A tracking and verification system for renewable energy certificates (REC) is being developed for a huge area of North America stretching from Canada to northern Mexico. The aim is to boost renewable energy growth and light a fire under existing REC markets in an area that covers more than half the United States. The new system will collect and verify the attributes of each megawatt-hour of renewable energy produced in the region, facilitating both renewable energy mandates and voluntary markets for green power. It is also expected to spur demand for renewable energy by increasing its potential value.
The huge area to be covered by the new tracking system is the jurisdiction of the Western Electricity Coordinating Council (WECC), which includes eleven US states, two Canadian provinces and a small slice of northern Mexico. When the system is in place in 2005, it will be the fourth and largest area where RECs are tracked in America. The others are Texas, the New England Power Pool (NEPool) and to a lesser extent Wisconsin. Tracking systems also are under development in New York, Minnesota and the PJM Interconnection covering the east coast states of Pennsylvania, New Jersey and Maryland.
"Western states need a way to issue, track and verify renewable energy generation for use by state regulators and voluntary green market programs," says Governor Bill Richardson, chair of the Western Governors' Association (WGA) and New Mexico governor, one of four states in the region with renewables portfolio standards (RPS) that would benefit immediately from such a tracking and verification system. "Increasing renewable energy in the West is a priority for me as WGA's chairman."
Other Western states with RPS statutes mandating a minimum proportion of renewables in electricity supply portfolios are California, Nevada and Arizona. In addition, nearly all the states have a variety of programs in place offering green power at a premium that could benefit from a tracking and verification system.
How it works
Renewable energy has at least two elements. First, the energy itself, which is delivered locally into electricity markets. Second, the environmental or green attributes associated with the production of a clean and renewable product. Each megawatt hour of green energy is given a unique serial number by the tracking system and the generator transfers that unique certificate to a buyer. These certificates -- which can be called RECs, green tags or tradable Renewable Certificates -- are traded nationally and purchased by utilities needing to fulfil state RPS requirements, by businesses and governments seeking to boost their image, and by everyday retail electric customers.
The prices for these certificates vary from $10/MWh to over $40/MWh, depending on what the buyer needs, where the certificate originates and how well the REC market is supplied. The real value of a certificate is realised when it is retired and compliance or green claims can be verified.
Whatever the market price, there is universal agreement that a tracking system is important to record the creation and transfer of ownership of the RECs for consumers to be confident that what they are buying is green and will fulfil their needs.
The western governors began to consider developing a tracking and certification system for RECs during an April 2002 environmental summit, says Jeff Burks of the Utah Energy Office. They saw RECs as a way to encourage the growth of renewable energy and wanted a mechanism to ensure their trading. The result is the Western Renewable Energy Generation Information System (WREGIS), which Burks has been assigned to help develop.
"Consumers will be confident that the system is not being gamed and they will have confidence in the mechanism -- that the RECs aren't being sold twice into the market," says Burks.
The California RPS is lending a sense of urgency to the project. When the state's legislature set a target requiring California's three investor owned utilities to supply 20% of their retail sales with renewables by 2017, it also directed the California Energy Commission (CEC) to develop a tracking and verification system to ensure compliance. Recently, the CEC decided that renewables produced outside the state could be used to meet the RPS target, and that means a tracking system covering the entire WECC needs to be up and running by 2005.
The only verification system in the West at this point is the Green-e program, a national tracking and certification program offered by the California-based Center for Resource Solutions (CRS), which is also proposing a co-ordinated North American system for REC tracking and verification. "We're enthusiastic about the development of tracking systems and the Western Governors system is one of the largest," says Dan Lieberman of CRS. Such a system will instill confidence in the transactions between brokers and buyers that RECs are the real thing, he says, and that will likely mean a stronger, more efficient, market in the long run.
"There already is an active market for RECs, but there are few standards or guidelines for those markets," other than Green-e, Burks says. "The WREGIS tracking system will give us an idea of the volume of those RECs. It is a place where they are created. Traders, brokers and utilities will all use it."
REC broker Lenny Hochschild at Evolution Markets says a well-designed tracking system can reduce compliance costs and increase liquidity in the market. Mike Sloan of Virtus Energy Research Associates in Texas, who was one of the architects of the Texas RPS, is equally supportive of tracking systems as the best way to confirm RPS compliance and energise the REC market.
"A good tracking system is the very first thing [officials] need to envision if they plan to have renewable development in any state," he says. Texas developed a tracking system at the same time it set the rules for the state's successful RPS, which calls on utilities to develop 2000 MW of renewable energy by 2008. About 60% has already been built.
"The tracking system in Texas is working great," says Sloan. "The system itself is not only doing a good job to help meet RPS goals, but it also has helped the voluntary green programs to take off and flourish." He also confirms that the most important outcome of a tracking system is that it gives credibility to the REC. To do that in Texas, the Electric Reliability Council of Texas tracks RECs based on metered production and ownership from cradle to grave. "The REC is not worth anything until it is retired," Sloan says. "It is a claim to the attributes of the resource. All else is just a trading window."
Tracking and verification is also useful in voluntary markets, Burks says. Utah intends to use WREGIS to verify that PacifiCorp, a Northwest power marketer operating a residential and commercial green pricing program in the state called Blue Sky, complies with its agreements with the Utah Public Service Commission regarding the program. But it could also be used as an instrument to protect utility interests. If a utility is buying RECs, says Burke, it wants to know they are valid. Tracking and verification systems also make it easier for brokers to differentiate and sell their products on the market.
Not all tracking systems are equal or the same. NEPool tracks all generation and its emissions, while Texas tracks just renewables, more in line with what the Western states want. Developing such a system in a region with a variety of state regulations and program rules will be a challenge, Burks says. Each state's requirements are based on policies that will be certain to have an affect on REC pricing -- compliance market RECs generally garner a greater value than RECs in the voluntary market -- and the tracking and verification system must support them all.
"Compliance market credits are very much determined by state rules, the life of the tag and the penalty for non-compliance -- and the REC markets won't exceed that price," Lieberman says. "So, there are certain policy decisions that will affect prices."
The pricing of RECs in voluntary markets is based on what people are willing to pay. Lieberman says consumers may pay more for solar credits because each kWh of solar costs much more than wind. That will not be the case in a compliance market, because all resources get utilities to the same place in meeting their RPS requirements. "However that is determined, the goal of a tracking program must be policy and technology neutral," Lieberman says.
The system Burks envisions is able to maintain that neutrality, yet still collect information that each state or province can use to verify the programs that are in place. "It's a challenge," he says. "It's not just a matter of designing a system that meets each state's needs, it's a matter of creating an architecture for all potential certificates." One market may be for just wind, he points out, while another may be for photovoltaic or small hydroelectric projects. Utah might place a higher value on wind projects in the state, rather than in Idaho or the Columbia River Gorge.
"The RECs as we envision them through WREGIS will allow for the product differentiation the market needs and will also provide the accuracy in terms of certificates created," Burks says. "All we're doing is developing a tracking system and registry. We're not trying to meet everybody's needs, but we are trying to develop a system to meet multiple policy purposes. It's up to the states to determine how they want to use the system."