The use of tradable renewable energy credits for RPS compliance may reduce costs and increase flexibility for those entities with renewable portfolio standard compliance obligations.

On October 29, 2008, the California Public Utilities Commission (CPUC) issued a proposed decision authorizing the use of unbundled and tradable renewable energy credits (TRECs) for compliance with the California renewable portfolio standard (RPS). California’s RPS requires electrical corporations to increase their procurement of electricity from certain eligible renewable energy resources by at least 1 percent of their retail sales annually, until they reach 20 percent by 2010.

Earlier in 2008, the CPUC adopted a final definition of a compliance TREC, but declined to decide on whether to allow the use of unbundled TRECs for RPS compliance. In this prior decision, the CPUC defined a TREC as “a certificate of proof, issued through the Western Renewable Generation Information System (WREGIS), that one megawatt-hour of electricity was generated by an RPS-eligible renewable energy resource and delivered for consumption by California end-use customers” in accordance with the definition of delivery implemented by the California Energy Commission (CEC), and which must include all renewable and environmental attributes associated with the underlying generation resource.

The CPUC hopes that the use of TRECs for RPS compliance will reduce costs and greatly increase flexibility for those entities with RPS compliance obligations, because they will be able to procure power at the lowest cost, while also meeting their renewable energy targets. Allowing TRECs for compliance may also help to reduce issues suffered by the current RPS structure, including transmission constraints and the uneven distribution of renewable resources.

The proposed decision outlines the general rules for a TREC market and for the integration of the TRECs into the RPS flexible compliance program. The CPUC’s TREC market rules stress the importance of transparency, fairness and ease of administration, and are designed to both allow the fledgling market to develop and to be robust enough to support a mature TREC market. The Energy Division shall conduct regular assessments of the market’s performance and review market rules to determine whether changes must be made.

No restrictions are placed on who may participate in the TREC market, but all participants must meet both the CPUC requirements for TREC trading as well as any requirements set by the WREGIS. Only TRECs properly tracked in WREGIS will be eligible to be used for compliance with the California RPS. WREGIS is an independent, voluntary, renewable energy tracking system launched in June 2007 for the region covered by the Western Electricity Coordinating Council, which will be responsible for tracking generation and issuing TRECs.

To ease the transition into the TREC market, the proposed decision also places a transitional price cap on TRECs used for RPS compliance. The price cap is set at $50 per MWh (i.e., per TREC), equal to the amount of the penalty for noncompliance with the RPS requirements, and may be reviewed as the market matures to determine whether it is still appropriate. The imposition of a price cap would end upon the earlier of all investor owned utilities’ attainment of the 20 percent RPS goal or January 2012. TRECs have a compliance life of three years, inclusive of the year in which they are created, and once retired in WREGIS, they may be banked for use in future compliance years.

Finally, the proposed decision sets forth three standard terms and conditions related to TRECs that must be used in RPS contracts going forward:

  • The TREC definition
  • WREGIS tracking
  • Commission approval for REC-only contracts

Interested parties are invited to file comments on the proposed decision by November 18, 2008. The CPUC will take the comments into consideration when determining whether to adopt the proposed decision.