the state. One issue still requiring attention is who should pay for the cost of transmission lines? Although Illinois has proved that wind energy is abundant, until the state is able to determine who should pay for the transmission lines, it will be difficult to implement renewable energy sources.
Ms. Ohler concluded by summarizing her policy recommendations. To start, she recommended caution in determining what counts as a renewable source. For example, Illinois’ included landfill gas as a renewable source in the form of biomass. Since then, this area has seen little growth, suggesting that the firms utilizing landfill gas as a source of energy are being paid more to generate electricity they were already producing than to implement further renewable sources. Ms. Ohler also stressed that Illinois’ RPS has not yet affected emissions. Quick results are not necessarily the goal of an effective RPS program. Ms. Ohler warns that states implementing an RPS should be wary in looking for quick results in terms of job grown and emissions reductions – they will take a while to appear.