King Solomon had the challenging task of deciding the fate of one rosy-cheeked baby. California policy makers and regulators have the task of deciding whether to spare or split the green energy credit bambino. Last week, two California Energy Commission members heard from unhappy parties debating options for dealing with what may be an inadvertent double counting of renewable energy. The double counting reflects a weakness in the system and one that ripples through the industry. Allowing solar, wind, and other non fossil fuel-powered projects to be counted more than once will impact the integrity of the renewable energy credit market, as well as that of the alternative power industry. Few are casting blame on the double counting utility or on the Energy Commission for allowing it to slip through the cracks. Most want resolution of the matter that suits their definition of equitable (Circuit, March 27, 2009). On one side is Southern California Edison. It counted juice it received from two wind contracts it inherited from the Department of Water Resources towards its renewable portfolio standard from 2003 through 2007. The green attribute of the 66 MW of wind power, however, was not part of the deal. The DWR contract specified the project owner--which changed hands a number of times--not the party contracting for the output, held the right to trade the renewable attribute of the projects. Trading this attribute, or renewable energy credit (REC) separate from a plant’s power was in fact done by multiple parties. On the other side of the dispute are renewable energy credit advocates. They fear allowing a double counting of the renewable power from the Mountain View wind projects is equivalent to slicing the baby in half. At stake for them is the integrity of the voluntary REC market. Those who purchased the green tags from third party marketers insist they get something more than a piece of paper for their investments. The amount of RECs traded from the plants was relatively small in the scheme of things. The Energy Commission found, for example, that 79,117 MWh of RECs from the two wind projects were sold by marketers in 2004. The entire voluntary market that year was 3 million MWh of renewable credits. It was valued between $15 and $45 million, according to the National Renewable Energy Laboratory. Thus, we’re not talking about a large sum of money from a utility’s perspective, about $5 million using the national laboratory’s low end number. It is also worth noting that the numbers are about more than double the price of RECs sold in California in 2004 and 2005. Also small are the Mountain View renewable portfolio points Edison counted towards its renewable mandate. It represents about 0.3 percent of its claimed renewable procurement. At issue, however, is not the size of the renewable energy credits, but the fallout if regulators allow the double counting. The Energy Commission is responsible for verifying that energy resources counted towards a utility renewable portfolio standard are bona fide--and that includes assurances it isn’t counted more than once. The CEC will work with the California Public Utilities Commission on how to address the improper renewable accounting Quite honestly I am not a fan of tradable credits--be it renewable attributes or carbon allowances--but if you invest large amounts of time, dollars, and trouble to create a market then stick to the rules of the game. (I also find it disconcerting that it took this long to catch the error. Admittedly, though, this occurred before the tracking system for RECs in California and the West--the Western Renewable Energy Generation Information System--was up and running). While the integrity of the renewable energy credit market that trades, verifies, and certifies renewable energy is at issue, so is the renewable energy business itself. That is especially true today because California is expected to allow the use of renewable energy credits to meet a higher renewable mandate expected to be enacted this year. What percentage of RECs to allow as a substitute for real renewable power has been the subject of many hearings, including one this week. During an April 1 hearing on AB 64, which seeks to set a 33 percent renewable mandate by 2020, stakeholders debated what limit to put on the use of credits linked to in-state and out-of-state wind, solar, geothermal, and other alternative energy projects. Allowing purchases of green power tags to be counted is expected to be one of the avenues needed to get California to a one-third renewable level by 2020. If exceptions to the current prohibition on double counting of renewable power are allowed, then ignorance is a viable defense--not a desirable outcome. It also would devalue the infamous “sanctity of contracts.” In short, the message to the green energy credit market would be caveat emptor: buyer beware. Customers, including in Burbank, Palo Alto and Santa Clara, paid a premium for power they thought was real green, not Astroturf green. Damaging credibility in this, or any other market, is detrimental, with evidence all around us during these tumultuous times. If I was given the lead role of Solowoman in this drama, I would spare the REC baby and lop off a small piece of Edison’s profit to cover the costs of its error. I also sure hope I won’t be asked to recreate the role down the road if a carbon market gets launched--given that far more than the life of the baby is at risk.
