State mandates reshape the generation mix.
By the early 2000s, concern about climate change and air pollution was driving states to take action that competitive markets were not delivering: a large-scale shift to renewable electricity. The preferred tool was the Renewable Portfolio Standard (RPS) — a requirement that electricity retailers obtain a specified percentage of their power from eligible renewable sources by a specified date.
Texas was first, in 1999. California established an RPS in 2002, initially requiring 20% renewable electricity by 2017. By 2010, over 30 states had adopted RPS policies. Some were modest (5% by 2025). Others were aggressive: California eventually set a 100% clean electricity standard; Massachusetts and New York made similar commitments.
The market mechanism behind most RPS policies is the Renewable Energy Certificate (REC). When a renewable generator produces one megawatt-hour of electricity, it earns one REC. Electricity retailers required to meet an RPS can either own renewable generation directly or purchase RECs from others.
REC markets created a financial value for the "greenness" of renewable electricity separate from its energy value. A wind farm in Iowa might sell its energy into the MISO market at $25/MWh and sell its RECs to a Massachusetts retailer for an additional $5/MWh, for a total revenue of $30/MWh. The REC market effectively subsidized renewable development in high-resource locations, regardless of where the power was consumed.
The RPS mechanism, imperfect as it is, has been enormously effective. Renewable capacity in the United States grew from roughly 100 GW in 2000 (mostly hydro) to over 500 GW by 2023, with wind and solar accounting for the vast majority of new capacity added each year. The cost of solar photovoltaics fell 90% between 2010 and 2020. Offshore wind is now commercially viable. Battery storage, initially too expensive to deploy at scale, has seen cost reductions even more dramatic than solar.
The RPS drove demand for renewables. Demand drove deployment. Deployment drove learning-by-doing and economies of scale. And scale drove cost reductions that made renewable electricity increasingly competitive with fossil fuels even without RPS support — setting the stage for the market transformation of the 2020s.
September 12, 2002, Sacramento, California. Governor Gray Davis signs SB 1078 into law, establishing California's Renewables Portfolio Standard. The bill, authored by State Senator Byron Sher, requires California's utilities to procure 20% of their electricity from renewable sources by 2017 — at the time, one of the most ambitious clean energy mandates in the nation. California later raised the target repeatedly: 33% by 2020, 50% by 2030, then 60% by 2030, and ultimately 100% clean electricity by 2045.
SB 1078 — California Legislature (chaptered September 12, 2002)