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RENEWABLE PORTFOLIO, GREEN CERTIFICATES ANDOTHER POLICIES FOR DEVELOPING COUNTRIES

WEBINAR 9 FEBRUARY 2012

Chad LaurentSenior Consultant - MCG's General Counsel

Course on Regulation and Sustainable Energy in Developing Countries –Session 5

www.leonardo-energy.org/course-regulation-and-sustainable-energy-developing-countries

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WHAT IS A RPS?

• A Renewable Portfolio Standard (RPS) or Renewable Energy

Standard (RES) or Quota System requires a percent of energy

sales (MWh) or installed capacity (MW) to come from

renewable resources.– There is often a target (e.g. 20% renewables by 2020)

– There frequently is an incremental percentage increase over time.

– Usual the utility or load serving entity is required to meet the RPS and comply with the percentage requirements.

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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WHAT IS A RPS?

• Publicly owned utilities can be exempted from the RPS, or

given more lenient requirements

• Various customer rate-class exemptions have also been

offered (low-income ratepayers or commercial ratepayers).

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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WHAT IS A REC?

• Renewable energy certificates or credits (RECs, tradable RECs, TRECs, etc.)

are often the mechanism used to quantify and verify RPS compliance.

• Utilities may comply either by owning generation or purchasing RECs from

independent power producers.

– Some RPS policies create a separate agency which serves as the purchaser of all RECs (e.g. New York State, Illinois, USA)

• An alternative compliance payment (ACP) is often set to account for

shortfalls or to act as a penalty payment.

Sources: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010; B. Grace, Sustainable Energy Advantage 2011.

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WHAT IS A REC?

• A REC is a tradable certificate, typically in electronic form

• Represents 1MWh of generation from a specific plant

• Carries type, location, timing, and emissions data

• Can represent environmental “attributes”

• RECs may be “bundled” with electricity or “unbundled”

• REC can represent the “gap”

REC

Renewable Electricity

Commodity Electricity

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WHY RECS?

• Relatively simple, less costly

verification

• Low potential for fraud or double

counting

• Relatively low transaction costs of

trading RECs

• Potential price visibility• Buyers can procure just as many RECs

as they need• Settlement over time rather than at

the time the electricity is produced• Can avoid transmission constraint

issues

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REC MARKETS AND PRICES

• REC prices can vary widely.• Prices in Massachusetts between $15/MWh for Class I and $525/MWhfor SRECs.

Compliance market (primary tier) REC prices, January 2008 to December 2011Sources: Spectron Group (2012).

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WIDE VARIABILITY IN DESIGN

• Structure (who purchases RECs)

• Standard levels (1% of load, 20% of load)

• Resource eligibility (“traditional renewbles,” solar hot water, fuel cells)

• Treatment of existing plants (“new” renewables only or separate REC classes for existing generator that would have otherwise qualified)

• Tiers and bands (for “new” vs “old” plants, or for “cleaner” vs. “dirtier” renewables)

• Methods to enforce

• Cost caps

• Contracting requirements

• Role of Government funding mechanisms

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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WIDE VARIABILITY IN DESIGN

• Start and end dates

• Application of standards (requirements for run-of-river hydro or

sustainable biomass)

• Enforcement/penalties (just the ACP or actual fines)

• Flexibility mechanisms (purchasing future RECs or applying RECs across

generation years)

• Renewable energy credit (REC) trading mechanism (in-state only vs. out-

of-state and tracking systems)

• Voluntary Market

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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POTENTIAL DESIGN ISSUES

• Too Narrow Applicability

– If applied un-equally to suppliers will limit the impact of the RPS, Poorly

• Balanced Supply-Demand Condition

– Enough time to comply and build generation

– If too low then no certainty for project development

• Insufficient Duration and Stability of Targets

– Standards must be durable and stable

– Energy projects need long-term contracts in order to be financed

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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ADDITIONAL DESIGN ISSUES

• Insufficient Enforcement– Non-compliance, policy failure

• Lack of Contracting Standards and Cost Recovery Mechanisms– Consider long-term contract standards for utilities

• Imputed debt obligations

• Undue Design Complexity– Complex policies that require considerable and detailed regulatory

oversight may be unwieldy

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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EFFECTIVE DESIGN CRITERIA

• Strong political support and regulatory commitment (longevity)

• Clear and renewable energy eligibility rules

• Predictable long-term targets (certainty)

• Standards that are achievable given permitting challenges (transparency)

• Credible and automatic enforcement – penalties should exceed cost of compliance (transparency)

• REC purchase requirements tied to a credit-worthy entity and allow long-term contracts (certainty)

Sources: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010, MCG Research, DBCCA

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BEST PRACTICES/RECOMMENDATIONS

• Diverse Electricity and REC Market – sufficiently liquid REC market – large number of market actors exist

• Stable and Long term target– 10 years ahead (preferably 15 or more years), – long-term REC contracting options

• Reasonable targets– targets must be set taking into account current and future supply-demand

conditions– Reasonable cost considerations

• Differentiated technology support – Tiers or different REC prices for more expensive technologies

Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.

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BEST PRACTICES/RECOMMENDATIONS

• Utility is the compliance entity – electricity suppliers/utilities, (administrative cost implications).

• Flexibility – banking and borrowing of RECs

– recommended to limit borrowing to three months and banking to a maximum of 25% of the obligation.

• Penalty revenues – Revenues used for further research and development or additional

subsidies for the least competitive renewable technologies or energy efficiency

Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.

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BEST PRACTICES/RECOMMENDATIONS

• Harmonization – eligibility for the obligation system be in

line with the EU Renewables Directive.

• Government commitment – Strong and long-term political commitment

• clearly defined monitoring and verification rules

• adequate enforcement rules in case of non-compliance

Source: van der Linden, Nico, et al. “Review of International Experience with Renewable EnergyObligation Support Mechanisms.” ECN-C—05-025, May 2005. http://eetd.lbl.gov/ea/ems/reports/57666.pdf.

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IMPLICATIONS FOR DEVELOPING COUNTRIES

Source: MCG research; REN21 (2011)

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DEVELOPING COUNTRY TARGETS

• There are many developing countries with renewable energy

targets.

• Few if any with Renewable Energy Certificate markets

• Few if any cross-border trading or regional targets

• REC concept started in and is tailored to deregulated

electricity markets

Source: MCG research

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IMPLICATIONS FOR SMALL MARKETS

• Not unlike US States

• Original 1996 model of the RPS no longer used in the US.

• Most RPS and quota markets moving towards different or

supplemental policies.– Feed-in Tariffs

– Auctions

– Technology specific targets

• Few global examples of cross-border trading– New England (US) and Quebec Canada

Source: MCG research

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US EXPERIENCE

• 29 States and Washington DC and Puerto Rico have an

RPS requirement.

• 8 States have non-binding renewable energy goals.

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RPS Policies

Renewable portfolio standard

Renewable portfolio goal

www.dsireusa.org / January 2012

Solar water heating eligible *† Extra credit for solar or customer-sited renewables

Includes non-renewable alternative resources

WA: 15% x 2020*

CA: 33% x 2020

NV: 25% x 2025*

AZ: 15% x 2025

NM: 20% x 2020(IOUs)

10% x 2020 (co-ops)

HI: 40% x 2030

Minimum solar or customer-sited requirement

TX: 5,880 MW x 2015

UT: 20% by 2025*

CO: 30% by 2020 (IOUs)10% by 2020 (co-ops & large

munis)*

MT: 15% x 2015 ND: 10% x

2015

SD: 10% x 2015

IA: 105 MW

MN: 25% x 2025

(Xcel: 30% x 2020)

MO: 15% x 2021

WI: Varies by utility;

~10% x 2015 statewide

MI: 10% & 1,100 MW x 2015*

OH: 25% x 2025†

ME: 30% x 2000

New RE: 10% x 2017

NH: 23.8% x 2025MA: 22.1% x 2020

New RE: 15% x 2020(+1% annually thereafter)

RI: 16% x 2020CT: 27% x 2020

NY: 29% x 2015

NJ: 20.38% RE x 2021+ 5,316 GWh solar x

2026

PA: ~18% x 2021†

MD: 20% x 2022

DE: 25% x 2026*

DC: 20% x 2020

NC: 12.5% x 2021(IOUs)

10% x 2018 (co-ops & munis)

VT: (1) RE meets any increase in retail sales x

2012;(2) 20% RE & CHP x 2017

KS: 20% x 2020

OR: 25% x 2025 (large utilities)*

5% - 10% x 2025 (smaller utilities)

IL: 25% x 2025

OK: 15% x 2015

PR: 20% x 2035

WV: 25% x 2025*†VA: 15% x 2025*

DC

IN: 15% x 2025†

US EXPERIENCE

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IN THE US THE RPS HAS SUPPORTED WIND POWER

DEVELOPMENT

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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RPS Policies w ith Solar/ DG Provisions

Renewable portfolio standard with solar / distributed generation (DG) provision

Renewable portfolio goal with solar / DG provision

www.dsireusa.org / January 2012

Solar water heating counts toward solar / DG provision

WA: double credit for DG

NV: 1.5% solar x 2025;2.4 - 2.45 multiplier for PV

UT: 2.4 multiplierfor solar-electric

AZ: 4.5% DG x 2025

NM: 4% solar-electric x 2020 0.6% DG x 2020

TX: double credit for non-wind(non-wind goal: 500 MW)

CO: 3.0% DG x 20201.5% customer-sited x 2020

MO: 0.3% solar-electric x 2021

MI: triple credit for solar-electric

OH: 0.5% solar-electric x 2025

NC: 0.2% solarx 2018 MD: 2% solar x 2022

DC: 2.5% solar x 2023

NY: 0.4092% customer-sited x 2015

DE: 3.5% PV x 2026;triple credit for PV

NH: 0.3% solar-electric x 2014

NJ: 5,316 GWh solar-electric x 2026

PA: 0.5% PV x 2021

MA: 400 MW PV x 2020OR: 20 MW solar PV x 2020;

double credit for PV

IL: 1.5% PV x 20250.25% DG by 2025 WV: various

multipliers

16 states + DC have an RPS with solar/DG

provisions

DC

†

†

Delaware allows certain fuel cell systems to qualify for the PV carve-out

Source:

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US TRENDS

• Increased stringency of RPS targets

• Expanded use of resource-specific set-asides, especially for

solar

• Expanded applicability of RPS policies to publicly owned

utilities

• Some leniency given to publicly owned utilities in meeting RPS

targets and obligations

Source: Supporting Solar Power in Renewables Portfolio Standards: Experience from the United StatesWiser, R., G. Barbose and E. Holt. LBNL-3984E. October 2010

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INDIA

• 15% by 2020

• RECs, Feed-in tariffs, grants,

• Authorizes tradable RECs, not technology specific

• RECs designed to encourage renewable development in areas with higher

potential without limiting development to the purchase obligation in

those regions.

• Generator can choose to either receive a preferential tariff rate, or use the

RECs where the commodity energy is purchased at the weighted average

power purchase cost of the distribution utility.

Sources: Renewable Energy Certificate Registry of India, REN21, Indian Power Sector

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SOME OTHER EXAMPLES?

• China– 15% by 2020, 17% Wind by 2050

– No tradable RECs

– Feed-in tariffs, grants, loan guarantees

• UK– RPS with tradable RECs implemented in 2002

– Yearly changes and a feed-in tariff was adopted on top of RECs for small generation

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QUESTIONS?THANK YOU

Presenter:Chad Laurent, Esq.

Senior Consultant

Contact:T: +1 617.209.1986

chad.laurent@mc-group.com