California Tradable Renewable Energy Credits (TRECs) are tradable environmental commodities, proposed for creation in California, that would represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. The credits would be produced at the time of energy production and could be traded and sold independently of the energy that generated them. When a credit is "cashed in" (or "consumed") it is removed from the market and the owner of the credit can claim to have promoted the corresponding volume of electricity from renewable energy sources.
The California Public Utility Commission (CPUC) proposed created TRECs on October 29, 2008 as a mechanism to potentially reduce costs and increase flexibility for those entities with renewable portfolio standard (RPS) compliance obligations. California's RPS requires electrical corporations to increase their procurement of electricity from certain eligible renewable energy resources by at least 1 percent of their retail sales annually, until they reach 20 percent by 2010.1
Earlier in 2008, the CPUC adopted a final definition of a compliance TREC, but declined to decide on whether to allow the use of unbundled TRECs for RPS compliance. In this prior decision, the CPUC defined a TREC as "a certificate of proof, issued through the Western Renewable Generation Information System (WREGIS), that one megawatt-hour of electricity was generated by an RPS-eligible renewable energy resource and delivered for consumption by California end-use customers" in accordance with the definition of delivery implemented by the California Energy Commission (CEC), and which must include all renewable and environmental attributes associated with the underlying generation resource.2
The purpose of the use of TRECs for RPS compliance is to reduce costs and greatly increase flexibility for those entities with RPS compliance obligations, because they will be able to procure power at the lowest cost, while also meeting their renewable energy targets. Allowing TRECs for compliance may also help to reduce issues suffered by the current RPS structure, including transmission constraints and the uneven distribution of renewable resources.3
Creating a TREC market in California
The proposed decision outlines the general rules for a TREC market and for the integration of the TRECs into the RPS flexible compliance program. There are no restrictions on who may participate in the TREC market, but all participants must meet both the CPUC requirements for TREC trading as well as any requirements set by the WREGIS. Only TRECs properly tracked in WREGIS will be eligible to be used for compliance with the California RPS.4 (WREGIS is an independent, voluntary, renewable energy tracking system launched in June 2007 for the region covered by the Western Electricity Coordinating Council, which will be responsible for tracking generation and issuing TRECs.)
To facilitate the transition into the TREC market, the proposed decision also places a transitional price cap on TRECs used for RPS compliance. The price cap is set at $50 per MWh (i.e., per TREC), equal to the amount of the penalty for noncompliance with the RPS requirements, and may be reviewed as the market matures to determine whether it is still appropriate. The imposition of a price cap would end upon the earlier of all investor owned utilities' attainment of the 20 percent RPS goal or January 2012. TRECs have a compliance life of three years, inclusive of the year in which they are created, and once retired, they may be banked for use in future compliance years.5
Footnotes
1. : California PUC creates a tradable REC market for RPS compliance.The Free Library by Farlex.
2. : California PUC creates a tradable REC market for RPS compliance.The Free Library by Farlex.
3. : California PUC creates a tradable REC market for RPS compliance.The Free Library by Farlex.
4. : California PUC creates a tradable REC market for RPS compliance.The Free Library by Farlex.
5. : California PUC creates a tradable REC market for RPS compliance.The Free Library by Farlex.
Resources
- Dorn, Melissa, and Gregory K. Lawrence, "California PUC Creates A Tradable REC Market For RPS Compliance," Mondaq New Alert, 18 Nov 2008. http://www.mondaq.com/article.asp?articleid=70066
- http://www.energy.ca.gov/renewables/index.html
- http://www.oeko.de/service/greencert...is_a_trec1.htm
