California’s 33% Renewable Energy Goal by 2020: Form or Substance? (Part II-RECs Required)
Part I yesterday reviewed in-state electricity generation and power imports required to meet California’s current power demand. Part II today shows how Renewable Energy Credits may be used to meet California’s aggressive renewable energy goals.
Renewable Energy Credits
Renewable Energy Credits (RECs) are the power generation credits that a distribution system can use to meet its renewable portfolio. These RECs come in two flavors—bundled and unbundled. The bundled RECs are the credits that are bought and used within the same distribution system; unbundled RECs are those bought by one distribution system but used in another. These RECs are managed by the Center for Resource Solutions, which also prevents double counting of credits.
Unbundled RECs are particularly interesting, because it means that a distribution system doesn’t need to build renewable energy power plants because the distribution system can simply buy the renewable power that is generated in another distribution system.
This creates significant problems for the exporting distribution system. For example, the Bonneville Power Administration is currently negotiating with California about (in BPA’s words)
potentially significant negative consequences for Northwest and California consumers if decisions about the use of unbundled RECs are made without full consideration of the infrastructure requirements associated with the delivering a reliable, least cost supply of renewable energy to California.
So, what are the consequences? The use of unbundled RECs seems to mean that California could purchase all the renewable power generated by all the windmills that are connected to the California grid.
This is happening right now as California is contracting for wind energy from places as far away as Alberta, Canada. The electricity generated in Alberta, however, will not arrive in California. It is too far away. The only thing that is happening is that Californians are paying for it to meet their renewable portfolio. This seems pretty strange, that Californians are required to pay for a benefit that they don’t get.
The fact that 15 percent of its imports in 2009 are “unspecified” probably means that California intends to purchase enough renewable energy credits to meet its goal. This would mean that it would not need to build any more renewable power generators. It just needs to purchase the power from its neighbors (at the expense of the rate payers in California).
There are three major problems with unbundled RECs:
What happens to the 15 percent energy imports that California actually uses but now “disowns”? Does this conventional energy remain on the books of the exporting grids or does this energy magically disappear from everyone’s books?
It would be interesting to see the accounting of credits in the neighboring grids to see if this is actually happening. It is difficult to imagine that a neighboring distribution system with thousands of windmills would not be able credit any of it because California bought all of it.
Neighboring grids that are required to accept the power from wind turbines also need to build backup power plants to compensate for the intermittent wind and to keep the power on the grid stable. If these power plants are required only for wind power going to California, should not California also be required to pay for them as well? I don’t believe that this is happening. The penalty for the intermittency is paid by consumers on the neighboring grid.
If the maximum renewable energy that can be placed on an isolated grid is about 15 percent, what happens if all the distribution systems have renewable goals that are much higher (such as California’s 33 percent)? The result will be a bidding war for a scarce commodity, pushing prices ever higher.
This all seems a bit unfair. Who gave the wind industry the power to shift all the benefits of renewable energy out of state and import all the negative impacts, while reaping all the profits? One would think that the Federal Energy Regulatory Commission (FERC) would not allow such an imbalance between states to occur. From all that I have read, however, FERC is all for it.
The impact of unbundled RECs is that it raises electricity prices as governmental organizations, utilities, and individual businesses bid for renewable credits. The electric rates will increase for customers, which either import or export RECs (in other words, all customers are penalized).
This has already occurred in Lewis County in Washington State, for example, which had to raise overall electricity rates. The rates would have decreased without the REC accounting system.
California’s Generation Trends
So, to answer the question: Can California meet its renewable energy portfolio? The answer is “probably”–but not by building more renewable sources.
Rather, the answer is by buying credits for sources that are built elsewhere. As long as California is the high bidder for these credits and can gather enough contracts with renewable generators, it could meet its goal.
The downside, however, is that other distribution systems must deal with intermittency and environmental disadvantages associated with the renewable sources, and may not be able to credit the renewable sources in their own distribution systems. This is an unfair redistribution of renewable energy credits, which FERC should stop.
So, while California pays a lot of attention to meeting the renewable portfolio, the actual trend is to shift the generation out of state. This generation is drifting in a direction that is not in the interest of consumers. California seems to be playing shell games with the bookkeeping of renewable credits rather than paying attention to meeting the needs of consumers to provide an adequate, affordable, and environmentally acceptable supply of electricity.