Solar Tradable Renewable Energy Credits Slowly Replacing PV Incentives

As California solar incentives dwindle and fade new benefits and incentives are emerging from good old enterprising American ingenuity. This is the way it is suppose to work, government opening the door for new technology and markets and private enterprise taking over.

California’s Public Utilities Commission has approved the use of tradable renewable energy credits by investor-owned utility companies to meet their requirements for generating a certain percentage of their electricity from renewable sources. (Source, Solar Home Journal)

Renewable energy credits or certificates represent the cleaner-energy attributes of electricity generated from solar photovoltaic installations, for example, and when “unbundled” from the actual energy are worth money to utilities, which can use them to meet renewable energy requirements.

A number of other states already have active markets for trading renewable solar and wind energy credits, which are usually awarded on the basis of one credit for every megawatt-hour (1,000 kilowatt-hours) of renewable electricity generated by the installation of a solar electric system (or a wind turbine or other renewable source).

Although it has not been established yet that small-scale “distributed generation” solar installations will be eligible to participate in selling renewable energy credits in California, the Public Utilities Commission decision allows the California Energy Commission to authorize small-system participation.

The CPUC decision rewrites a regulatory section to say, “Customer-side custom DG projects may utilize a variety of renewable solar and wind technologies. These include on-site RPS-eligible generation at customers; solar photovoltaic (PV) installations, largely constructed under the aegis of the California Solar Initiative (CSI) and the self-generation incentive program (SGIP) administered by this Commission, and the New Solar Homes Partnership (NSHP) administered by the CEC; generation using biodiesel or biogas; and small biomass facilities.”

It further notes that “The CEC will determine the eligibility of customer-side DG for the RPS. At this time, almost no customer-side DG is RPS-eligible.”

The California Energy Commission has not yet determined that small-scale distributed solar panel generation installations would be eligible in part because it has been waiting for the CPUC to authorize tradable renewable energy credits to be applied to meeting utility requirements under the state’s Renewable Portfolio Standard. The CPUC has now approved that use.

The Energy Commission would have to revise its “RPS Eligibility Guidebook” to make smaller-scale solar PV systems eligible for selling credits. If the commission were to allow large-scale solar owners to benefit from a tradable market while excluding homeowners and small businesses, complaints to legislators and new legislation would almost certainly follow, as smaller solar owners are beginning to represent a potentially significant political bloc.

The CPUC decision says, “In anticipation of the eventual use of customer-side solar DG for RPS compliance, both this Commission and the CEC have addressed the issue of the availability of TRECs from such installations.”

In a previous decision, the CPUC’s new order said, “the Commission determined that owners of customer-side DG solar installations own the RECs associated with the solar generation, and can therefore sell them, regardless of whether the DG owners participate in net metering, CSI, or the SGIP.”

An average residential solar PV system in California has about 5 kilowatts of production capacity, and depending on where it is located, under ideal conditions may generate an average of 5,000 to 8,000 kilowatt-hours a year, potentially producing about five to eight renewable energy credits.

In some states, such solar energy credits are worth hundreds of dollars each, but California’s tradable market would initially cap the value of credits at $50 each. The actual value would be determined by market pricing. Based on statements by utility executives about possible pricing and evidence from similar sales, an initial price of about $20 appears possible when a tradable market gets under way.

Although $100 to $160 a year for an average solar residential system may not seem like much, the amount could add up over the anticipated lifetime of a solar PV array, significantly reducing the long-term price of electricity to the owner.

In addition, it is possible that solar brokers would establish mechanisms that would pay owners up front for a decade or more of anticipated credits. “Prior to today’s decision, utilities were required to purchase renewable energy and renewable energy credits together, on what has been referred to as a ‘bundled’ basis,” the Public Utilities Commission said. “Now, solar PV and wind renewable energy and their respective credits can be ‘unbundled’ and purchased and/or traded separately.”

The state’s three large investor-owned utilities, Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric, can use solar or wind renewable energy credits to meet no more than 25 percent of their annual procurement targets for the RPS program, beginning with the 2010 compliance year, the commission decided. That limit will expire at the end of 2013.

In anticipation that the state would soon approve a trading market for renewable energy credits, solar companies entrepreneurs are establishing brokerages and have begun registering solar owners for participation. Solar or wind renewable credits generated must be logged in an official registry to ensure they are tracked and are not credited more than once. Until final clearance is given by state officials, the value of such credits is merely hypothetical.