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Home > By DEPARTMENTS > Leadership and Governance for Sustainability > Global Leadership

Owning Renewable Energy Credits - RECs

New solar marketing options are changing as solar technology develops across the grid and distributed owner-installations.

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california business solutions NEWS UPDATE 2007

A conflict has arisen over the ownership of credits that will be produced by solar system owners when the California Solar Initiative goes into effect in January. The Public Utilities Commission (PUC) has floated a proposed decision that would grant all of those credits to California utilities, and solar advocacy groups are crying foul:

A California Public Utilities Commission (CPUC) proposed decision to grant 100% ownership of solar renewable energy certificates (SRECs) to utilities from solar system owners could hamper the California Solar Initiative (CSI) and slow down the state's burgeoning solar market, according to solar advocacy groups.

"If RECs go to the utilities, it is going to eliminate a very important revenue stream that can help make more projects possible."

-- David Hochschild, Executive Director of PV Now But California utilities disagree, saying that it will encourage more utility participation in the solar program if they own SRECs and RECs from other renewable distributed generation (DG) facilities.

David Hochschild, Executive Director of PV Now, said that utilities have no right to take 100% of SRECs from their customers. "If RECs go to the utilities, it is going to eliminate a very important revenue stream that can help make more projects possible," he said. "If they go to customers it's going to grow the solar market and everyone is going to benefit." ...

But the utilities have argued that they are helping out ratepayers who subsidize the solar and renewable [distributed grid] programs by contributing SRECs toward the [renewable portfolio standard] procurement target. If the utilities have to buy the SRECs, they said, then ratepayers will be paying twice for the renewable energy output for the RPS requirements.

It seems natural that the owners of the photovoltaic arrays would have a claim to the credits they produce, and sale of RECs does create more incentive for investment in solar technology. Since the utilities are responsible for meeting the portfolio standard, though, and required to purchase power from the smaller producers, one could buy their claim that this represents an unnecessarily harsh burden for the companies and their rate-payers. Keep in mind that neither side can call the energy they sell "renewable" without owning the credits that represent the environmental attributes of that energy.

What are renewable energy credits?

For every kilowatt hour of electricity a renewable generator generates, it also generates a one-kilowatt hour renewable energy credit. The generator can sell both commodities together as “renewable electricity” or sell the electricity as “generic” electricity to one buyer and the RECs to other buyers.

Legally, it’s all about who owns the RECs

RECs are a financial instrument that supports and rewards renewable energy generation. For every kilowatt-hour of renewable energy generated, a REC is created. So while we want fewer pollution allowances to be issued, we want as many RECs as possible to be generated. Buying RECs can help stimulate demand for renewable energy and can incentivize increased renewable energy and REC production.

Here’s a simple way to think about it. Let’s say your utility offered you the opportunity to pay a little more each month for wind power, and you did. From that point on, the electricity feeding your meter would be exactly the same as it was before you started buying wind power. That’s because all electricity is the same, and you can’t tell particular electrons to go to a particular house on the grid.

So what do you get when you buy wind power from your utility? You get electricity from the mix of all sources feeding the grid, and “credit” for having had the electricity you use replaced with wind power. That “credit” is the core of renewable energy credits, or RECs. When you buy wind power from your utility, you’re really just buying ordinary electricity and RECs in the same transaction from the same supplier. In fact, your utility may or may not buy wind power on your behalf – they may simply buy wind RECs for you. Either way it’s the same. Because all electricity is the same, ownership of RECs and an equal amount of ANY electricity is legally deemed to be ownership of renewable electricity.

Renewable energy credits (RECs) are sold separately from the power

Renewable energy projects are often located in regions where there are not enough people nearby who are willing to pay the premium price that the project needs – the price that reflects the environmental value of its power. In addition, transmitting its power a longer distance to markets where people are willing to pay that premium adds even more cost (and in fact, it wouldn’t even get there – if you transmit power from one grid to another, the power that actually moves is the power that happens to be closest to the “bridge” at the time). Splitting the project’s output into two separate commodities – the power itself, and the environmental attributes of that power (the RECs) – enables the project to sell its power locally at market rates as “regular” or “generic” power, and recover its premium cost by selling the RECs to buyers in other markets or regions who are willing to pay the premium to support renewable energy.

This system adds flexibility and efficiency to the renewable energy market. In addition, it simply recognizes that because all electricity is physically identical, it doesn’t matter what electricity is “called” renewable, as long as you only “call” renewable the amount that actually is from a renewable source. Ownership of RECs gives you the right to “call” a certain amount of electricity renewable (however many kilowatt hours of RECs you bought).

SOURCES:

Native Energy: http://www.nativeenergy.com/faq

Renewable Energy Access

PV Now

Public Utilities Commission

http://www.renewableenergyaccess.com/rea/news/story?id=46534



Edited by Carolyn Allen, owner/editor of California Green Solutions
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