Renewable Energy Certificates: A Detailed Overview

1. Renewable Energy Certificates:A Detailed Overview Dan Lieberman Center for Resource Solutions www.resource-solutions.org www.green-e.org NARUC August 1, 2006 San Francisco, CA

2. Presentation Overview • RECs 101 • Voluntary vs. Compliance Markets • Oversight of RECs: • Voluntary Certification • Tracking • Key Regulatory Issues

3. Who is the Center for Resource Solutions? • CRS is an NGO located at the Presidio in San Francisco • Focus on environmental issues, renewable energy and energy efficiency policy • We work in the US and internationally Wind turbine in Nan’ao, Guangdong

4. Introduction to RECs Production of Renewable Energy REC (Environmental Benefits) Commodity Electricity • Certificates represent the contractual right to claim the environmental and other attributes associated with electricity generated from a renewable energy facility • May be traded independently of energy markets

5. A Simple View of RECs Green Power Green Power

6. What’s in a Name • RECs: Renewable Energy Certificates • AKA: Green Tags, Green Tickets, Tradable Renewable Certificates (TRCs), T-RECS • Renewable Credits: Used in regulatory context • Unbundling: The financial separation of RECs from the underlying electricity • Disaggregation: The separation of specific attributes from a REC

7. Uses of RECs • Substantiating compliance with RPS • Supply for green pricing programs • Choice for customers with no green power option • Meeting emissions reduction goals • Greening of events, products, services

8. Size of the REC Market Source: NREL Energy Analysis Office

9. Where RECs are Used as RPS Implementation Tool • 13 states have a certificate-based RPS compliance mechanism • ME, MA, CT, RI, NV, AZ, WI, NJ, PA, MD, TX, CO, DC • 5 states likely to use certificates once regional tracking system is operational • CA, MN, NM, MT, IL • 3 states undecided or have other methods to show compliance • NY, HI, IA

10. The Voluntary RE Market By “voluntary renewable energy market” we mean purchase or use by retail customers (residential and non-residential) of renewable energy, renewable energy certificates, or the use of energy from an on-site renewable generation unit.

11. The Voluntary RE Market • 2004 supporting 2,233 MW of new renewable capacity • Increasingly non-residential • Largest single purchaser (U.S. Air Force) buying > 1 million MWhs/yr • EPA Green Power Partnership • Over 650 members • 5.3 million MWh of green power annually • purchasing enough RE to power >400,000 American homes each year • Xcel, Austin wind products cheaper than fossil

12. Certification and Verification • Certification • What you purchase is certified by an independent third party to meet specific standards • Verification • Independent third party checks that what was promised to you was delivered

13. Types of Certification • Product Certification • Focus on established product standard and transfer of renewable energy product (RECS or renewable energy) from generator to end-use customer. • Green-e is industry leader • Project/Facility Certification • Certifies generation project, but does not follow the contract path to the end user • Examples: Low Impact Hydro Institute, Terrachoice (Canada), some state programs

14. Sample Green-e Criteria • Verification audits • Customer sales records • Sales of renewables- quantity and type • Sources of supply- clear chain of custody and no double claims • Consistency with National Association of Attorney Generals and US FTC guidelines • Purchase is additional • Each kWh is only sold once • All environmental attributes (e.g. carbon reduction) are included in customer’s purchase • Certification tied to real electricity production

15. What is Tracking? • Each unit of generation assigned a unique ID that includes its attributes: • Date generated • Facility location • Date facility went online • Type of renewable • Emissions profile • Eligibility for programs (RPS, Green-e) • Electronic system tracks each unit from “birth” to retirement (like online banking) • Technology and policy neutral

16. Role of Tracking Systems • Issue RECs to Generators • Verify generator characteristics • Verify generation amount • Provide permanent retirement mechanism for certificates • Protect against double-selling • Verify deliverability requirements • Provide for banking functionality

17. REC Tracking • Canada: British Columbia and Alberta are participating in WREGIS, and Manitoba is participating in the northern Midwest system. • Mexico: northern Baja is participating in the WREGIS system.

18. Regional Tracking Programs • ERCOT RECs Program (2001) • NEPOOL GIS (2002) • WI RRC Program (2003) • PJM Gats (2005) • NJ SRECS (2005) • WREGIS (western states, Operational mid-2007) • M-RETS (upper midwest, Operational ?) • New York State • NAAIB Coordinating Body

19. North American Association of Issuing Bodies (NAAIB) • Ensure compatibility among systems • Registering generators • Issuing certificates • Transferring ownership of RECs • Recording information in the Central Registration Database • Verifying generation • Investigating requests for changes to the Basic Commitment rules • Mediating disputes

20. Implications for Utility Regulators • REC purchases and sales by regulated utilities may: • Influence rate-setting policies, • Affect ratepayer value, • Affect the success of renewable programs to meet their goals, such as RPS or incentive programs paid for through system benefits charges, • Overlap with environmental regulation, • Overlap with state or Federal renewable energy programs such as an RPS, green pricing programs, or competitive renewable electricity markets • Create legal issues related to the property rights of renewables, both with new contracts held by utilities and existing PURPA contracts.

21. Key Issue: Double Counting • How to prevent unwanted cases of: • Double Sale • Selling part or whole REC to two or more parties concurrently • Double Use • Single MWh used for more than one purpose • Double Claiming • Two or more parties claiming ownership or benefits of single MWh, e.g. on disclosure label

22. Key Issue: Ownership • Are utilities entitled to any of the RECs associated with net metered facilities? • How should regulators treat RECs from PURPA facilities when the contact is silent on RECs?

23. Key Issue: Emissions Values • There are SOx, NOx and Carbon markets • SOx is always capped and traded • NOx is sometimes capped and traded • Carbon is not currently capped and traded • Renewables have been left out of Sox C&T • Renewables may have access to NOx set aside • If carbon dioxide emissions are capped/traded and renewables are not assigned credits, then renewable energy will provide zero carbon emission reductions.

24. Resources • CRS “Regulators Handbook on TRCs” www.resource-solutions.org/RegulatorHandbook.htm • Green-e standards and REC product lists www.green-e.org • NREL: “Emerging Markets for Renewable Energy Certificates: Opportunities and Challenges” www.eere.energy.gov/greenpower

25. Contact information Dr. Jan Hamrin, President Center for Resource Solutions San Francisco, CA 415/561-2100 Email: jhamrin@resource-solutions.org www.resource-solutions.org