NewEnergyNews: TODAY’S STUDY: How The New Energy Marketplace Is Growing And Shifting


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    Monday, December 11, 2017

    TODAY’S STUDY: How The New Energy Marketplace Is Growing And Shifting

    Two Markets, Overlapping Goals; Exploring The Intersection Of Rps And Voluntary Markets For Renewable Energy In The U.S.

    Todd Jones, July 2017 (The RPS Collaborative)


    State Renewable Portfolio Standards (RPS) 1 and voluntary markets for renewable energy in the United States share a common history—both began around the same time in the late 1990s with the expansion of retail choice and the advent of certificate trading.2 Since then, they have grown side by side and each has been a significant driver of renewable energy development.3 Twenty years later, they continue to share common accounting infrastructure—renewable energy certificates (RECs) and REC tracking systems. Perhaps most importantly, voluntary and RPS compliance markets share a common objective: more renewable energy delivered to grid customers.

    This paper explores interactions between RPS and voluntary markets for renewable energy in the U.S. and outlines principles for supporting continued growth of both markets. These principles preserve the ability of each market to make separate and incremental contributions to renewable energy, uphold accurate accounting, reduce complexity, and increase participation.

    Two Markets

    In the U.S., renewable power can be sold into a state RPS market (i.e., to meet compliance demand), where it is delivered to utility or supplier customers to meet state requirements. Or it can be sold into a separate voluntary market (i.e., to meet voluntary demand by companies and individuals or because it is economical), where it is either delivered to individual voluntary buyers or delivered to customers by a utility or supplier. Renewable energy projects may also sell their electricity into the broader wholesale power market, in which case it becomes part of the regional mix and is purchased as unspecified power.

    Of the 29 state RPS programs in the U.S. (plus Washington DC), all but two are “consumptionbased,” meaning they require that a certain percentage of electricity sales, or delivered or consumed electricity, is met or supplied with renewable resources.4 In other words, RPS programs ensure that the electricity that customers receive includes renewable energy.

    The voluntary market delivers renewable energy specifically to those customers who voluntarily purchase in excess or outside of what is required by law. Thousands of businesses and millions of individuals across the country voluntarily purchase green power and thousands of renewable energy generators, utilities and competitive suppliers across the country supply it to them, amounting to billions of kilowatt-hours of renewable energy annually.5 Demand drivers in the voluntary market include environmental leadership; carbon footprint and sustainability goals; marketing, brand and reputational benefits; recognition by peers, NGOs and federal programs like the EPA’s Green Power Partnership and Leadership Awards6 ; and increasingly, cost stability and savings…

    Tracking and Verification

    Both RPS and voluntary markets require a mechanism for determining who is getting the renewable energy that is generated. Renewable energy (and in fact all specified generation) cannot be physically delivered on a shared grid to specific customers; delivery and use can only be determined contractually. In the U.S., RECs are used as the essential accounting and tracking tool in both markets to allocate renewable generation to specific customers and to purchase green power, either to demonstrate RPS compliance or meet voluntary demand.

    RECs provide a standardized currency for renewable energy. They can help facilitate transactions, lower transaction costs, increase market participation, and increase available electricity product options. Each REC represents the generation attributes of one megawatt-hour (MWh) of renewable electricity that has been added to the grid. These attributes include the renewable fuel type, location, the greenhouse gas emissions profile (emissions per MWh) and the other environmental and social impacts and benefits of the generation. RECs are created at the point of generation, owned by the generator and then transacted to electricity distributors and suppliers (e.g., utilities) or directly to electricity consumers, either bundled with the electricity or separate from electricity. RECs are either created by a generator or issued by one of several electronic certificate tracking systems (REC tracking systems) that cover different regions of the U.S. Even in the case that a renewable generator is not registered with a tracking system, RECs are de facto created for each MWh of generation and may be transferred and retired contractually.

    All options for voluntarily using and purchasing renewable electricity in the U.S., including onsite generation, must include RECs to substantiate a renewable energy usage or environ-- mental claim. 8 In RPS markets, RECs are retired by load-serving entities (LSEs) and other regulated entities to verify that they are complying with state requirements to provide their customers with renewable energy. In other words, RECs are required for state RPS programs to claim that renewable electricity is delivered to or generated on behalf of customers in that state and for customers in that state to claim to be receiving renewable electricity due to the RPS.

    REC tracking systems provide exclusive issuance, trading, and retirement of RECs within markets for renewable energy to support compliance and credible claims. They also provide verification of generation data and can help ensure full aggregation of attributes. In these tracking systems, RECs are electronically serialized and issued to generators with accounts; they are tracked between account holders, and ultimately permanently retired or cancelled electronically by the entity making the claim or on behalf of an end-user making a claim.

    Each renewable generator registered with a tracking system has certificates issued for all its production that is put onto the grid. RECs are issued for all generation from registered generators and no RECs from registered generators are transferred outside of the tracking system. Transactions outside of REC tracking systems with facilities that are not registered are limited to special cases (e.g. where participation in the tracking system is too costly for very small generation units).

    Although REC tracking systems were sometimes initially built to serve either RPSs or the voluntary market, they, like the RECs themselves, are used or have been adapted to serve both markets. Tracking systems can help standardize and synchronize accounting rules and monitoring, reporting, and verification (MRV) practices between markets.

    Figure 1 shows the regional REC tracking systems in the U.S. and Canada. All but two of them are quasi-governmental functional support entities. The Midwest Renewable Energy Tracking System (M-RETs) is an independent non-profit, though it is referenced in state legislation. The North American Renewables Registry (NAR) is a private tracking system run by the private firm APX9 to cover generation in states and provinces that are not covered by other tracking systems, mainly non-RPS states.

    Geographic Scope

    RPS markets are subnational, as they are intended to produce “local” (which can be in-state or regional) renewable energy development and benefits. The voluntary renewable energy market, on the other hand, is national in scope, 10 so that voluntary purchasers can access renewable energy from across the country at the lowest cost. While the voluntary market uses regional REC tracking systems, each with slightly different issuance rules, this does not produce separate voluntary markets. RECs issued in any state or tracking system can be sold to and claimed by voluntary customers anywhere across the country. Voluntary buyers who want to purchase renewable energy from nearby generators can do so and there are "sub-markets" within the overall voluntary market based on consumer preferences for certain resource types, locations, product types, age of facilities or specific benefits, but these are considered part of the overall voluntary market and buyers may be located across the U.S.

    This means that while individual projects serving voluntary customers are located in individual states and produce local benefits, the voluntary market aggregates demand from across the country to drive renewable energy development at a national level. This development is not evenly distributed across the country. This is illustrated in Figure 2 and Figure 3 below, which show that the majority of voluntary supply comes from the middle of the country, while the majority of voluntary sales are made on the coasts.

    Eligibility and Oversight

    In the case of RPS programs, eligibility requirements are set by the states. Oversight and verification is provided by designated state agencies. RPS programs define the renewable resources or technologies that are eligible for compliance, and they can include “carve outs” or sub-quotas for certain technologies. Alternatively, some RPS programs use credit “multipliers” or incentive credits to incentivize certain technologies or generation to meet different policy goals. RPS programs can also specify or include buckets for different types of eligible procure-ment (for example, “bundled” vs. “unbundled” renewable energy). And RPS programs set rules for REC vintage and for whether RECs created in one year can be banked for use in a future year.

    The voluntary market is, for the most part, not regulated by governmental agencies. Rather, private, third-party standards and certifications are used to verify delivery and ownership. Green-e® is the leading third-party certification for voluntary renewable energy in the U.S. and Canada. Like state RPS programs, third-party standards for the voluntary market limit eligibility and set rules in terms of technology, date of facility construction/operation, and vintage of eligible sales. For example, Green-e limits eligibility based on date of construction, technology (limited biomass and hydropower), and REC vintage (certified sales made in a particular calendar year must be supplied with renewable energy generated in that year, the last six months of the prior year, or the first three months of the following year).

    Green-e also includes requirements that limit the location and type of supply that may be used for certain renewable energy products. For example, supply used for certified competitive electricity products and utility green pricing programs is limited to the North American Electric Reliability Corporation (NERC) region, Independent System Operator (ISO), Regional Transmission Organization (RTO) or Balancing Authority Area of the customers being served. Other rules at Green-e seek to ensure that the voluntary renewable energy and its benefits are surplus to those that are already delivered through state and federal programs and policies.11

    The voluntary market includes a wide variety of product types—from onsite self-generation to direct purchasing from specific generators to retail purchasing from a utility, competitive supplier, or REC marketer. These transactions may be bundled or unbundled…

    Intersections between RPS and Voluntary Markets

    There are many examples of facilities that were initially built to supply one market or the other and have since gone on to supply the other. This is good for both markets. For example, 360 wind facilities located in 29 states covering all regions of the country supplied both Green-e voluntary sales and state RPS programs in 2015. 20

    The voluntary and RPS markets also intersect in certain 100 percent renewable energy purchases—that is, they can work together to deliver 100 percent renewable energy. Certain voluntary programs, including Green-e, allow RPS renewable energy that also meets voluntary standard requirements to be included in 100 percent renewable electricity products that are sold by utilities subject to an RPS, so that voluntary purchasers do not have to purchase more than 100 percent renewable energy. For example, if the RPS is 25 percent and the utility is offering a 100 percent renewable energy voluntary product, the utility could potentially include the 25 percent RPS and provide an additional 75 percent renewables. If the 25 percent RPS meets the Green-e standard, the whole product, including the RPS portion, can be Green-e certified and the product content label would simply indicate 25 percent RPS and 75 percent voluntary. Other voluntary recognition programs do not allow this and will only recognize voluntary action.

    Another increasingly important intersection of voluntary and RPS markets is in corporate purchases or procurement that involves “REC arbitrage.” The existence of a national voluntary market can make it financially feasible for businesses and institutions to finance renewable energy projects that help a state meet its RPS compliance goals while allowing the financing organization to claim use of renewable energy. In regions where REC prices are high, due to strong RPS programs or limited local supply, a business or institution can dramatically lower its net cost of building renewable energy by selling the RECs into the local compliance market. But the business would still need RECs to substantiate its own usage and make credible usage and carbon footprint claims. The company can arbitrage RECs using the national voluntary market— the RECs from the owned generation can be sold off in the local compliance market to lower the net cost of the project and then cheaper RECs from the national voluntary market can be purchased, resulting in a cost savings. In this case, the specified renewable energy purchase is defined by the REC ultimately owned, and the customer cannot claim use of electricity from the local project, which was sold off. But this is an important example of how private investment and voluntary demand can support compliance markets without double counting or damaging voluntary claims.

    Principles for Supporting Compliance and Voluntary Market Growth

    There are three general conditions for credible voluntary renewable energy claims in the U.S.21

    No double counting. To ensure consumer confidence and delivery of real benefits to voluntary buyers, the same renewable energy (or any single attribute) cannot be counted or claimed more than once or by more than one party.

    Full attribute aggregation. Voluntary renewable energy usage claims require that customers own all of the associated environmental and social attributes of generation. None of the attributes that help define that generation can have been sold off, transferred, or claimed elsewhere. Most tracking systems and voluntary programs in the U.S. require that RECs include “all renewable energy attributes” or that they be “whole certificates.”

    Regulatory surplus. Voluntary means surplus or in addition to what is required by regulation. Voluntary buyers expect their investments to make an incremental difference. Voluntary renewable energy should be in excess of what is required by law and not simply reduce the costs of compliance for regulated entities.

    In all RPS states except Texas and Iowa, avoiding double counting will produce regulatory surplus for voluntary renewable energy.22 This is because the RPS requires delivery of renewable energy to grid consumers and renewable energy can only be delivered once to a single party. In this case, ensuring that the REC is not double counted in the voluntary market and toward an RPS will also ensure that it is surplus to the RPS if sold in the voluntary market.

    In these states, a single renewable facility may supply both the voluntary and compliance markets, but a single unit of renewable generation (MWh) must be used for one or the other.

    With these general conditions and interactions in mind, the following are steps that RPS programs can take if they want to facilitate and support voluntary renewable energy.

    1. Leave room for the voluntary market to go above and beyond what is required by the RPS…2. Use RECs…3. Align the state’s REC definition with other states and the voluntary market to the extent possible…4. Use REC tracking systems... 5. Take steps to avoid double counting…6. Protect regulatory surplus for the voluntary market…7. Avoid disaggregating attributes or splitting RECs…8. Consider the implications of creating multipliers that complicate accounting…

    Implications of Increasing RPS Targets for Voluntary Markets

    As shown above, RPS markets and the voluntary market grow together. Historically, we have seen voluntary activity continue to grow in places where there is a strong RPS and state-level clean energy policy. But the actual effect of increasing RPS targets on specific voluntary market dynamics depends on RPS eligibility requirements and market boundaries because this determines the available supply relative to RPS demand and the local REC price. Though voluntary demand can remain unaffected or actually increase with an increase to the RPS, the supply used to meet that demand may shift to locations outside of the RPS market boundary due to increased prices. Voluntary purchasers without a preference for “local” renewable energy may use the national voluntary market to procure the cheapest renewable energy. A stronger RPS can therefore create benefits for other regions in terms of voluntary renewable energy. It can grow voluntary supply in other regions, expand the voluntary market, and lead to more interstate trading of voluntary renewable energy.

    For example, the NEPOOL and PJM regions include some of the strongest RPS programs in the country. They are also historically supply-limited regions. Table 2 shows Green-e certified voluntary purchases (sales)30 along with generation in these regions supplying Green-e sales (supply). The dramatic difference between sales and supply (sales far in excess of local supply) indicates that voluntary purchasers in these regions are getting most of their renewable energy from outside the region.


    RPS and voluntary markets share a common history and overlapping goals. In order for RPS and voluntary markets to remain mutually beneficial, they should remain separate and incremental, and the integrity of common market infrastructure, including RECs and REC tracking systems, should be preserved and protected. RPS administrators can help achieve this by following the general principles laid out above and by working with other state agencies to support the voluntary market. There are important opportunities for growing both markets where they intersect—namely, through facilities that supply both markets, 100 percent renewable energy products, and corporate procurement involving REC arbitrage.

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