Association for Public Policy Analysis & Management

There are diverging views on whether renewable energy (RE) policies should be technology-neutral or technology-specific. Technology-neutral policy instruments rely on market forces to dictate RE technology selection, which incentivize the development and deployment of technologies that are most cost-effective at the point of policy introduction. However, the least costly technologies today may be inefficient in the long-run due to various market failures. As such, supporting diversification of the RE market can ensure fair competition and reduce the risk of “picking the wrong winners” in the long run.

In this paper, we focus on technology-specific policy designs and evaluate their impacts on safeguarding the diversity of RE technologies on the market. Our paper examines this research question in the context of Renewable Portfolio Standards (RPS) in the U.S., which feature aspects of both technology-neutral and technology-specific designs. At its core, the RPS scheme is a technology-neutral mandate requiring a set percentage of electricity supply in a state to come from renewable resources by a target date. As with all technology-neutral regulations, the standard RPS system encourages utilities to gravitate towards RE sources with the lowest investment risks and least expensive short-term costs. For this reason, wind energy was frequently utilized for early compliance with RPS. In recent years, it has become increasingly common for RPS policies to feature elements of technology-specific designs, such as set-aside targets and renewable energy credits (REC). These policies work in tandem with technology-neutral schemes to ensure continued investment in RE technologies that demonstrate long-term promise but are currently more expensive than wind energy.

To test the impacts of technology-neutral and technology-specific RPS designs on the diversity of RE deployment, we use an unbalanced panel of 50 states from 1990 to 2016. In addition, we also test the interactions between technology-neutral and technology-specific designs. We find that technology-neutral RPS targets do not have a statistically significant impact on diversifying renewable energy technologies; however, they act as a base for price-based technology-specific RPS designs. Our findings also show that the effectiveness of technology-specific designs depends on whether it is quantity-based or price-based. Empirical evidence suggests that quantity-based set-aside targets increase in-state shares of the targeted technologies, whereas price-based credit multipliers fail to accomplish these results.

This study builds on the extant literature and contributes empirical evidence of the influence of RPS technology-specific designs, as well as their interaction with technology-neutral schemes, on maintaining the diversity of RE technologies in state electricity markets. Rather than focusing on a specific technology, we provide a holistic view of the RE market and highlight the interactions between individual RE technologies. Our research serves to inform state governments on how to best structure RE policies to enhance their effectiveness and efficiency by preventing market monopolies. Furthermore, this is to the best of our knowledge the first study to examine diversification in states’ technology selection rather than focusing only on the general level of RE adoption.