Washington (Platts)--23Jul2012/1201 pm EDT/1601 GMT

The price of renewable energy technologies will continue to drop, while the price of natural gas will rise, US Federal Energy Regulatory Commission member John Norris said Sunday, telling state regulators and others that FERC's goal is to aid states in staying the course on renewables.

With natural gas prices so low, "some of you may think this is time to bail" on renewables, Norris told state regulators from around the country at the summer committee meetings of the National Association of Regulatory Utility Commissioners in Portland, Oregon. During the discussion at NARUC's "emerging issues" forum, however, some state regulators described the difficulties of integrating renewable generation such as wind and solar.

While Norris did not specifically say states should continue to bolster renewable portfolio standards (RPS), "my assumption is that they were started because they were a good idea," he said.

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Norris said that the federal production tax credit (PTC) and state RPS create market stabilities that are bringing the costs of renewable technologies down, but the question is "how do you finish a good idea with the mounting pressure that is building?" He added that renewables not only assist in meeting clean energy goals but also increase diversity of fuel supply.

He added that in many cases, when a large number of states adopt a policy such as an RPS, there is tendency for the federal government to adopt that policy, but this has not happened. The federal PTC is due to expire at the end of 2012 and there has been little movement toward a national RPS.

Because of the PTC and RPS "we see investment in technologies in wind and solar that dramatically brought the cost down and I think will continue to bring the cost down," Norris said. A major challenge is changing the way the grid is operated to accommodate changes in technology such as renewables, he said. He also cautioned against selling the idea of renewables based on job growth, because integration of new technologies can displace others, such as those at traditional coal plants.

A study shows there are several states and regions that are not expected to reach their RPS targets, including New England, the PJM Interconnection, and California, said Sharon Reishus, senior director for consulting firm IHS CERA, and a former member of the Maine Public Utilities Commission.

This is primarily due to transmission constraints and costs, she said. She listed delivery constraints from the Midwest Independent Transmission System Operator into PJM as a primary factor in concluding that states in PJM will not meet their targets. Investment will be needed to meet renewable targets, she said.

This year will be last one for significant renewable development because of the expiration of the PTC, until about 2015, when she said political compromise may be reached on the PTC that would see it reinstated. There will be "fairly significant growth" of renewables between 2015 and 2020, she said. Renewables as a portion of capacity is projected to increase to 14% by 2020, with coal dropping from 30% to about 25%, she said.

"It's clear that federal policy has had a considerable impact on the buildout of wind," she said, but added that "this really is driven by state policy."

As to whether states will meet their targets, she said: "It's a complicated question. Clearly transmission is a limiting factor for a number of states.

She added: "It's going to be very challenging for a number of states to actually meet those targets."

However, California Public Utilities Commission member Timothy Simon said he disagreed with Reishus on whether California will meet its RPS goal of electricity providers obtaining 33% of total procurement by 2020.

The state's 2011 RPS solicitation "was an extremely robust solicitation" with more than 1100 new projects proposed, he said.

"We have a very, very, very aggressive bidding process right now," Simon said, adding: "I view natural gas as the kissing cousin of renewables."

State regulators also discussed the difficulties of meeting RPS targets, with Public Utility of Texas Chairwoman Donna Nelson saying that with so much wind used in spring, generators using other types of fuel earn most of their profits in summer. She added that it was difficult to make the economic case for renewables in Texas with natural gas prices so low. The main concern among Texans is reliability and the cost of electricity, she said.

"The only way we're going to make renewables work is with storage," Nelson added.

New Hampshire Public Utilities Commission member Michael Harrington said that one utility's recent rate case had demonstrated a 50% increase in the cost of compliance with the state's RPS. The costs of integrating renewables were becoming much more significant, he said, adding: "I don't see anybody building anything that they don't have a purchase power agreement with."

He said it was questionable how RPS goals can be met for projects unless they have contracts for above-market rates, adding: "How far can we push this before people say 'enough, the bills are getting too high?'"

--Jason Fordney, jason_fordney@platts.com
--Edited by Deepa Vijiyasingam, deepa_vijiyasingam@platts.com

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