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California Commission Decision Could Allow Utilities to Use Credits for RPS

California utilities have been asking the state’s Public Utilities Commission (CPUC) for years to allow them to buy renewable energy credits (RECs) without having to purchase the actual energy generated from renewable sources in order to meet California’s renewable portfolio standard (RPS). In late October, the commission moved one giant step closer to allowing just that with the release of a draft decision to allow the use of tradable (unbundled) RECS (or TRECs) for compliance with the RPS. RECs assign a value to the environmental benefit of producing renewable energy instead of, say, coal-fired power.

Currently, California utilities can purchase RECs to help meet the RPS, but those RECs must be bundled with an energy purchase. Unbundling them would essentially allow the state’s utilities to buy up RECs (including from other states, provided they are registered within the Western Region Electricity Generation Information System) without purchasing the energy associated with those RECs.

Critics, including the state’s own Division of Ratepayer Advocates, argue that such a move is geared more toward helping utilities avoid the penalties associated with not meeting the RPS by the 2010 deadline than toward increasing renewable energy production in the state, which violates the original intention of the RPS. Proponents note that the move could create a booming new market for RECs within the state and throughout the western states. Whether allowing utilities to purchase RECs without purchasing the actual energy associated with them is good or bad for the renewable energy industry is a matter of some debate.

In addition to allowing utilities to use TRECs to comply with RPS, the CPUC has proposed an initial cap of $50/REC on the tradable market for the first two to three years of its existence. This proposal could save utilities from being price-gouged for RECs early on when demand will likely outpace supply.

While the Solar Alliance and the California Solar Energy Industries Association both fought the idea of a price cap when it was initially introduced in 2007, the draft decision did include such a cap (although it was raised from the $35/REC cap suggested in 2007 to $50/REC). By maintaining a cap, the PUC claims it can protect ratepayers from price hikes kicked off by utilities buying over-valued RECs in the coming year. Both parties are concerned about what will happen to the TREC market when AB 32 creates a carbon trading scheme in California in 2009.

No matter what happens, right now it’s looking like the REC market will be a good place to be in the next few years.

Comments on the CPUC’s draft decision are due November 18, 2008, and reply comments are due on November 25, 2008.

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