What Is a Renewable Portfolio Standard?

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Over the past decade, a number of states have passed a flurry of climate-friendly legislation. Many of these laws aim to increase the production and consumption of renewable energy to move away from reliance on fossil fuels while bolstering the market for new energy technologies.

Renewable portfolio standards are a key initiative in many states. Although the specifics vary by state, all renewable portfolio standards are designed to set a minimum target for renewable energy production, consumption, or both. Also known as renewable electricity standards, these mandates typically set future targets for utility companies and electricity suppliers to further expand the amount of renewable energy in the mix.

Renewable portfolio standards are critical for helping the U.S. achieve its climate goals, but they’re not without their shortcomings. Because they’re implemented on the state level, these programs vary widely in terms of enforcement and effectiveness. For renewable portfolio standards to have a deeper and more lasting impact, it’s important to understand what they are and how they work.

What is a renewable portfolio standard?

In simplest terms, renewable portfolio standards set a minimum for what portion of a utility or energy supplier’s electricity must come from renewable sources. For instance, a state may set an incrementally increasing target of 3% per year for the next 10 years, resulting in a minimum of 30% renewable energy by year 10.

Standards for which energy sources count toward the goal vary by state, but they typically include solar and wind as the primary options. Many states also include energy from geothermal, hydropower, and biomass (organic material) sources. Some have expanded their renewable portfolio standards to include nuclear power and natural gas, which are relatively clean energy sources but not renewable.

Because each state has varying levels of access to renewable energy sources, regulations may favor renewable production or consumption. For instance, electricity companies and utilities in states with abundant solar and wind energy may have to produce their own renewable energy. Other states may allow utilities to attain renewable energy credits (RECs) by purchasing renewable energy from other suppliers. When selling electricity to consumers, a supplier typically discloses how much energy in the plan is renewable and where it came from.

Objectives of these programs also vary widely. Some states, such as California, are deploying them aggressively to push utilities and energy companies away from using non-renewable energy sources. The Golden State requires that 44% of all energy sold in 2024 must be renewable. It will steadily increase to 60% by 2030. Massachusetts aims for a more modest target of 35% renewable energy by 2030. Some states have also set looser renewable energy goals rather than enforcing renewable portfolio standards.

Despite these variations, the overarching goal is the same: Reduce reliance on fossil fuels by shifting the energy market’s production and consumption toward renewable sources. By using legislation to enforce these changes, states aim to expand the renewable energy sector, create more jobs, and make renewables more affordable and sustainable in the long run. Many states seek to balance these goals with consumer interests in the near term with caps on increases in electricity prices utilities can impose on customers as they add renewable sources to their energy profiles. 

It’s worth noting that many states also include clean energy standards (CES) in their legislation. California, for instance, will require that all energy comes from clean (non-carbon-dioxide-emitting) sources by 2045. 

How renewable portfolio standards work

As of late 2022, there were renewable portfolio standards or renewable energy goals in 36 states, four U.S. territories, and the District of Columbia. Some of these also include accompanying CES. The following table shows each state’s goals.

Renewable and clean energy standards/goals by U.S. state and territory

In addition to wide variations in targets, regulatory frameworks determining how these standards are enforced differ widely by state. In some cases, targets apply only to investor-owned utilities, while some states also include other (sometimes lower) targets for municipalities and electric cooperatives. 

Utilities and suppliers may face penalties for failure to comply, and some states use multipliers on certain forms of renewable energy credits to further incentivize the use of some energy sources over others. States with goals instead of standards tend to have looser enforcement. 

It’s often unclear where regulations are driving renewable adoption and where the market is leading the way. Many states with renewable portfolio standards in place also featurederegulated energy markets, which allow retail electric suppliers to compete for business by offering unique plan features and benefits, including 100% green energy options that attract eco-conscious consumers.

Thus far, only two states, the District of Columbia, and Puerto Rico have set a goal of achieving 100% renewable energy in the near future, though more are targeting 100% clean energy. In Hawaii and Rhode Island, utility companies and other key stakeholders are investing heavily in various types of renewable energy production to meet these states’ high goals.

How SRECs work with renewable portfolio standards

Some states with renewable portfolio standards put a particular emphasis on solar energy. This often takes the form of a “solar carve-out,” in which utilities are required to generate or buy a certain portion of their renewable energy, specifically from solar sources. These carve-outs are designed to incentivize the use of solar technologies, which tend to be more expensive than some other renewable options. However, as solar becomes more common and costs decline, the carve-outs are less necessary.

Whether they specifically have a carve-out requirement or not, many states favor solar by emphasizing solar renewable energy certificates (SRECs). These SRECs provide a way to transfer ownership of any solar energy produced. For every megawatt-hour (1,000 kilowatt-hours) someone with solar panels produces, they earn one SREC. Essentially, this is a credit for reducing their carbon footprint. 

However, that solar panel owner can instead sell the credit back to their supplier, who can sell it on to another utility, and so on. Utilities and electricity suppliers unable to produce their own solar energy can buy SRECs from other suppliers, residents, or businesses. They get the credit for reducing their carbon footprint, and this counts as part of their energy profile, keeping them in compliance with their state’s renewable portfolio standards.