Renewable Energy Standard

Note: The Arizona Corporation Commission is currently considering changes to the state's Renewable Energy Standard in Docket No. E-00000Q-16-0289.

In November 2006, the Arizona Corporation Commission (ACC) adopted final rules to expand the state's Renewable Energy Standard (RES) to 15% by 2025, with 30% of the renewable energy to be derived from distributed energy technologies. In June 2007, the state attorney general certified the rule as constitutional, allowing the new rules to go forward, and they took effect 60 days later. Investor-owned utilities and electric power cooperatives serving retail customers in Arizona, with the exception of distribution companies with more than half of their customers outside Arizona, are subject to the standard.

Utilities subject to the RES must obtain renewable energy credits (RECs**) from eligible renewable resources to meet 15% of their retail electric load by 2025 and thereafter. Of this percentage, 30% (i.e. 4.5% of total retail sales in 2025) must come from distributed renewable (DR) resources by 2012 and thereafter. One-half of the distributed renewable energy requirement must come from residential applications and the remaining one-half from non-residential, non-utility applications. The compliance schedule is:

• 2006: 1.25%
• 2007: 1.50% (5% DR)
• 2008: 1.75% (10% DR)
• 2009: 2.00% (15% DR)
• 2010: 2.50% (20% DR)
• 2011: 3.00% (25% DR)
• 2012: 3.50% (30% DR)
• 2013: 4.00% (30% DR)
• 2014: 4.50% (30% DR)
• 2015: 5.00% (30% DR)
• 2016: 6.00% (30% DR)
• 2017: 7.00% (30% DR)
• 2018: 8.00% (30% DR)
• 2019: 9.00% (30% DR)
• 2020: 10.00% (30% DR)
• 2021: 11.00% (30% DR)
• 2022: 12.00% (30% DR)
• 2023: 13.00% (30% DR)
• 2024: 14.00% (30% DR)
• 2025: 15.00% (30% DR)

A utility may use bundled RECs acquired in any year to meet its annual requirement. With the exception of incremental generation from hydropower facilities or hydropower output used to firm intermittent renewables, renewable energy from facilities installed before January 1, 1997, is not eligible. Energy produced by eligible renewable energy systems must be deliverable to the state.

Extra credit multipliers may be earned for early installation of certain technologies, in-state solar installation, and in-state manufactured content. The multipliers are additive, but cannot exceed 2.0. RECs derived from renewables installed after December 31, 2005, are not eligible for multipliers. If a utility makes an investment in a solar electric manufacturing plant located in state or provides incentives for a plant to locate in the state, the utility can acquire RECs for the main RPS tier equal to the capacity of the panels produced multiplied by 2,190 hours, which approximates a 25% capacity factor. These RECs cannot account for more than 20% of the annual requirement.

Utilities subject to the RES must submit compliance and implementation plans annually to the ACC. Utilities recover RES costs through a monthly surcharge. Each affected utility may adopt their own surcharge but it must be substantially similar to the sample tariff provided in the rules, and it must receive approval from the ACC. Affected utilities also have the option to file a rate case with the ACC in lieu of a tariff.

Background

Prior to the 2006 rules, Arizona's original Environmental Portfolio Standard (EPS) required regulated utilities to generate 0.4% of their power from renewables in 2002, increasing to 1.1% in 2007-2012. Solar electric power was to make up 50% of total renewables in 2001, increasing to 60% in 2004-2012. The EPS was an update of repealed 1996 ACC rules for a solar portfolio standard, which set a goal of 0.2% from solar energy by 1999 and 1% by 2003.

*In June 2012 the ACC gave final approval of a request by the Mohave Electric Cooperative (MEC) to have a single waste-to-energy facility (i.e., municipal solid waste incinerator) designated as a "pilot program" and be considered an eligible renewable energy resource under the standard. For further details please see Docket E-01750A-10-0453 in the ACC's E-Docket Portal.

**For renewable energy systems that produce electricity, one REC equals one kilowatt-hour (kWh). For renewable energy systems that produce heat (solar water heating, solar industrial process heating and cooling, solar space cooling, biomass thermal systems, biogas thermal systems, and solar space heating systems), one REC equals 3,415 British Thermal Units (BTUs). In Arizona, a REC is a bundled package of three elements: the kWh, the renewable attributes, and any environmental attributes. All three must be delivered to Arizona customers and utilities in order to meet the RES requirements. Unbundled "paper RECs" will NOT meet RES requirements.