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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.

Paper Renewables?

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:

Problem #1

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.

Problem #2

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.

Problem #3

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.

____________________________

Ulrich Decher holds a PhD in nuclear engineering. He is a member of the ANS Public Information Committee and a contributor to the ANS Nuclear Cafe. where this article originally appeared.

8 comments

1 Donald Hertzmark { 08.11.11 at 8:16 am }

Good post on the resource misallocation caused by the subsidization of renewables. The regional power of California to shift costs on to other states was seen in the “resolution” of the state’s power crisis in 200-01 as well.

FERC is clearly not doing its job. Rather, it is responding to the current administration’s promotion of wind as a solution to the inability to build anything other than gas-fired plants. One wonders what will happen when the economy recovers and demand for electricity picks up.

2 Jon Boone { 08.11.11 at 11:15 am }

A fine thumbnail of some of the ways wind is flexing its muscle. Incredibly ignorant state government prescribing that the state’s most important resource for modernity, electricity, improve its health via bloodletting by renewable leaches. Politically beholden regulatory agencies, in the best “Give us Barabbas” fashion, betraying their rightful mission of bolstering high reliability, affordability, and security by ; contemporary media using the yellowist of journalism to make the public “believe in the wind.”

Bundled RECs also convey economic benefits by, among many others, avoiding the costs of cleaning up the dirtiest burning plants in the system. Unbundled RECs open up a Pandora’s Box, in the process unloosing impossible to enforce/impossible to regulate banshees across the land. Here, Decher only describes a few.

It will stop when Californians elect a governor who will require the state to use only renewable energy for its electricity needs.

3 Donald Hertzmark { 08.11.11 at 11:55 am }

One potential remedy for the pass-through states is to charge CA for firm power supplies. In this way they would mark up the cost of wind to its actual cost to the system in that state (complicated, but it can be calculated).

Without getting too technical about it the transit states or supplying states, in the cases of WA and OR, would include the cost of system services – reserves, voltage & frequency control, etc. To this would be added the cost of “firming up” the 7-8% firm power factor of a large wind farm by the cost of using gas or hydro to supply firm power for whatever period the wind farm operates (usually 15-35%) for the relevant supply periods.

Don’t know how the feds would view this, but it is similar to how PJM prices power and energy at its nodes. You do not get to pay for just energy if you need power. The reliability requirements for the PJM members preclude such games.

4 Tauna Christensen { 08.11.11 at 5:49 pm }

Donald Hertzmark – I have a question for you. I am from Idaho and have been trying to understand this issue for sometime. East of Idaho Falls, approximately 500 wind turbines have been approved. They are Ridgeline Energy wind projects in contract with Southern California Edison power company. Back in June, I sent an email to the IPUC asking about transmission. I thought the power was actually shipped to California, and I wanted to know who paid for the transmission costs. Here is the response I received:

Tauna:

The normal process would be for the wind project owner to initially pay for 100% of all necessary interconnection costs and transmission system upgrades. Over time, as the project utilized the transmission, it would be charged an ongoing “wheeling charge” in accordance with each transmission system owner’s FERC-approved OATT (Open Access Transmission tariff). The initial interconnection costs would be foregone by the project owner, but the transmission upgrade costs would be credited back to the project owner over a 10-year period as he makes regular wheeling payments under the OATT tariff. Beyond 10 years, the project owner would continue to make wheeling payments for use of the transmission system. FERC allocates the costs of operating and maintaining the transmission system proportionately amongst the users in establishing the charges under the utility’s OATT tariff. The process is designed so that project owners pay their full share of transmission costs, and so that the only the ultimate beneficiaries of use of the transmission system pay their fair share of the costs. In other words, for the example presented below, the customers of Southern California Edison ultimately pay the full costs of transmission needed to get the power from Idaho to southern California. Idaho customers pay nothing.

Gene Fadness
Executive Assistant
Idaho Public Utilities Commission

Then shortly after I received this response, the Idaho Falls newspaper ran a story about how the Ridgeline Energy wind projects’ power doesn’t make it to California. It goes on the grid which acts like a bank account. I find it rather peculiar the answer I received from the IPUC says “the customers of Southern California Edison ultimately pay the full cost of transmission needed to get the power from Idaho to Southern California” since the power doesn’t make it to California. And since that story ran in the newspaper, I have been wondering “who pays for the wind balancing services?”

5 Donald Hertzmark { 08.11.11 at 6:06 pm }

Dear Tauna,
You are correct in noting that the energy never gets to CA. It all goes into the Idaho and close-in grids of the neighboring states. It is not enough energy to make it out of that area.

Transmission, Tx, is about wires, losses and system services (voltage support, etc.). It is probably true that the wires charge is covered. However, system services may not be included in “wheeling” tariffs. This is likely since system services include running power plants to support voltage and frequency – qualities that are negatively affected by wind energy generation.

More important, the vital system operations, including dispatch of power plants to meet peak demands, is done for each system control area. These system control areas may be very large – e.g., New York State – or much smaller. Nevertheless, the instability induced in a local system by wind energy (in the case of Idaho, more than 15% of total generating capacity) must be counteracted by the system operators. The cost of this generation needed to firm up wind goes into the generation charge line of your electricity bill.

Since Idaho relies heavily on hydro for electricity, this means that you are consuming the wind energy locally, smoothing/firming with hydro. If the CA contract is based on capacity then the seller is certainly exporting hydro, not wind.

6 Tauna Christensen { 08.11.11 at 7:12 pm }

Donald,

Thank you for the good explanation.

7 Brian H { 08.12.11 at 8:19 am }

The only electricity from Idaho that makes it to CA is bookkeeping entries shared across jurisdictions. These attempt to fudge the engineering reality that transmission costs effectively isolate each system control area. CA must in the end pay thru the nose as “high bidder” to overcome these physical constraints.

8 Bruce Baxter { 08.12.11 at 9:06 am }

As a non-technical generalist my interpretation of what has been described here is that outlying states that produce wind for California are stuck with the cost of integration. In other words, because wind is intermittent our regulated utilities end up building costly back up generation capacity from traditional sources and that cost is passed on to the wind producing state’s consumers. This means to me that there is a negative environmental impact and higher cost of electricity to, in my case, Idaho. From my simple business perspective, it is a “lose-lose”.

The bigger problem is the wind myth itself. Conservative politicians that should know better perpetuate the lie for votes.

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