Developing Successful
Markets for Green Tags
May 18, 2005
Presenter:
William W. Westerfield III
Stoel Rives LLP
770 L Street, Suite 800
Sacramento, CA 95814
(916) 447-0700
What is a Green Tag?
Production of
Electricity from
Renewable Energy
Renewable Attributes
Commodity Electricity
Electricity generated from renewable energy can be divided into two distinct
commodities – the electricity and the associated renewable attributes. Green
Tags or Renewable Energy Certificates (RECs) represent the renewable
attributes. If RECs are “unbundled” from the physical electricity, the two
products may be sold or traded separately. RECs are a means to facilitate
markets for renewable energy.
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Market Value of RECs
• Compliance Markets – to meet state regulatory requirements,
such as renewable portfolio standards (RPS); and
• Voluntary Markets – to allow consumers to buy renewable
energy products, as in green pricing programs.
Estimated REC Market Size and Value in 2004 and 2010
Compliance
Markets
Voluntary
Markets
Total
Current REC
Market Size
(million MWh)
Current REC
Market Value
($millions)
2010 REC
Market Size
(million MWh)
2010 REC
Market Value
($millions)
8-13
$140
45
$600
3
$15-$45
20
$100-$300
11-16
$155-$185
65
$700-$900
NREL Technical Report (Jan. 2005)
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REC Products in the Marketplace
• Compliance with RPS
• Green Power - Rebundling for retails sales
• Retail RECs (Regional)
• Retail RECs (National)
• Forward selling
• Aggregation from small systems
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Challenges for Developing Markets
• Defining RECs
• Improving REC Liquidity
• Establishing Verification and Tracking Systems
• Resolving Ownership Issues
• Using RECs for Project Financing
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Managing Different Definitions
• Consensus: A REC is proof of 1 MWh of renewable generation
such as wind, solar or biomass.
• Inconsistencies in Product Definitions:
– RECs vary by resource type, location and “vintage.”
– Eligibility varies between states, tracking systems and voluntary
certifying organizations.
• Issue: Should “renewable attributes” include environmental
attributes?
– MAJORITY VIEW: Yes, should include factors such as avoided
emissions of air pollutants and greenhouse gases.
– MINORITY VIEW: No, disaggregation of attributes enhances value
and promotes liquidity.
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Improving Liquidity
REC markets aim for greater liquidity, or enough buyers
and sellers to assure a ready market with competitive
prices. Factors bearing on liquidity:
• Standardize Definitions: Differences in eligibility criteria for
RPS compliance markets and definitions in voluntary
markets make RECs less fungible and illiquid.
• Extend Vintage: Longer life spans and forward markets
have helped.
• Connect Markets: Tension exists between larger, more
liquid markets and public policy goals to encourage local
benefits.
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Better Tracking Makes Better Markets
• Tracking systems are used to verify compliance with
state RPS requirements, prevent double counting
and prove green marketing claims. Tracking systems
are infrastructure, not market platforms.
• Current Issues:
- Multiple tracking systems lead to fractured
markets and integration issues
- Who pays for tracking? States, utilities,
generators, marketers?
- What information should be included on a REC?
- Gaming
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Ownership Issues
• Do payments for renewable energy or for renewable energy
systems convey rights to RECs that are produced?
• Are RECs transferred to utilities under long-term PURPA
contracts?
- FERC says transfer of RECs is a matter of state law; states
have made different rules.
• Are RECs transferred from customer-owned systems to utilities
under net-metering and interconnection rules?
• Are funders entitled to RECs in return for providing a subsidy to
a customer-owned system?
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Using RECs for Project Financing
• RECs can provide significant, though uncertain,
revenues for project financing.
• Options to enhance and ensure REC value:
- RECs generated from the project can be sold under longterm contracts to creditworthy buyers, e.g., University of
Pennsylvania.
- State renewable energy funds could buy RECs at a
minimum price on a long-term basis, e.g., Massachusetts
Renewable Energy Trust.
- States can require long-term contracts for RECs or
renewable power to satisfy RPS, e.g., California PUC.
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