To meet their renewable standards, California utilities are now able to look outside the state. What happens next should be interesting.
California's Renewable Portfolio Standard (RPS) mandates minimum renewable energy thresholds in a utility company's electricity mix. In California, that minimum is 20% by the end of 2010. Utilities can obtain a three-year extension, and most will ask for that, but 2010 is still the official deadline.
Why an RPS?
According to the Public Utilities Code, Section 399.11, an increase in renewable resources "may promote stable electricity prices, protect public health, improve environmental quality, stimulate sustainable economic development, create new employment opportunities, and reduce reliance on imported fuels."
However, these lofty goals overlooked one important element: execution. Drafting a law mandating a 20% renewable mix doesn't create an overnight solar farm. In fact, by the end of 2009, the investor-owned utilities were woefully behind schedule. According to the California Public Utilities Commission (CPUC), the renewable score card looked like this:
Southern California Edison: 16.8%
Pacific Gas & Electric: 14.4%
San Diego Gas & Electric: 10.5%
New Rules to the Rescue
To help utilities reach their 20% goal, the CPUC announced this week that the utilities can now purchase tradable Renewable Energy Credits (RECs) to meet their RPS mandates. This represents a significant departure from the previous CPUC position, which required utilities to purchase the electrons and the RECs together.
In other words, the utility was required to buy "green power" from large solar and wind farms, and purchase both the electricity and the green attributes of that energy generation simultaneously. The new ruling effectively allows for the "unbundling" of this transaction. It separates the "green" and the "power," such that utilities can purchase the green attributes of renewable generation, even if the actual electrons being generated are consumed elsewhere.
Benefits of Unbundling
The primary benefit of allowing tradable RECs is the flexibility it provides to the utility. By allowing generation outside of California (but within the boundaries of the Western Electric Coordinating Council), this ruling will likely lower the cost and ease the burden of RPS compliance.
According to the CPUC ruling, "REC-only transactions in which the RPS-eligible energy does not serve California load provides to California consumers the general benefits of increased use of renewable energy, such as reduction in the emission of greenhouse gases and downward pressure on natural gas prices."
In addition, the ruling mentions the "potential additional revenue streams to developers of renewable generation projects" made available through the use of T-RECs.
A New T-REC Marketplace
The CPUC ruling lays the groundwork for a robust T-REC marketplace. "Although the tradable REC market may be modest in the next two or three years, the market rules put in place in this decision will both allow this new market to develop and provide robust rules as the tradable REC market matures," said CPUC President Michael Peevey.
Given that most of the utility-scale renewable energy project pipeline in California is already contracted to utilities to meet the RPS requirements, this ruling creates some interesting opportunities to monetize the green attributes of renewable energy projects in ways not previously considered. In particular, rooftop and distributed generation systems could qualify if they registered with the Western Renewable Energy Generation Information System (WREGIS).
T-RECs for Homeowners
Rooftop solar projects deployed under the California Solar Initiative (CSI), the Self Generation Incentive Program (SGIP) and the New Solar Homes Partnership (NSHP) may be granted RPS-eligible status. It is conceivable that RECs could be granted to home owners, commercial property owners or perhaps aggregated under a larger co-op model in order to provide a revenue stream to the owners of distributed generation assets.
In theory, fuel cell devices from companies such as ClearEdge Power or Bloom Energy may qualify for REC generation if their fuel supply comes from biogas or other renewable sources.
Arizona, which has talked about exporting power to the U.S. will love this. Some companies have even talked about bringing power from Mexico. Obviously, this doesn't help the "green jobs" element of California's energy program, but it will help the state meet its goals.
The CPUC ruling does include several safeguards to protect ratepayers. First, the ruling establishes a cap of $50 per REC. In addition, RECs can only be used to meet 25% of a utility's RPS obligation. Both of these mechanisms, however, expire at the end of 2011.
The ruling "directs Energy Division staff to collect information about the TREC market and the use of TRECs for RPS compliance, and to provide a report with recommendations to the Commission within 16 months of the date of this decision." Based on these recommendations, the safeguards may be extended, modified, or allowed to sunset.
Word of the ruling travelled fast and was quickly embraced by several industry and advocacy groups, including the Center for Resource Solutions (CRS), a non-profit that promotes policies and consumer-protection mechanisms for renewable energy, greenhouse gas reduction and energy efficiency programs.
"This has been a long and contentious issue," said Arthur O'Donnell, the Executive Director for CRS. "But it's been clear for some time that California was unable to meet its short-term 20% [RPS] goals without employing T-RECs."
While the debate over energy policy rages on in Congress, California has taken a leading position in the clean energy race. With a T-REC pathway in place, utility companies will now have more options to meet RPS requirements. In addition, demand for T-RECs is expected to increase and provide a stimulus for the emerging REC marketplace.
Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter. Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. You can reach him at 858-350-4215 or firstname.lastname@example.org.