California utilities can now purchase some of the benefits of renewable energy without actually purchasing the energy itself.
That's the gist of a move yesterday by the California Public Utilities Commission to allow utilities to use tradable renewable energy credits (TRECs) to meet the state's ambitious renewable portfolio standard.
The state's utilities had previously been allowed to use renewable energy credits (RECs), but those RECs had to be bundled with renewable energy generation. Tradable RECs, on the other hand, can be unbundled from renewable energy generation.
It's an important distinction.
California's renewable portfolio standard mandates that the state utilities increase the amount of power they get from renewable sources to 20 percent by 2010 and 30 percent by 2020. However, by 2009, it had become clear that the state's utilities were not going to meet the 2010 goal. According to the Public Utilities Commission, Southern California Edison had increased its supplies from renewable sources by 16.8 percent, Pacific Gas & Electric had increased renewables by 14.4 percent, and San Diego Gas & Electric increased renewables by 10.5 percent.
The commission believes the new ruling on TRECs will give utilities the flexibility they needed to comply with the standard.
Upsides and Downsides
On the positive side, unbundling RECs from generation opens up California's utilities and its renewable portfolio standard to include smaller renewable energy projects, including residential and commercial rooftop solar projects. If homeowners can earn money off rooftop solar installations by selling RECs to their local utility, the cost of such systems becomes less of an obstacle.
The downside of TRECs is that they can be purchased from outside of the state, which runs counter to the original intentions of the renewable portfolio standard: to encourage innovation and the generation of renewable energy within California. The TRECs are still limited to only those states included in the Western Electricity Coordinating Council, so they won't be coming from halfway around the world, but neither do they have to come from California.
California's Division of Ratepayer Advocates has been fighting the plan to unbundle RECs since the idea was first proposed in 2008. In its written position on TRECs, the division states:
"While unbundled or tradable RECs may help utilities meet their fast approaching RPS obligations in 2010, they endanger the credibility of the RPS when the unbundled or tradable RECs from out-of-state renewable energy facilities are attached to electricity imports from coal power plants."
Renewable energy credits work similarly to carbon offsets. The credits relate to the general benefit of renewable energy generation — reduced emissions and pollution that benefits everyone, whether they're using the clean energy themselves or not. Allowing TRECs allows utilities to buy power from wherever they like so long as they pay for the benefits created by renewable energy production elsewhere.
Renewable energy producers are divided on the Public Utilities Commission's decision. The Solar Alliance and the California Solar Energy Industries Association both have an issue with the price cap the commission has initially placed on RECs. Given that the market for TRECs is new, their consensus is that demand will outpace supply, at least for the first year or two. Not wanting utilities to be price-gouged for RECs, the commission has added a price cap of $50 per credit.
Transmission and Wind
Cleantech venture capitalist Rob Day, president of the Renewable Energy Business Network, is in favor of TRECs, but says the real problem is that transmission lines are such that it's difficult to move "green kilowatt hours" alongside TRECs. In other words, it's easier to pay for the "green" benefits of renewable energy being generated somewhere else than to buy that actual energy itself. Were California able to buy wind power from Oregon, for example, unbundling might not be necessary.
Allowing TRECs to be purchased from outside California also "pits local green jobs against cheaper green power for consumers," according to Day.
The Public Utilities Commission's ruling initially limits the use of tradable RECs for renewable portfolio standard compliance to not more than 25% of a given investor-owned utility's annual procurement obligation. That limitation sunsets at the end of 2011, though, at which point the commission will reevaluate the REC market. The cap is intended to allow for the maturation of the market and a clearer understanding of the implications of that market's operation.
So far, California is among the first to go the route of using TRECs for its renewable portfolio standard compliance. That's not because the state has set its goals any higher or done any worse in working to meet them, according to Day.
"I wouldn't say California has set its requirements too high, it's really more that California actually doesn't have great wind resources," he says.
At the end of the day, if the TREC program were geared more toward encouraging small renewable energy projects, as well as distributed generation renewable energy projects, it could be an effective way to achieve the goal of increasing renewable energy generation in the state. If, however, utilities simply use unbundled RECs from other states as a sort of energy indulgence that allows them to continue to use power generated by coal-fired power plants, the sun will set on RPS deadlines without as much progress as the state hoped for.