Renewable Energy Credits Taking Shape in Ohio

A Green Strategies Bulletin

The value of Renewable Energy Credits ("RECs") took another step toward gaining a more definitive market value in Ohio with the
completion of the Alternative Energy Portfolio rules ("Rules") by the Public Utilities Commission of Ohio ("PUCO"). Significantly, the PUCO provided that unless a contract states otherwise, any RECs resulting from distributed generation belong to the owner of the equipment producing the electricity.

Thus, RECs cannot automatically be claimed by utilities, and remain a valuable commodity in the Ohio market that can be used as part of a comprehensive project financing package. As the market continues to develop, as more distributive generation is produced in Ohio, and if the length of REC agreements is extended by utilities, RECs should become even more valuable in Ohio.

Also called "green tags," renewable energy credits, solar RECs (SRECS) or tradable RECs ("T-RECs"), RECs are simply a way to value the social or environmental benefits of energy produced from renewable sources. Each REC represents the environmental value of one megawatt-hour of renewable power. Thus, a REC represents the amount of pollution or other environmental impacts that are avoided by producing one megawatt-hour of electricity through renewable resources, instead of a traditional fossil fuel plant.

RECs can be unbundled, or severed, from the electricity produced and sold or traded as a separate commodity.
For example, the actual power produced by a solar system can be sold to one customer, and the environmental benefit from the solar power --
the REC -- can be sold to a different customer. RECs can be "re-bundled" to meet a purchaser's desire or need to make a "claim" based on environmental attributes. Various types of claims can be based on a REC. For example, a utility can purchase and claim RECs to meet a state requirement for producing energy from renewable resources. A company that wants to market itself as a good environmental steward can offset its use of one megawatt-hour of electricity generated from a coal-fired plant by buying and claiming one REC.

Whether the purchaser is a utility or a business, the purchaser must be assured that the REC truly offsets the amount of energy the purchaser uses, hence supporting the purchaser's claim. These assurances are secured through an ever-developing system of certification, monitoring and retirement of RECs. Passage of new PUCO rules helps to assure the quality and value of RECs through several means.

PUCO rules prohibit RECs from "double-counting" if they are to be used as part of a utility's renewable portfolio standard. RECs may not:

1)    satisfy multiple Ohio state renewable energy requirements or satisfy renewable energy requirements in more than one state;
2)    comply with both energy efficiency and advanced energy statutory benchmarks,
3)    support multiple voluntary product offerings,
4)    substantiate multiple marketing claims, or
5)    some combination of these.

The prohibition against double-counting also extends to the manner in which utilities may count energy efficiency measures. In addition to creating an alternative energy portfolio requirement, SB 221 contains a similar energy efficiency mandate. The Commission rules now clearly prevent a utility from counting the same energy efficiency measure toward both the energy efficiency benchmarks and advanced energy benchmarks. Finally, utilities are also prohibited from counting a customer's voluntary purchase of "green power" toward its statutory obligations.

The Rules allow RECs to be used to satisfy all or part of a utility's renewable energy benchmarks. However, the rule limits the use of RECs to those associated with electricity generated in Ohio (or electricity deliverable into the state) after the July 1, 2008 effective date of SB 221.

A utility must be a registered member of an approved REC tracking system to meet part of its
renewable energy benchmarks through RECs. The rules pre-approve the tracking systems already in place in PJM,
the Generation Attribute Tracking System ("GATS"); and MISO, the Midwest-Renewable Energy Tracking System ("M-RETS").
Additionally, the Commission contemplates the use of other tracking systems upon request by a utility and
Commission approval. Alternative energy providers must also apply to the Commission for certification of a
particular project/facility as an advanced or renewable energy resource in order to qualify toward satisfying SB 221's
alternative energy portfolio benchmarks.

Developers and others producing energy from renewable resources should consider and protect the value of their RECs by complying with the PUCO rules. RECs can represent another viable source of income for the project owner.