California: REC Market and Project Financing
RECs may ultimately provide another revenue stream to help create demand for commercial, governmental and utility distributed generation projects...
The only current market demand for RECs, however, is for RPS compliance. Because of the "flexible" RPS compliance requirements, even demand from utilities will develop slowly since there is no "teeth" in such requirements. REC trading will start slowly because contracts to acquire RECs from projects must be approved by the CPUC and there is currently a limited supply of projects to generate RECs. RECs seem unlikely to have a material impact on RPS in 2010 for the same reasons. RECs may be unbundled from the energy in smaller scale utility distributed generation projects. In the short term, because of the lack of predictability of demand and pricing for RECs, it seems likely that power producers will want the revenue from a higher kWh price under the PPA rather than a lower PPA price if the RECs are sold separately.
The use of RECs for RPS compliance is initially limited to 25% of an annual obligation and a price cap of $50 per REC. The caps are intended to allow the CPUC and the market to better understand the implications of trading before opening the market to unlimited use. Trading will occur through the Western Renewable Generation Information System (WREGIS). REC sellers and other participants in the California market must satisfy the requirements of WREGIS which will not register a system smaller than 1 kW of generation capacity. Both the 25% usage cap and $50 price cap will expire at the end of 2011. As indicated, contracts for RECs must be approved by the CPUC just as for bundled energy under PPAs and the $50 is a ceiling and will not be assumed to be a"reasonable' price which a utility must prove as part of the REC contract approval process.
A 500 kW system might generate about 700,000 kWh (700 MW) a year. Assuming a $50 price, annual revenue from the sale of the 700 RECs could be about $35,000, which over the 20 plus years life of the system could make a financing more feasible.
