Do renewable portfolio standards increase renewable energy capacity? Evidence from the United States

Abstract

This research evaluates the impacts of the Renewable Portfolio Standard (RPS) on renewable electricity capacity using annual data spanning 47 states between 1990 and 2014 in the United States. RPS is a state-level policy that requires electricity suppliers to include a certain fraction of renewable electricity in their total electricity sales over a specified time period. Following nuanced identification strategies, generalized difference-in-difference method is used to transform observational data into a quasiexperimental setting to mitigate against potentially inconsistent estimator or selection bias concerns vis-à-vis the adoption of RPS across states. Generalized least squares with panel corrected standard errors and spatial econometric methods are selected as estimation techniques. The results show that RPS adoption drives more than one third increase in overall renewable electricity capacity. RPS impacts on total electricity capacity remain significantly positive with consistent estimates across modeling scenarios. However, the results reveal that impacts of heterogeneous RPS attributes differ across competing sources of renewable electricity. The impacts are positively significant for solar and wind capacity with the largest impact on wind capacity, while they are insignificant or significantly negative for biomass and geothermal capacity. The significantly positive contribution of renewable energy certificates provision and manifestation of spatial spillover effects indicate the regional marketing possibilities of renewable energy. The results imply that scaling up RPS proliferation across the states and specifying RPS targets by renewable energy sources at least up to the point when renewable energy sector achieves efficiency gains (economies of scales and allocative efficiency) or better alternatives to the RPS become available (e.g., least-cost carbon pricing policy), can play critical roles to exert transformative advances in renewable electricity sector.