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Greening or Greenwashing? Illinois Cities’ Use of RECs Shows Challenges with Local Aggregation

| Written by John Farrell | No Comments | Updated on Apr 7, 2014 The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/illinois-cities-greening-or-greenwashing/
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A recent report from the World Wildlife Fund (and others) touts how city energy aggregation is “unleashing” renewable energy in Illinois. Buying electricity on behalf of their residential and small business customers, nearly 100 Midwestern cities have purchased renewable energy credits (RECs) along with their energy supply, giving their electrons a questionable aura of green energy.

These communities aren’t intentionally greenwashing, but those touting 100% green power may be disappointed by the reality: their purchases are padding the pocketbooks of existing wind and solar producers (good people), but they’re not likely to displace any additional fossil fuel power generation.

Let’s tackle why this kind of “unbundled” RECs are a problem, and also why this shows the largely untapped potential of community choice aggregation.

What’s a REC?

A renewable energy credit is a legal document that certifies that one megawatt-hour (MWh) of electricity was generated from a (state-law-defined) renewable energy resource. To comply with a state’s renewable energy mandate (e.g. 25% by 2025), a utility typically generates or purchases RECs equal to the percentage of energy sales required to meet the standard. E.g. IllinoisState Utility has 100 MWh in annual energy sales and owns 25 RECs, (each worth 1 MWh), making its electricity 25% renewable.

Often, a utility purchases the REC “bundled” with the energy produced by a wind, solar, or other renewable energy generator. For example, IllinoisState Utility could meet its 25% renewable energy standard by buying 25 MWh of electricity (and its corresponding 25 RECs) from a wind power plant.

How Can RECs Make Rascals?

In other cases (where permitted by state law), a renewable energy producer can “unbundle” the REC from the actual energy. In this case, IllinoisState Utility can buy 1 MWh of power from a wind turbine, but the REC could be sold to the CaliforniaState Utility.  Even though the power comes from a wind turbine, it can’t be counted as renewable when the IllinoisState Utility files to comply with its state renewable energy standard. On the other hand, CaliforniaState Utility could be producing electricity from coal, but could use the REC to meet the renewable energy standard or to simply suggest that its energy supply is more renewable than it actually is.

Illustration of Bundled v. Unbundled RECs (credit: Dan Pinkel and Al Weinrub)

Screenshot 2014-03-27 11.45.01

The theory is that proper verification means that only one entity is using one REC. Even though CaliforniaState Utility owns zero wind turbines, it helps finance renewable energy by buying RECs in addition to purchasing electricity from dirty fuel sources. The IllinoisState Utility, having not bought the RECs with its wind electricity, would have to buy additional renewable energy or RECs to meet its own legal requirements.

But there are some major problems with this system and its assumptions.

  1. It’s not new renewable energy. Most of the unbundled RECs being purchased for Illinois and other city aggregators around the country are on short-term (e.g. 2 year) contracts. In other words, they aren’t likely to be used to finance new renewable energy, but rather represent additional revenue for wind or solar projects that were financed (often years ago) on the basis of federal or state renewable energy incentives. Great for those energy producers, but not great for the climate or environment because it’s not offsetting more fossil fuel power generation.
  2. It’s not economic development. Because these RECs are likely to come from existing renewable energy projects, buying the RECs isn’t generating any new economic benefit associated with constructing new wind and solar projects, often a major selling point of being green.
  3. It’s not local. Money used for RECs could instead finance rebates, incentives, or feed-in tariffs (or loan loss reserve programs to backstop financing for local energy investment) that would have a meaningful impact on local energy generation and the local economy.
  4. It may not be green at all. Many states have laws that label dirty power generation like burning tires or trash as renewable. If these facilities are awarded RECs and can sell them across state lines, a city’s purchase of “green” power may not be green at all.

For more on the issues with RECs, read our source, What the Heck is a REC?

How are City Aggregators Falling Short?

In the case of local energy aggregation, the REC issue is magnified. Local aggregation gives local governments remarkable authority over their energy system, including energy efficiency, conservation, and renewable energy development. They can wield energy policy in the name of economic development, preserving more of the community energy dollar.

But the vast majority of aggregation cities have merely shifted fossil fuel energy suppliers, from the incumbent monopoly utility to the subsidiary of another large corporate utility. A plurality have done so and also purchased unbundled RECs, selling their customers electricity and the promise that somewhere, somehow the same amount of power is also being generated from a renewable resource. But it’s unlikely that these purchases are actually increasing renewable energy production. Instead, they are likely rewarding existing renewable energy producers with a bit more short-term revenue.

In other words, aggregation laws give cities the authority to pursue an energy moonshot, and most have settled for low-earth orbit.

Sadly, there aren’t a lot of powerful examples of communities exercising their potential local aggregation authority. Marin Clean Energy in the Bay Area of California is probably the best (listen to our podcast interview with Dawn Weisz from MCE), with several local renewable energy procurement programs and a priority on energy efficiency. But even Marin has short-term contracts with large energy suppliers (with unbundled RECs) to deliver energy to its 100,000 or so customers.

Hopefully, this is a short-term problem, with city aggregators using RECs while they develop more robust programs to lower energy costs and increase local clean energy production.  The California RPS is structured this way, allowing more use of unbundled RECs in early years and a smaller portion of the total in the later years.

But to say that local city aggregations are “unleashing” renewable energy with RECs? Let’s say instead that we’re waiting on the launchpad.

Photo credit: Flickr user echoside

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About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More

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