Arizona Renewable Energy Standard Requires On-Site Distributed Generation

Date: 2 Mar 2006 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

The Arizona Corporation Commission (ACC) has adopted rules to implement a new renewable energy standard requiring 15 percent renewables by 2025. The ACC voted to require that 30% of the renewable requirement in years 2011 and beyond must be met by local on-site renewable energy projects installed by homes and businesses.

Since goals of a previous renewable energy standard were not being met, in August 2005 the ACC began to change the program. The previous program had strong provisions to require the use of Arizona’s in-state solar energy resources. In the new plan, the ACC has set the renewables requirement at a higher percentage of sales for the state’s utilities, raised the rates that utilities may charge to administer the program but dropped the mandatory solar energy requirements of the previous program.

The state’s two largest utilities, Arizona Public Service and Tuscon Electric, had retail sales totalling about 34 billion kWhs in 2004. A 15 percent standard using this 2004 sales figure would require 5.1 billion kWhs of renewable electricity generation (or renewable energy credits). Assuming an average capacity factor of 25 percent (estimate of combining solar, wind, biomass), these two utilities would need about 2,300 MW of renewable capacity.

The distributed energy requirement starts at 5 percent of the total portfolio in 2007 and grows to 30 percent of the total required renewable energy mix after 2011. The distributed energy portion of the standards allow utilities to count a variety of solar thermal projects towards the 30 percent requirement (e.g. solar hot water, solar industrial heating and cooling, solar space heating or cooling system). A solar thermal project that displaces the equivalent to 3,415 British Thermal Units (Btus) of heat is given one renewable energy credit – equivalent to 1 kWh of renewable electricity.

The new rules allow renewable projects installed before December 31, 2005, to receive "extra credit" up to twice the actual kWhs produced for various factors. The ACC is also allowing utilities to count out of state renewable energy development in meeting the standard. And renewable energy credits are allowed to be traded.

To help offset the increased cost of meeting the more aggressive standard, the current surcharge amount will change. Currently, customers pay $0.000875 per kWh. The new surcharge amount is $0.004988 per kWh. There are monthly caps in place to limit the total impact on customer bills. Currently, residential customers are capped at 35 cents. The new cap will be $1.05. Nonresidential customers currently have a cap of $13 but that will increase to a maximum charge of $39.00. For extremely energy-intensive commercial accounts (mines, heavy manufacturing, etc.) the surcharge is capped at $117, up from $39.

A final ACC ruling was made on February 27, 2006. Before taking effect, the rules must go through a review by the Attorney General’s Office and a formal rulemaking process with the Arizona Secretary of State’s office. It could be late in the third quarter or early in the fourth quarter of 2006 before the regulations are binding.


  • ACC’s Environmental Portfolio Standard Developments webpage
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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.