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The Role of Renewable Energy Certificates in Community Solar

Andrea Romano — January 12, 2016

solar panels and wind turbines under blue skyWhen community solar subscribers sign up for project shares, they will likely feel proud to be getting solar, even if the project itself is far from home. The question for utilities is this: are customers really getting solar? If their project share includes something less than a renewable energy certificate (REC)-bundled kilowatt-hour, how should the community solar program be marketed? Ever since the advent of RECs in the late 1990s, confusion has surrounded these questions, because according to widely held guidelines, electricity is only renewable if the RECs are included and retired.

Yet, policymakers and program designers know that most solar supporters are eager to get the REC value and would gladly trade away this distinction. Should the utility use REC purchases to sweeten the community solar offer or not? Navigant Consulting is currently collaborating on the Community Solar Value Project (CSVP), one of 15 community solar projects chosen for funding in 2015 by the U.S. Department of Energy’s SunShot Initiative under its Solar Market Pathways Program. The project just released a new factsheet, Understanding Renewable Energy Credits, to address this issue.

RECs in Concept

The REC, defined as the renewable energy attributes of 1 MWh of renewable electricity generated and delivered to the grid, is a concept originally developed for three main reasons. These include federal agency, business, and industry interest in purchasing green power; state-sanctioned accounting to meet renewable energy mandates; and added economic benefits in negotiating power purchase agreements to cover renewable energy project costs.

Today, all claims of using renewable electricity depend on the associated RECs. Even if a renewable generator produces electricity onsite, the project owner is not considered to be using renewable energy if the RECs are not associated with the electricity and retired on behalf of the customer. RECs are a credible way to buy and sell renewable electricity because they can be uniquely numbered and tracked. The electricity associated with a REC may be kept bundled with the REC or sold separately. If it is kept bundled, then it is called renewable (or green) electricity. If the electricity is split from the REC, it is considered standard energy.

Standard vs. Renewable Electricity

Andrea REC Figure(Source: Engineered to Excel)

REC guidelines apply to all renewable energy, including community solar. The most common REC allocation options for community solar programs include:

  • Utility owns and uses the RECs for current or anticipated regulatory compliance.
  • Utility or customer sells the RECs into the local or regional REC market.
  • Utility retires RECs on behalf of the customer.

According to a September 2015 National Renewable Energy Laboratory report, RECs for community solar projects are most often used to meet Renewable Portfolio Standard compliance. Considerations affecting how specific programs treat RECs include program goals, regulatory orders, negotiations with solar developers, and program economics. Many utilities with community solar programs claim that customers either don’t understand or don’t care about the RECs. In some cases, RECs are retained by the utility and aren’t even explained to customers.

Xcel Energy’s Community Solar Garden program in Minnesota has taken an interesting approach, allowing third-party community solar project operators to decide whether to retire RECs on their customers’ behalf or to sell them to the utility for $0.02/kWh-$0.03/kWh. Initially, the Xcel managers thought most third-party project operators would sell the RECs to the utility to improve their economics, but subscribers have been more interested in retaining the RECs than originally assumed.

The jury is still out regarding how the Minnesota community solar market will develop. However, no matter what your utility decides to do with community solar program RECs, it is important to engage customers and stakeholders honestly in the discussion. Clearly explaining the concept and treatment of RECs to subscribers is an important component of marketing any community solar program.

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