The District of Columbia has set a goal of half of its electricity coming from renewable energy sources such as solar, wind, biomass, and others by 2032. This goal was set through an expansion of the District’s existing renewable portfolio standard (RPS). Included in this expanded standard is a 5% carve-out for solar. This means that at least 5% of the electricity must come from solar. The District will achieve this goal by incentivizing investment in renewable energy and penalizing the local utility for not complying with the new standard. Achieving this goal will beneficial for current solar owners, as well as for folks thinking about going solar.
To understand why, it’s important to define what this 50% goal means. The RPS requires utilities serving the District source half of the electricity they sell to District residents from renewable energy sources, such as solar.
Utilities can meet the standard in one of two ways. First, they can procure the renewable energy themselves. Or, they can purchase Renewable Energy Credits (RECs) from others such as homeowners with rooftop solar (more on this in a moment).
This target is enforced by a mechanism in the law known as alternative compliance payment (ACP). Utilities who don’t meet the renewable target and/or the solar carve out target must pay the alterative payments as a penalty.
Now, back to RECs. Solar customers who own their systems don’t just generate electricity, they also generate RECs. A REC is created for every 1,000 kilowatt hours generated by solar system. Think of the REC as a stock that can be bought and sold on a market. Utilities can buy these credits in order to avoid paying the penalty of the alternative compliance payment. In this way, the ACP sets a price ceiling for how valuable a REC is. If the price of a REC were higher than the ACP, the utility would just pay the ACP.
The ACP was set at $500 per kilowatt-hour through the end of this year. The new RPS extends this $500 level until 2023. This extension will boost renewable penetration in the District by strengthening our market for RECs. A stronger REC market will encourage more people in D.C. to go solar because it improves their rate of return. A strong REC market will also maintain the value of already operating solar systems, as their owners will be the beneficiaries of higher REC prices generated by their solar.