October 25, 2010 - energy stances of Maine's candidates for governor; renewable portfolio standards

My colleague Drew Landry wrote a “Maine Voices” article in this morning’s Portland Press Herald.  His article, entitled “Next Governor must work quickly to craft an effective energy policy,” can be read at http://www.pressherald.com/opinion/next-governor-must-work-quickly-to-craft-an-effective-energy-policy_2010-10-25.html.

Continuing our look at renewable energy certificates:

States generally allow utilities to demonstrate their compliance with the applicable RPS by obtaining and then “retiring” RECs.  To prevent double-counting of environmental attributes, RECs can only be used once for compliance or voluntary purposes; after a buyer has made an environmental claim based on a REC, that REC is considered to be permanently retired and can no longer be used.

Note that in states where electricity markets remain regulated and vertically integrated, utility-owned generation can generally be used to satisfy RPS compliance obligations.  However, even in these markets, utilities do purchase RECs in several circumstances.  First, if a utility either lacks sufficient renewable generation to cover its RPS obligations, it may be required to purchase RECs from the market.  States generally penalize utilities for failing to purchase sufficient RECs by requiring them to make an Alternative Compliance Payment (ACP).  In general, to ensure that REC markets fulfill their goal of incentivizing new renewable generation, states set the ACP at a higher price than REC market prices.  Purchasing RECs can allow a utility to avoid this penalty.

Second, a utility may elect to purchase RECs from a market seller for economic reasons.  This typically occurs where the utility can take advantage of price separation by selling its own RECs for a higher price than it will pay to purchase RECs from another marketer.  Price separation can arise where a higher value is placed on one kind of renewable resource than another, particularly because a given generator may qualify for RECs under multiple state RPS programs.  For example, New Jersey places a significant bounty on solar generation.  A REC generated from solar power that qualifies for New Jersey’s solar RPS can be worth significantly more than other RECs because it can be used to satisfy New Jersey’s challenging compliance requirement.  That same REC would be worth less if it were used to satisfy Pennsylvania’s more general RPS.  A utility with a Pennsylvania compliance obligation and New Jersey-eligible solar RECs could choose to sell its solar RECs, and purchase less costly Pennsylvania RECs to cover its compliance obligations.