Green Energy Certificates

Throughout New England there is a growing understanding of the benefits of renewable energy. You may have noticed that you are paying each month a renewable energy charge that has been added to your electricity bill.  The state regulators recognize that a higher percentage of the regional energy mix needs to come from energy sources that cannot be cut off (imported oil and gas). There is a new initiative to reduce New England's regional dependence on resources that will be depleted over time and to switch the region to sustainable energy that minimized environmental impacts.

This sustainable energy policy has economic  implications for intra-regional energy markets, foremost among which is the "commoditization" of the environmental attributes associated with renewable energy generation. The low environmental impact of wind generators, hydro turbines, fuel cells, landfill gas-fueled diesel engines and certain technologies for combusting biomass emit very limited, if any, pollutants and are fueled from resources that cannot be depleted. Each renewable project is registered in the Generation Information System (GIS) where these renewable "green" attributes are monitored by the environmental protection agencies. So, not only will low impact technologies be rewarded by increased demand for their special attributes, but "brown" technologies that violate emission standards will be penalized, using the same GIS accounting system. 

A Renewable Resource -- Woronoco Hydro has operates at the Salmon Falls since 1873.

For the first time these environmental externalities will be included in the economic cost of electricity as it is marketed to retail customers. A system for trading the renewable attributes is being established under the auspices of the New England Power Pool (NEPOOL). The GIS not only records the monthly production data for each generator, capacity availability, outages, etc. but the monthly emission data for each generation unit also must be recorded by each company registered  with the GIS.  These renewable attributes are unbundled from the generation attributes and will be denominated by "green certificates" that may be traded independently from energy and capacity sales to Load Serving Entities ("LSE" - a new name of your local electric distribution utility). Each state in New England has, or is in the process of setting up, requirements for LSE's to supply their customers with a legal minimum quota of their electricity supply derived from non-depletable, green energy resources.  The RPS quotas being set up are: Massachusetts = 1% increasing at 1% per year; Connecticut = 3% with a distinction between "new" (Class I) and "old" (Class II) technologies; Vermont = _%; Rhode Island = _% and Maine = 30% where the state already has 40% of its power generated from renewable sources.

How the Market Works

A Renewable Portfolio Standard (RPS) defines the renewable energy types that are acceptable in each state and the percent of the energy mix that these technologies must be by a specific date.  Connecticut, Maine and Massachusetts all have adopted RPS requiring  LSE's to achieve compliance using certificates from generation sources anywhere on the NEPOOL grid or in an adjacent power pool, provided that the power flows onto the NEPOOL grid.  Rhode Island and Vermont recently issued draft RPS rules.  LSE's that have an insufficient number of green certificates will be required to pay a costly penalty for each month that they remain out of compliance.  In Maine, the renewable share of an LSE's portfolio must be 30% and renewable energy sources include hydro, biomass, wind, landfill gas, fuel cells and selected solid waste technologies.  Certificate prices are depressed in Maine because there is an overabundance of idle biomass plants and hydropower facilities available to its grid.  In Massachusetts, the LSE's must have only 1% of their renewable energy resource mix contracted from renewable generators but with the narrow definition of renewable technologies in Massachusetts, the REC prices are the highest in the region, a condition created by excluding operating renewable energy plants.  The regulators have gone to great lengths to encourage new technologies in Massachusetts. Thus, the regulators have excluded hydropower, certain solid waste combustion technologies and other types of biomass fuels in order to create a market for emerging renewable technologies such as solar, wind, ocean/wave/tidal, fuel cells, landfill methane and low emission biomass. 

Community recreational area are preserved and maintained by rehab of an existing hydro project

Vermont and Connecticut are in the process of setting the RPS percentage and of defining what technologies qualify as new renewable power sources.  Both draw the distinction between "old" plants which operated before their RPS quota was set and "new" plants that come on line after that date. REC prices generated by "old" plants range around $1.50 per REC, while RECs that are projected to be produced by "new" plants run from $35.00 to $45.00 per REC.  At this time Massachusetts hydro plants may sell their attributes to meet the RPS of both Connecticut, Vermont and even to New York State (once these markets are developed).  It is ironic since these states already have substantially  more hydropower capacity operating than exists in Massachusetts (a state that seems to take hydropower's economic existence for granted). Moreover, the wealth of small dams and hydro plants that helped Massachusetts lead the industrial revolution are now decaying, the mills are closing  and existing renewable hydro facilities are now abandoned because the energy plus REC prices are artificially depressed by the state's RPS policy. The impact is felt hardest by the towns and cities who once depended on these industries to maintain their hydro infrastructure, but now must shoulder the burden of maintaining structures that are no longer economical to operate.

Swift River Company has registered all of its operating hydro facilities in the GIS. See <http://www.nepoolgis.com/> for listings of all the renewable energy projects registered in the GIS accounting system.  In the NEPOOL GIS, certificates for generation are created, one certificate for every MWH of generation, on a monthly basis.  However, these certificates may be traded only on a quarterly basis. In addition, there is a lag of approximately one quarter before the GIS makes the certificates available for trading. This is like having a half year float in payments between production and the sale of the power from one of these renewable facilities.  As of this date, the third quarter of trading has been completed, a half year before the first LSE is required to fulfill its quota of green certificates.  Green certificate futures were trading at $1.20 per MWH during the most recent trading period.

Existing Producers Want the RPS Changed

The Independent Energy Producers of Maine (IEPM) represent Maine's renewable power generators including biomass (wood chip) plants, solid waste (trash to energy) plants, hydropower plants and wind generators.  For more than a year, IEPM has sought to amend Maine RPS adopted in 1997 at 30% so that it does not continue to disadvantage any technology or operating energy facilities. Here is testimony explaining their members' position:

"    The fundamental tenet of the 1997 restructuring law was that it be balanced and not disadvantage any sector of Maine’s energy market.  Therefore, this committee established the RPS to support the state’s renewable generation.  Yet it is clear today that the current RPS is not providing sufficient support to renewable power.  To quote the recent PUC study, “the current portfolio standard requirement is not satisfying the policy of promoting the generation of electricity from renewable and efficient resources.”  As a result, we believe that it is important that the RPS be amended to provide assistance to existing generators, not just new resources, to preserve the state’s valuable investment in its renewable power assets.

     The RPS was created to maintain a clean, indigenous source of power and to provide fuel diversity to Maine’s electricity generation mix to prevent the state from becoming overly dependent on foreign fossil fuels.  And yet, since 1997 this state has become more and more reliant on one fuel source – natural gas – all of which must be imported.  This has produced a growing need to promote diversified electricity production in Maine to insulate consumers from the potential problems (such as price spikes or supply shortages) that come with having all our energy eggs in one basket.

     Another reason the RPS was created was to preserve the state’s investment in renewable facilities and their economic contribution to the state.  Renewable power is an important thread in the economic fabric of this state, especially rural Maine.  Renewable generators are the largest or second largest employer and taxpayer in rural communities such as Stratton, Sherman, Fort Fairfield, Greenville, and others.  A town manager from one such community recently summed up the relationship by saying, “if the state is serious about helping to support and to stabilize the wood products industry and if they are serious about securing jobs for rural Maine, they need to support renewable power.” 

    He mentioned forest products because biomass plants’ primary fuel is the residue from Maine sawmills and logging, the revenue from which is important to the forest products industry.  Some may recall the sawmill crisis in 1999 when the shutdown of three biomass plants led the Legislature to convene a task force to try to avoid the closure of sawmills. 

    Similarly, the many economic, cultural, and recreational benefits of hydropower are, I think, well known to the members of this committee, and unfortunately, the state has recently begun to witness the loss of those benefits through the decommissioning of some facilities.  Maine’s waste-to-energy facilities provide the incalculable benefit of disposing of a huge percentage of the state’s municipal solid waste, and furthermore, their financial fortunes are tied to the communities they serve (and are owned by, in many cases).  Without question, additional losses of renewable power facilities in the future would negatively impact Maine’s economy. 

    In conclusion, IEPM believes that a comprehensive approach to reforming the RPS is necessary – one that benefits both existing and new resources.  Without one, Maine will witness a continued loss of its renewable power assets.  Over-reliance on natural gas as a fuel source will be achieved, so-called “excess capacity” will be eliminated, energy prices will rise, and Maine and the region will lose all of the environmental, economic, reliability, and security benefits of renewable power."

A similar recommendation has been presented in Massachusetts to the Division of Energy Resources (DOER), but fear of diluting the stimulus for emerging technologies drives the RPS policy.  Neither fairness, nor the loss of private responsibility for existing dams, canals and flood control structures that now must be assumed by local government has motivated the DOER to recommend even a two tier RPS policy like that adopted in Connecticut and some other New England states.  An even fairer policy might be to increase the quota to a few percentage points above the existing share  (some say 15%) of renewable energy generation in the mix of the state's energy supply. Without one of these policies being adopted, the mills throughout the state that brought hydro up to the most reliable and economic renewable energy technology used throughout the world will continue to close and with them their hydro facilities will be abandoned. (See the reported enthusiasm for REC sales by the Pepperell Hydro project in recent new articles: Pepperell Free Press and Pepperell Globe articles where town officials clearly express their relief that a private generator will maintain the hydro plant, dam and recreational pond in their community.  

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