There is a lot of confusion about solar energy’s Renewable Energy Certificate (REC) program these days, especially in light of the Vermont Attorney General’s recent warning that a number of solar companies might have engaged in false advertising.
At issue is whether the panels that you, or your neighbor, or your business just paid for in a net metered or community solar array can be said to be generating solar power for you.
They are not, at least not if the RECs are being sold, and one legal scholar is taking action.
The problem is one of accounting, in particular double dipping. Homeowners, businesses, or municipalities that buys into a net metered community or commercial solar array that sells the RECs still usually think that they are producing and/or using solar energy, and they brag accordingly.
When another company or utility buys the RECs from this array, they also claim that they are purchasing the same renewable energy, or at least the “renewable,” “green,” and “solar” attributes of that energy.
The price for getting this wrong can be substantial. The Vermont Attorney General’s office has threatened a $10,000 fine for each infraction of a solar company advertising that their customers can “go solar” if the RECs of the array have been or will be sold.
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RECs are a legal mechanism, one that has been developed by legislators throughout the country to require utilities to increase the amount of renewable energy in their electricity production portfolio. “Renewable portfolio standard” (RPS) is the term for this requirement.
The utilities initially balked, saying it was infeasible for them to build so much wind or solar power. So the legislators said, “Well, you don’t have to build it yourself; you can just buy the RECs from someone else who is building a renewable energy system.”
One REC certifies that one megawatt-hour (MWh, or 1,000 kWh) of electricity was generated from a certified renewable energy resource. To comply with a state’s renewable energy mandate (e.g. 55 percent by 2017 in Vermont), utilities either generate the renewable energy themselves or purchase RECs equal to the percentage of their energy sales needed to meet their state’s standard.
The term “unbundling” means the separation of a renewable energy producer’s electricity from the “green” attributes of the electricity and selling them separately. This is a legal creation, like Bitcoin or corporate personhood.
It is as if a shop owner sold one person a sweater and another person the “aesthetic attributes” of that same sweater.
Person #1 can now wear the sweater but cannot claim that it is pretty, stylish, fluffy, Icelandic, or pink. The shop owner has sold those attributes separately. Person #2 cannot wear it, but can claim to own certain rights to a stylish Icelandic sweater.
The problem comes when person #1, not having a clue what the selling of aesthetic attributes means, tells all of their friends that they just bought this beautiful, pink, Icelandic sweater, while person #2 tells all their business customers that they own a beautiful, pink, Icelandic sweater.
Confused? You’re not alone.
The issue comes to a head if person #1 tries to get into an exclusive club that only allows people with pink Icelandic sweaters, and then person #2 shows up with a document stating that they own certain rights to a pink, Icelandic sweater.
Further complicating this issue is the fact that almost nobody uses the electricity produced by their solar array. Unless a home with solar PV is off the grid, the electricity from its solar array goes into the grid in a wave-like motion according to what the array is producing at any particular instant, and the home takes from the grid what is called for by the home’s electric appliances.
If the home or business is a partner in a group array that is located somewhere off site, the chance of the owner using the electrons produced in the array is almost zero. Instead, the owner is allotted “credits” for the electricity produced, and these credits are converted into dollars and subtracted from the owner’s utility bill. These credits are different from the RECs of the array.
In order for the REC system to function with integrity, an administering organization must track all RECs so that they are not sold multiple times.
In New England, this function is performed by the New England Power Pool Generation Information System (NEPOOL GIS). RECs are recorded at NEPOOL in units of 1 megawatt hour per REC.
For a solar developer, selling the RECs makes the financing and profitability much better. A150 kW community solar array, enough for about 30 households, produces about $10,000 worth of RECs per year. That is more than $300,000 over the life of the project at today’s price of about $50 per REC.
The price of RECs might well increase, however, with the recent global climate change agreement and Vermont’s commitment to renewable energy. Right now in Massachusetts, the minimum price for one in-state residential solar REC is $285.
On the flip side, the difference in cost to a utility between developing its own renewable energy generation and buying RECs is also substantial. The market for a REC in Vermont has been roughly $50 to $65 recently. To build a solar array that could generate one REC (MWh) per year would cost about $3,000, depending on size and other factors. If we plot that $50-per-year REC income out over 20 years, it comes to $1,000, and much less if we factor in the “cost of money” over time.
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The long and short of the REC issue is that someone who owns panels, leases, or has a power purchase agreement (PPA) in a community solar farm that sells the RECs cannot claim that they use solar electricity in their home or business.
They cannot even truthfully say that they get their electricity from a community solar array, because the electricity generated from those panels never reaches their home or business.
They might be able to say that they own panels in a community solar array, or that they get credits for electricity produced in such an array, but they cannot claim that their electricity is solar or renewable, and it is doubtful that they can take responsibility for offsetting any amount of greenhouse gases or pollution by doing so.
The right to say these things disappeared for them when the RECs were sold.
Households or businesses that completely own their individual solar array and that have not sold the associated RECs can claim that their electricity is solar and renewable. Even if that household sends its solar-generated electricity to the grid and downloads electricity from the grid, it is still generating the equivalent amount of solar, renewable energy.
Can individual homeowners actually sell their RECs? Yes, it is possible, though they usually have to work through some organization that aggregates RECs for homes and businesses, and there are fees involved.
Vermont Law School Professor Jared Carter believes that there might have been deception on the part of a number of the community solar installers in Vermont who failed to fully describe the implications of the REC program to those who bought panels or PPAs in commercial net metered or community solar arrays.
Carter is starting a class action lawsuit to deal with the matter and is looking for people and companies who believe that they might have been deceived.
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While a solid understanding of RECs seems to be missing, their benefits do not. A new report by the U.S. government found a 3.6-percent reduction in fossil-fuel generation and up to $3.9 billion in net savings for electricity customers as a result of renewable portfolio standards and their RECs in 2013 alone, as well as a substantial reduction in water use especially in drought-stricken Texas and California.
The report found that RPS policies in the U.S. created 200,000 jobs that year, with solar PV making up a large portion of that. It states that RPSes are perhaps the most important and effective policy tool utilized in the United States to increase the deployment of renewable energy. The question might be asked whether the same benefits or more could have been gained if utilities had been required to meet their RPSes without the cheap and confusing option of buying RECs.
Other, more global and systemic, issues with the REC phenom include the following:
• The RECs sold in Vermont are almost all going out of state. This means that entities in other states are benefitting from renewable energy installations being built in Vermont. In other words, rather than build their own renewable energy projects in Massachusetts, Connecticut, or New York, utilities and companies are buying the RECs of Vermont projects.
• Since the Vermont electric portfolio is mostly hydropower, which does not produce much greenhouse gases, buying RECs from Vermont renewable-energy projects is not contributing much in the way of emissions reductions. Utility customers buying Vermont RECs are not doing nearly as much good as they would be if they were buying them from a state with dirtier power generation.
• There are often more-economical, if less-glamorous, ways to achieve many of the same goals. Investing in efficiency and conservation can reduce more energy than is associated with a REC but does not have the same public-relations value.
This is especially true for homeowners in a place with green electricity, like Vermont, who choose to install large solar arrays instead of undertaking substantial insulation/weatherization work on their homes. The latter usually does much more to reduce their contribution to climate change.
• “Additionality.” For those buying RECs, does an REC bought actually pay for an emissions reduction, or would that reduction have happened anyway?
The latter happens when the REC is bought from an existing renewable-energy producer that has been generating power for a while and did not figure the RECs into their original financing.
Hydro-Québec is an example. Vermont is planning to buy Hydro-Québec’s low-cost RECs to meet its 2015 renewable-energy mandate, but other states do not count these Hydro-Québec RECs as valid. Buying them does not reduce any additional emissions. This type of REC is also not stimulating any new economic development.
• Overhead. Not all of the money used to buy RECs goes to the renewable-energy producers. Some is used for overhead in the REC program.
• The value of RECs floats on the open market, informed by legislative mandates. Damage to the environment does not float on the open market.
• Demand for RECs is primarily set by legislatures, and this demand can be manipulated by powerful interests that do not want the price or mandate for RECs to increase.
If the goal is to transition utilities from dirty fossil fuels, the utilities should be required to purchase more and more RECs each year, and the price of an REC should start to match, or even exceed, the price of building the comparable renewable-energy generating system.
• Entities subject to renewable portfolio standards have the option of either generating the renewable power themselves or purchasing the equivalent amount of RECs. They will generally choose the cheaper option — and any buying RECs to date has been substantially cheaper. In essence, each REC sold represents a renewable-energy facility not built.
• It takes non-renewable energy to produce solar panels. Some portion of the smog in China is the result of solar PV manufacturing. The technical term for the energy involved is “energy returned on energy invested,” or ERoEI.
For a certain portion of a solar panel’s life, it is working to break even, to recoup the energy used to create and ship it, and this process can take as long as four to 10 years.
Is it really appropriate to sell the RECs of the panel during this time period? This ERoEI varies based on a number of factors, and it will be shorter in Arizona than in Vermont because the panel’s production is higher in a sunnier location.