Renewable Portfolio Standards (RPS) are a state-regulated component of an energy supplier’s price that requires a percentage of the electricity load to be generated from renewable resources. These standards help diversify energy resources, promote domestic energy production, and encourage economic development.
When a state increases their RPS requirements, suppliers increase costs because the RPS price component takes up a larger percentage of their total energy price.
In 2018, legislation was passed in Massachusetts increasing clean energy standards and, thus, increasing the utility’s RPS requirements. As Best Practice Energy is always keeping a close eye on the market to ensure our customers are insulated from volatility, news of this new legislation sent up a huge red flag.
We examined the law closely and did a historical analysis on the RPS costs that looked back to 2013 to see how RPS costs have changed throughout New England. We then made a predictive model that forecasted these gains from 2018 through 2019. This analysis revealed prices were likely to have a $0.14 per kWh increase from 2013 through 2019 and would continue to inflate in the future. $0.14 may not seem like a lot, but that’s a 191% increase over 6 years (figure 1)!
To paint a complete picture of how this would affect our customers, we also examined the RPS percentage of Massachusetts suppliers’ prices. In 2016, RPS accounted for just 12% of a supplier’s price and by 2019 we discovered this was projected to rise up to 19% (figure 2).
In an effort to ensure our customers were not hammered by these incoming costs, we meticulously combed through the legislation to see if there was anything we could do. Fortunately, we identified some language embedded in the bill that indicated if a business were to lock in the RPS component of their contract by the end of 2018, their future energy contract was exempt from these new costs for the length of their contract.
We immediately notified our customers of this loophole and worked around the clock to lock in the RPS portion of their contracts and, in many cases, extended their contract length to maximize their volatility protection as far out as 8 years.
Quickly locking in RPS price components before the deadline ended up saving our customers several millions in cost avoidance.
Other states across the country are not immune to these types of circumstances. In 2019, New Hampshire, Maine, and Maryland all dealt with similar legislation coming down the pipeline. The rest of the US’ deregulated states are not immune and it is likely just a matter of time before legislation hits. This presents opportunities for energy buyers to get out in front of the pack and protect their contracts.
Contact us today to find out if your state is on our radar for new RPS legislation and if we think it’s a good idea to lock in the RPS component of your energy contract.