Study Explores State Actions to Clarify Renewable Energy Credits

Renewable energy certificates (REC) are increasingly important, especially in states that accept them as evidence of compliance with renewable portfolio standards (RPS). The emergence of RECs as a tradable commodity has made utilities, generators and regulators increasingly aware of the need to specify who owns the RECs in energy transactions, according to a new report released by Lawrence Berkeley National Laboratory (LBNL).

Because of the recent appearance of RECs, legislation and regulation mandating the purchase of renewable energy has sometimes been silent on the disposition of the RECs associated with that generation. The resulting uncertainty has created confusion and, in some cases, has led to contention between buyers and sellers of renewable energy generation. A number of states are beginning to clarify who owns the RECs in renewable energy contracts, according to LBNL’s new report, which summarizes state and federal actions on REC ownership for qualifying facility (QF) contracts under the federal Public Utility Regulatory Policy Act (PURPA) law, net metering and distributed generation agreements, and state or utility financial incentives for small renewable generators. “The proliferation of state renewables portfolio standard (RPS) policies is demanding greater regulatory clarity because the RECs from these agreements are critical to RPS compliance,” said Ed Holt, co-author of the LBNL report. The report finds that 16 states have taken a position on the ownership of RECs from QF contracts. Most of these states conclude that the utilities purchasing the power will also receive the RECs, at least with older contracts where REC ownership was not explicitly addressed. For newer contracts, a number of states have concluded that the generator will retain the RECs. “Sorting out who owns RECs under QF contracts is important because these RECs may have significant economic value,” said Ryan Wiser, co-author of the LBNL report. “The earlier FERC [Federal Energy Regulatory Commission] ruling on the issue of QF REC ownership was not altogether clear, so states have stepped into the void and are providing greater clarity on the subject.” A third author, Mark Bolinger, notes that small customer-sited renewable energy generators are often eligible to help meet utility obligations under state RPS programs. “Forty states have net-metering policies that require utilities to interconnect small customer-owned facilities, but ownership of RECs in these cases is often not spelled out,” said Bolinger. In fact, the Berkeley Lab study finds that only a dozen states have addressed, or have begun to address, the question. Most of them award the RECs to the customer-owners of the renewable projects. No state has yet assigned all or even a majority of the RECs from customer-sited distributed generation to the utility. The report finds that most states that offer financial incentives for renewable energy projects make no demands for the RECs from those facilities. But a few states and utilities do require the transfer of RECs as a condition of awarding financial support, especially for renewable energy projects whose RECs utilities might use to help satisfy RPS obligations. “We hope that by identifying the uncertainty around REC ownership and explaining how leading states have responded, we will help policy-makers and stakeholders in other states to resolve the issue in their regions,” Holt concluded.
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