With the 2010 deadline for our big three investor owned utilities [IOUs] to meet their 20% Renewable Portfolio Standard [RPS] hurdle, the CPUC is weighing a decision to allow the renewable energy credit attribute to be stripped from green power generation and be a tradable asset, usable by the IOUs to meet their RPS requirements.  This provides our investors a reliable price signal for the renewable attribute, something not previously available in the California energy markets. 

The hammer in the original 20% RPS target was a $50/MWH penalty incurred by the IOUs and their shareholders for not meeting the 20% requirement.  The CPUC recently released a decision allowing utilities to meet 40% of their obligation by purchasing and retiring RECs generated by renewable generation assets in the western power [WREGIS] markets, since it looks like we are three to four years behind schedule in meeting the requirement. And the CPUC capped value of these tradable RECs at what the compliance penalty is, so not to motivate IOUs to shift non-compliance costs from shareholders to ratepayers (us).  The price cap allows the IOUs to shift up to 40% of their shareholder-borne non-compliance costs [non-recoverable] into a recoverable cost through the purchase of TRECs at the same price as the penalty price.

In a nutshell, this proposed decision sets out:

• Cap of $50/REC imposed for 24 months
• Generation Assets may be located outside of California
• Limited to 40% of compliance obligation
• RECs must be tracked in WREGIS database
• No solar premium

The price cap is higher than the ~$10 value of solar RECs in California previously, equal to what City of Palo Alto Utilities pays 3 Degrees, Inc., but less than the $120 value in Colorado, where they have a separate REC market for smaller solar generation.  Adds a nice little boost to our investor owned systems, particularly in the early years where demand for our solar RECs will outstrip supply.  What it really does is define a value for an attribute that was previously hard to pin down.

So the new sweet spot is 1MW installations on the customer side of the meter [under the CSI program], offsetting high retail electrical rates, and remarketing the SRECs to the IOU.  Five year paybacks on a thirty year asset.

Eventually, the TREC price will revert back to the unbundled price of renewable generation less the cost of brown energy, but demand is likely to create attractive valuations for the next three to four years.

UPDATE:  CPUC approved the use of TRECS for IOU's to meet their RPS on 11MAR.  Click here for a copy of the decision [.pdf, 500k] Big change is that the cap was reduced to 25%.  Will the IOU’s step in and buy TRECS now?