TRECs approved by California Public Utilities Commission

Posted January 18th, 2011 by SRECTrade.

A segment of the California solar industry got a small boost last week as the CPUC approved the TREC program in California. This was essentially a re-affirmation of the original TREC order in March, 2010.

Unfortunately, the TREC market is geared towards large solar farms and not accessible to the rest of the solar industry. The biggest problem is that TRECs can only be produced by “RPS-Eligible” facilities and California currently excludes “Distributed Generation” from RPS Eligibility. The rules are loosely written to define Distributed Generation as coming from facilities where the energy is used close to the source. This pretty much limits the TREC market to solar farms and the companies that build a business out of creating more utility companies (the solar kind). This is somewhat counter-intuitive to the benefits that tradable REC markets bring to promoting local, distributed generation, a reduced reliance on the grid, and the safety of distributed power sources – not to mention all the small businesses that pop-up to support the growth. Either way, this is a decision for the California Energy Commission (CEC).

In addition to the RPS-Eligibility issue, a couple things need to change prior to this having a substantial impact on the solar industry in general. First, the $50/MWh cap on the price of TRECs will not be effective in promoting small-scale solar. The relatively minimal amount of energy generated by rooftop facilities and the amount of effort required to register and sell the TRECs makes it difficult to justify the benefits. The good news is that this cap will be removed in 2014.

The second issue with the legislation is that it creates a generic REC market where solar competes with wind, hydro and other renewable technologies that operate on a scale that is unmatched by solar. This makes it very difficult for the small players looking for access to this market in order to finance solar projects. The only “REC” markets that have been successful in promoting retail residential and commercial solar is an “SREC” market.

As with many states before it, California is taking a cautious approach to implementing TRECs. Hopefully by 2014, the state will make the necessary changes to make this a market that can serve as the foundation of the entire California solar industry. In doing so, it will take a step towards keeping pace with the SREC states on the East Coast. The 33% target in California is aggressive and if solar is going to be a big part of the mix, then the state will need to find a market-based, sustainable solution beyond the budget of the CSI and the pitfalls of the FiT mechanisms so often promoted by industry advocacy groups.

Meanwhile, California solar owners should keep an eye on the other SREC markets. North Carolina in particular is an open market that takes SRECs from out-of-state. The only issue is that, since it is open to everyone, it has gotten oversubscribed pretty quickly. Either way, the takeaway is that opportunities will develop, even if it is outside California, so it does make sense to register if you have a facility in the ground already.

Here is some more information on the most recent decision:

The TREC legislation had been held up by a joint petition of the utility companies essentially lobbying to allow them to procure the RECs from out-of-state, presumably at a cheaper cost. That petition has now been denied and California is back to implementing a TREC program, after a 9 months delay.

The new TREC order of January, 2011. includes the following rules:

1. TRECs can be created by RPS-Eligible facilities (Distributed Generation is excluded)

2. TREC trading begins on the effective date of the decision: January 13, 2011

3. TRECs can be created dating back to the beginning of 2008

4. TRECs have a 3-year life, so the 2008 TRECs will expire

5. All TRECs must be created and tracked in WREGIS

6. If your facility is in a bundled contract, you can unbundle the electricity and trade your RECs separately unless your contract was signed prior to 2005 with California RPS-obligated LSEs (unless stated otherwise in the contract) or if your contract is associated with RPS-eligible energy pursuant to the Federal PURPA Act.

7. TRECs have a 3-year life, inclusive of the year in which it was created

8. LSEs can procure up to 25% of their obligation from TRECs, the rest must come from bundled electricity sales from within their territory. This cap will remain in place until 2014

9. There is a $50 price cap on TREC purchases until 2014


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