Blog Post

Oregon Case Highlights the Trouble With RECs

An Oregon Public Utilities Commission investigation that gets under way this morning will offer up one of the best examples to date of the potential pitfalls facing the success of renewable energy certificates (RECs) and, by extension, carbon offsets. It all comes down to the fact that there aren’t enough qualified people out there to evaluate and certify renewable energy projects.

For renewable energy producers, the proceedings will also highlight the potential expense of the auditing process if they do not already have deals in place with utilities. The utilities, meanwhile, may either discover a new revenue stream in the auditing process or be saddled with the chore of regulating RECs they’re not using themselves. In either case, the outcome of the investigation will affect the number of RECs available to utilities attempting to meet the state’s renewable energy portfolio standards (RPS).

Given that there are various environmental benefits to renewable energy, above and beyond the actual energy created, renewable energy producers can earn one REC for every 1,000 kilowatt-hours (or 1 megawatt-hour) of electricity placed on the grid. RECs can then be bundled with the electricity or sold separately. States are allowed to use RECs to help meet the goals set out in their respective RPS.

Since the start of this year, renewable energy generators and utilities in western states have been required to submit information to the Department of Energy’s Western Renewable Energy Generation Information System (WREGIS) to track, transfer and retire RECs. Renewable energy generators producing more than 360kW must have their generation data uploaded to the WREGIS system each month by a Qualified Reporting Entity (QRE), which is typically the local utility.

Problems arise when, as in the Oregon case, a generator doesn’t already have a deal in place with a utility that’s a QRE. Not all utilities are QREs and those that are don’t necessarily want to provide QRE services for renewable energy generators with which they’re not doing business. Consequently some generators have been denied QRE services, essentially losing their RECs.

Technically, WREGIS allows independent generators to act as their own QREs provided they can prove a strict separation of roles between generating the energy and reporting the generation data. But because there are numerous issues associated with this — ranging from providing proof to maintaining objectivity in the reporting process — most independent generators prefer to use a third-party QRE.

The Oregon Public Utility Commission’s investigation will examine whether the Federal Energy Regulatory Commission should step into the situation; whether it’s fair for utilities to charge to perform QRE services for generators outside their network but offer the same services for free to their partners; as well as whether or not QRE services could be offered by third parties at a competitive price.

On the generation side, in addition to dealing with QREs and WREGIS, renewable energy producers typically pay up to $6,000 a year for yet another, voluntary certification (usually Green-e), in order to sell credible RECs to consumers and corporations, a cost that not all generators can afford to bear. If renewable energy generators suddenly need to begin paying for QRE services, it could increase their cost of doing business and thus the cost of meeting RPS goals for all of the western states, which is why the commission is also looking into creating a regional subsidy to absorb such costs.

Meanwhile, state budgets in the region don’t exactly have spare cash for more subsidies, and utilities are already competing for RECs, thanks to a strong voluntary market and emerging regulatory markets, which will seek the carbon benefits associated with RECs.