[bouldercouncilhotline] Hotline: RE: REC's are Real, Faster, Better, Cheaper

[cmosupport at bouldercolorado.gov]

Sender: Weaver, Sam


Mr. Murphy (and HOTLINE followers),
 
Thanks for your on-going contribution to our discussion of how to get Boulder to the most ethical energy supply possible, including elements such as a high penetration of local renewables, new utility business models, and local democratic control of decision-making processes on generation, transmission, and distribution.  Council is pursuing this mandate from the voters as expressed in multiple elections.
 
The costs and benefits of renewable energy credit (REC) trading is a complicated subject which is often incompletely understood.  One key question is whether the REC’s are bundled (sold along with the delivery of electricity to the purchaser) or un-bundled (sold to a different customer than the electricity).  Un-bundled REC’s have very questionable impacts on the addition of new renewable energy projects, and depend on the vagaries of the voluntary market as well
 as how RECs are defined within each separate state.  Un-bundled REC’s generally do not incentivize local renewable energy development or distributed generation.  Un-bundled RECs are typically priced at 5-20 times less than bundled REC’s, many have uncertain provenance, and all have a high degree of market uncertainty associated with them.  Since un-bundled (or voluntary) REC’s are not significant or dependable sources of revenue, debt financing for a renewable project will usually not consider that cash flow
 or will discount it greatly.
 
A great background paper on REC’s and associated markets can be found here:
http://www.localcleanenergy.org/files/What%20the%20Heck%20is%20a%20REC.pdf   I have attached a copy as well.  A great follow-up is here:
http://ilsr.org/illinois-cities-greening-or-greenwashing/
 
To quote from the first paper:
 
“As explained above, the short-term purchase of RECs on the voluntary REC market, while generally making renewable generation more profitable, makes only a questionable contribution to increasing renewable energy generating capacity. So the claim that the purchaser is supporting new renewable energy development can be quite misleading. “
 
“Put another way, from a societal point of view, it doesn’t really matter who owns an unbundled REC. The simple change of ownership from one party to another has no environmental or social impact. The purchase of these RECs might feel good and even look good to others, and it might even provide legal bragging rights for using renewable energy. However, unless the purchase transaction actually enables the development of new renewable generation that would not otherwise have occurred, there is scant legitimacy to the claim of displacing fossil fuels or reducing greenhouse gas emissions. “
 
“Furthermore, the purchase of an unbundled REC normally denies electricity customers the fixed-price benefits of RECs that are bundled with renewable energy. This is because the price of the actual energy supply, which includes a mix of
 sources, including fossil fuel sources, often depends on the price of fossil fuel, which varies with supply and demand. By purchasing a REC and its corresponding energy bundled together in one long-term fixed-price transaction, the customer is protected against the volatility of fossil fuel prices (mostly natural gas).”
 
In your spreadsheet model, you use $1.10/MWh for the REC price Boulder could pay to “purchase” renewable energy credits.  This is clearly unbundled pricing on the voluntary REC market.  A more appropriate analysis to incentivize additional renewables would be to use the cost of meeting Boulder’s energy supply targets with bundled RECs: at least 5-20 times higher in cost, almost all would be wind RECs at this price, and would generally require a commitment of minimum
 6 years, more likely 10-20 years (see http://www.resource-solutions.org/images/events/rem/presentations/2014/Heeter_Jenny_StateoftheMarkets.pdf  and http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml ).  Finally, if we consider the 3 classes of REC that California has defined for its renewables compliance targets presented in the attached paper, we see that a mix of these REC classes have to be provided by utilities to comply with the CA mandate, a very well-considered program.  Unbundled RECs are only allowed to be a small and decreasing part of that renewable compliance portfolio for just the reasons described above.

 I am also glad to see that you have mentioned Xcel’s Windsource program for us to examine.  In fact, it seems as if you have praised it for its contributions to the RESA fund.  Xcel until recently charged $20/MWh for the use of that program – 20 times the rate that you used in your spreadsheet model for REC’s for Boulder.  They recently (last year I believe) dropped the rate to $15/MWh, or 15 times greater than in your model.  This price differential demonstrates the value of those RECs to Xcel for state compliance.  As you point out, the $4M raised through Windsource is going to the RESA fund, which is providing incentives for renewables, 3% of them distributed and local.  So those customers buying local bundled REC’s  at a large premium to the unbundled REC market are at least funding some additional renewables with their bundled REC purchase. 

 
By my math, the payments into annual Windsource support (200,000 MWh purchased / 0.35 capacity factor for wind / 8760 hour per year) accounts for about 65 MW of additional wind capacity supported per year.  Xcel currently has about 2200 MW of wind on its system, purchased or owned.  So for the significant premium that Windsource customers pay (15x unbundled REC pricing), perhaps 3% more wind power has been incentivized through Windsource than has been incentivized by the regulatory RPS requirement.  And the proportion incentivized by the regulatory RPS will increase by 50% over the next 5 years.
 
Fundamentally, I do not see the purchase of unbundled REC’s as you have suggested as meeting even the GHG/renewable/efficiency portion of our Energy Future goals, much less the economic development, energy localization, or utility governance aspects.  I look forward to your further input as to how to meet our Energy Future goals.
 
All the best,
 

Sam Weaver
Member of Boulder City Council
weavers at bouldercolorado.gov
Phone: 303-416-6130

 


From: Patrick Murphy [mailto:phmurphy at aol.com]

Sent: Friday, March 20, 2015 10:13 AM
To: Council
Cc: Erica Meltzer; Dave Krieger
Subject: REC's are Real, Faster, Better, Cheaper


 
HI all,
False and twisted logic is all that Chris Hoffman has been able to contribute in his letter to the editor today.  He has demonstrated that he clearly does not know how RECs work based on his last example.

Let’s start with the big picture and then bury his example with reality.  There are national, state and regional regulations that require a minimal amount of carbon free electricity.  The carbon free renewable energy that is generated actually has two sellable products.  One is the electricity, the other it the Renewable Energy Certificate (REC) that represents the fact that the electricity is carbon free.  When power companies, including the Paper Boulder Power Company, buy electricity they can either buy the electricity at a lower rate from the renewable generators, or bundle the REC’s with the electricity for a higher rate.  If/when Boulder buys wind power from an unregulated profit motivated supplier they will have to buy the RECs bundled with the electricity otherwise their claim to the carbon free attributes of the wind would be fraudulent.

The electrons Boulder, or your toaster, receive have no idea where they came from since all the electrons travel the network without home addresses.  RECs are a financial incentive to renewable energy generators and the REC’s are the only way that the credit for the renewables to be tracked since the electrons cannot be tracked.  If Boulder were to buy RECs to cover all of its proportion of the non-renewable energy generated by Xcel (Xcel already has over 20% renewables) then Boulder would get credit for those
 renewables and NO ONE else would.  Here is how the REC incentives do a good job of promoting the renewable industry.  Suppose there is a coal burning power company (or a city like Boulder) that finds it cheaper to just
 buy REC’s than actually create more solar or wind electricity.  So the Power company goes to the RECs market and buys the RECs.  Somewhere the renewable generator has additional income and can make a profit.  For some marginal renewable generator project, the finances are now feasible so that project can go ahead.  Now suppose Boulder buys those REC’s and retires them so that they are not available for the coal burning power company.  The REC’s market like any market is supply and demand driven.  If there are less, the price will rise, and it may make sense for the coal burning power company to build their own renewable facility just so they can comply with regulations since Boulder has removed the REC’s from the market.  REC’s are financial incentives, and every renewable generator is profit motivated.  It is that simple.

Now to bury Chris’s ridiculous math.  When the solar REC’s are generated, and Xcel owns them, Xcel can either use them to fulfill regulations, retire them for additional renewables beyond the regulatory requirements, or sell them.  Since Xcel owns them, Boulder has no credit for those renewables AT ALL. If Boulder were to buy those REC’s back, they would only have credit for the REC’s they purchased, not for the solar (that has no REC credit).  Chris’s little trick of double counting is fraud.  That is why REC’s have to be certified and why they exist. If you want a very simple video of what a REC is, here is a video.
https://youtu.be/LzPCdpBHvFI
NOTE: I know there is a complication that is easily handled with a spreadsheet, and doesn’t need a redundant power company with a $35 million startup cost.  Where the REC’s are generated can result in a variable credit when it comes to actual carbon reduction.  In regions of the country where there are a lot of coal burners, the carbon value of the REC is higher than in regions where there already are a lot of renewables.   For example, REC’s could vary from:

1,906.06 lbs CO2e/MWh 

1,520.21 lbs CO2e/MWh 

All it would take is a simple spreadsheet calculation to come up with the quantity of REC’s that Boulder would need to compensate for our carbon generation.  That would increase our rates by 1.5 to 2% for 100% renewables, rather than the 30% increase that has been revealed that would only provide 50% renewables.  Remember, NO REC’s means NO renewables, and REC’s are real.
 
Patrick Murphy
1554 North Street
Boulder, CO 80304
303-444-4358
 
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