If you’ve installed solar at your home and are now basking in the I’m-saving-the-planet warm glow, you may be in for a splash of ice water. There’s a good chance someone else has purchased your halo and is wearing it right now.
You see, in practically every state, rooftop PV is recognized as green with Renewable Energy Certificates (RECs) that correspond to the amount of electricity they produce. But if you are leasing the panels or buying the electricity they produce under a power purchase agreement, then the third-party owner (TPO) of the system gets the RECs. Most TPOs are selling those RECs to another electricity vendor or customer, who can match them up with power from a “brown” source and magically turn those brown electrons green.
A Renewable Energy Certificate (Source: EnergyBrokerNetwork.com)
Here’s how it works: Joe’s Solar puts a 5 kilowatt system on your roof and sells you the electricity under a power purchase agreement. Because Joe owns the panels, he gets credit — in the form of RECs — for the 7000 kilowatt-hours (kWh) of renewable electricity it produces each year. Meanwhile, Bob’s all-fossil utility wants to “green up” so it buys the RECs from Joe to match with its coal or gas-fired generation. Then Bob can claim that 7000 kWh of its power is renewable.
Before discussing why that might be a problem, let’s first remember why such renewable energy accounting systems exist, and can be a good idea. Let’s say a state has a 20% renewable electricity standard for utilities. Utility A is in an area with few opportunities for renewable generation, but utility B has lots of wind and sunshine, and can cost-effectively generate more renewable power than it needs to meet the standard. Utility B can build extra renewable energy sources in its area and sell the extra certificates to utility A. In that way, utility A is helping to finance new green generation in area B. RECs are the currency that allows the overall goal to be met at lower cost.
A nice graphic of how RECs work from 3degrees (a company that brokers RECs)
Let’s say utility B generates 28% of its power from renewables, but sells the RECs from the extra 8% to utility A. No problem with that. But most people would be concerned if utility B still claimed it was 28% green powered, while utility A also counted those RECs it bought towards its own renewables goal. That’s essentially the problem that is cropping up with some rooftop solar.
About 70% of new rooftop solar systems are now owned by third parties, and nearly all of the RECs associated with such systems are retained by the TPO. (The solar homeowner is notified in the fine print of their contract, which s/he probably never reads.) The TPO companies typically sell those RECs either to a company with a well-publicized goal of being “carbon neutral” or to a “community choice aggregator” that wants to claim a high percentage of green energy for its customers.
One might see this as a creative way to make both the solar homeowner and the RECs buyer feel good about saving the planet. But the Federal Trade Commission and the Vermont Attorney General are killjoys when it comes to such double counting of virtue. If the certificates are stripped off and sold to some other entity as “unbundled RECs” (that is, sold separately from the electricity), the FTC says (see §260.15) it is deceptive for the TPO to advertise or tell solar buyers they are getting “clean,” “renewable,” or maybe even “solar” electricity with their lease or power purchase agreement.
|Example 5: A toy manufacturer places solar panels on the roof of its plant to generate power, and advertises that its plant is ‘‘100% solar-powered.’’ The manufacturer, however, sells renewable energy certificates based on the renewable attributes of all the power it generates. Even if the manufacturer uses the electricity generated by the solar panels, it has, by selling renewable energy certificates, transferred the right to characterize that electricity as renewable. The manufacturer’s claim is therefore deceptive|
From the Federal Trade Commission’s guidance on marketing renewable power
Just to be clear, there is nothing wrong with installing solar panels in one location while credit is claimed by someone in another location, as long as everyone understands that is happening. But I suspect many PV homeowners wouldn’t be too happy if they knew their systems were being used by some fossil-powered company to claim it had gone green.
The problem is exacerbated in California, because none of the large utilities here are allowed to buy more than a tiny number of RECs from rooftops solar installations to meet their renewables goals. Due to high electricity prices, lots of sunshine, and generous compensation for rooftop solar generation, we still have about 45% of the nation’s new rooftop PV — mostly under leases or power purchase agreements — which are creating a glut of unbundled RECs that sell for practically nothing. That means that the RECs aren’t doing much to incentivize new rooftop solar systems, but the REC buyers still get to claim their electricity is green. That’s all legal, as long as all parties to the transaction, including the homeowner, are consenting (and fully informed) adults.
The lesson here is that if you choose to go solar, find out what will happen to the RECs. If they are sold to someone else, you still get to use the electricity, but you have to give back the halo.
I’m still tweeting energy news articles and new research papers @BorensteinS
Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.