In legislative committees on natural resources and energy this session all the buzz is about two bills that would require mandatory renewable portfolio standards. Until now, Vermont utilities have voluntarily purchased renewable energy; the utilities receive credits verifying that the power is renewable and then they sell most of those renewable energy credits to other utilities out of state.
Under several new bills before the legislature utilities would no longer be allowed to sell as many renewable energy credits to other utilities out of state. Other New England states mandate that utilities to show they have a certain amount of these renewable energy credits. Vermont doesn’t require that utilities retain the credits.
A renewable portfolio standard is a mechanism that requires electric utilities to supply customers with a certain amount of “renewable” power. If utilities do not produce a set percentage of renewable power in their total load, or “portfolio,” they are required to pay a fine essentially known as an alternative compliance payment.
According to the Federal Energy Regulatory Commission, 29 states and the District of Columbia have renewable portfolio standards and goals. Vermont is the only New England state without one.
Although a statute has been on the books since 2005, utilities have not been required to purchase “renewable” energy per se. Instead, the state set goals, and if utilities do not meet them, a mandatory renewable portfolio standard kicks in in 2013 if utilities did not meet these goals.
Vermont’s approach encourages developers to build renewable energy projects like wind and solar farms without requiring utilities to keep what are called Renewable Energy Certificates, or “RECs.”
When a renewable electric generation project sells electricity, it sells the juice — and it sells the value of the credits separately. These “green” credits are basically a label that utilities buy with the power to verify it meets “renewable” standards set by a state.
The proposed Vermont legislation is slated to shake up the whole system by requiring utilities to keep some of the credits, which they currently sell to other states.
Paul Belval is an attorney in Connecticut whose firm Day Pitney is counsel to the New England Power Pool, the organization that owns and operates the renewable energy credit system in the region.
Belval compares the regional transmission grid to a bucket of water. You can poke a bunch of holes in the bottom of the bucket and drain it into cups, but you cannot pinpoint the exact hole the water came from. In a similar fashion, it is essentially impossible to determine where power comes from once it reaches the grid. Enter the RECs. When someone buys power from a generator, they also buy the RECs. This is a way of accounting for how much renewable energy there is out there.
“The whole issue here is in an integrated transmission system, it is not possible to know which electrons come from which generator,” Belval says.
This is where Vermont comes in. The state’s Sustainably Priced Energy Enterprise Development program encourages utilities to obtain a percentage of their power from qualifying renewable energy projects in the state. The utilities can then sell the credits to other states, and in the majority of situations, this is what happens. The energy counts toward the SPEED program, and utilities can sell the RECs for cash to other states.
Everyone wins, right? Not quite.
Kevin Jones, Smart Grid project leader for the Institute for Energy and the Environment at Vermont Law School, says this double counting is a sham.
“The fundamental problem with the SPEED program is it’s a brown power program, not a green power program because it encourages utilities to sign contracts with renewable energy developers, then it allows them to sell the RECs out of state rather than to keep them for their customers’ benefit,” Jones says.
Jones, who said he does not represent the law school’s position, has been an outspoken critic of the program.
“Traditionally what states have tried to do is to allow their customers to purchase clean renewable energy,” he says. “In order to do that, the RECs must be procured and retired for the benefit of customers.”
Allowing renewable energy to be counted once for SPEED and once for a renewable portfolio standard undermines the confidence of Vermont consumers who think they are buying green power, when it is technically “brown” power from the grid — meaning it comes from coal, nuclear or some other nonrenewable source, according to Jones. If Vermont is going to allow utilities to sell RECs to Massachusetts and Connecticut (where the majority end up), it should not call the SPEED program a renewable energy program, he says.
“If the goal of the SPEED program is to procure renewable energy for use by Vermonters, that goal is not achieved, given sale of Renewable Energy Credits out of state,” Jones said. “If the goal is to procure brown power for Vermonters at high rates but provide cash payments to in-state renewable developers, then the SPEED program is very successful.”
If Vermont really wants to procure renewable energy for its residents, it needs an renewable portfolio standard, Jones says.
The Costs and the Compromises
Despite its critics, for utilities, like Green Mountain Power, the Vermont system has been successful, says spokesman Robert Dostis.
The SPEED program requires utilities to enter contracts with developers who are building renewable projects, providing them some level of certainty that they will be able to pay off the costs of construction.
“SPEED is working,” Dostis says. “If the goal of a renewable portfolio standard is to promote more renewable generation, SPEED has worked very effectively to do that.”
Selling the credits out of state also helps keep rates down for Green Mountain Power customers, Dostis says. If the goal is to claim renewable energy credits, he says, there are cost implications.
The value of the Renewable Energy Credits is not chump change. Dostis says value RECs for projects that will go online in 2013 are worth about $10 million in today’s market. If the utility had to retire those RECs, it would represent a 4 percent rate increase for customers, according to calculations from the utility.
The catch for utilities is that once they sell the RECs, they cannot call the power renewable any more under Federal Trade Commission rules called Green Guides. Once they are sold, even though the power might be bought from a wind farm, it is technically “brown” power off the grid made up of some amalgamation of fossil fuels and nuclear. It is also cheaper.
If the state implements a renewable portfolio standard, power from new projects like the controversial Kingdom Community Wind project in Lowell and the Granite Reliable Power Windpark in New Hampshire would be more expensive since the utility could not sell the credits, Dostis says.
Some power in the state is technically “renewable” already. For example, Green Mountain Power has a program where customers can opt to pay more and retire the RECs. Otherwise, they are sold to other New England states.
John Spencer facilitates the SPEED program under an appointment from the Public Service Board. He gave testimony last week along with many others. Spencer says most, but not all, credits from SPEED projects like Sheffield Wind are sold to Massachusetts or Connecticut.
Spencer emphasizes that he is neutral on whether the state should shift to a mandatory RPS. One advantage that it will lose, he says, is the ratepayer cost savings.
“I think as a theoretical policy issue, people like a renewable portfolio standard,” Spencer said. “It’s complex. It’s global. It’s very enticing to them for those reasons. From a practical standpoint, the State of Vermont is already doing a good job of incentivizing development of renewable power.”
After all, utilities could choose to retire the RECs in state to retain the environmental attributes. The just don’t.
The Vermont Department of Public Service and the Public Service Board have weighed in as well.
In the Comprehensive Energy Plan, released in December, the department recommended a renewable portfolio standard with a 75 percent renewable goal by the end of a 20-year period.
Department of Public Service Commissioner Liz Miller said including all “renewable” sources in the 20-year target rather then making distinctions between different types (for example large versus small or new versus old) would help smooth the rate trajectory.
“It’s an all-in suggestion by the department in the energy plan that rather than creating a number of carve-outs or technology preferences or age preferences that the Legislature instead focus on what we heard Vermonters wanted in the energy planning process,” Miller said. “That was clean energy that helps reduce greenhouse gas emissions that relies on our natural resources, rather than the system we have now where renewable energy can be built here even though the renewable credit attributes can be sold out of state.”
A renewable portfolio standard does not come cheap. In the Public Service Board report to the Legislature, it estimated a proposed RPS would cost between $311 million and $435 million above the status quo — a number highlighted by some conservative politicians and business groups as a reason not to implement an RPS.
For now, the two committees begin the process of grinding through the muck to create legislation.
Sen. Ginny Lyons, D-Chittenden, is the chair of the Senate Natural Resources and Energy Committee. She introduced renewable portfolio standard legislation this session.
During a break between committee presentations, Lyons said the challenge is achieving a balance between steady electricity rates and ensuring Vermont does its share of reducing its carbon footprint.
“We want to make sure that both ratepayers and utilities are protected economically,” Lyons said. “Allowing for RECs to be used at will by the utilities may not be in the best interests long term for ratepayers, and i think that’s what we’re hearing, that we need to make adjustments.”
The critical issue, Lyons said, will be offsetting environmental effects. This means possibly redefining Hydro-Quebec as a separate tier from other renewable sources and clarifying differences between large and small projects in state as well.
Lyons said the House will most likely take the lead on introducing a renewable energy bill to the floor.