What Is a Solar Carve Out?

Last year, House Bill 3080 was introduced in the WV Legislature.  The bill never made it out of its first referenced committee in the House.  The bill would have amended the existing WV law governing the Alternative and Renewable Portfolio Standard to establish or “carve out” a special standard for solar power.  The current ARPS law actually blocks renewable power development by allowing power companies to meet their quotas using credits from non-renewable generation sources.

One of the big reasons that HB3080 failed to get traction in the Legislature is that most legislators don’t understand what portfolio standards are and how renewable energy credits are created and sold.  So that’s what this post is about.

If you want to educate your legislator about HB3080 and the solar carve out, cut and past this post into a letter or email and send it to them.  The bill will be introduced again this year, although it might have a different bill number.  If it does, I’ll let you know here on The Power Line.

What is a portfolio standard?

Let’s start with the concept of the portfolio standard.  The portfolio standard is a requirement that power companies either produce, or buy credits from people who produce, electricity from specific kinds of power generation.  Portfolio standards were created in most states to specifically require power companies to purchase power or credits from renewable power sources.  Most states that have renewable portfolio standards also specific that a certain amount of that power must be produced from solar power.  That is, most states with renewable portfolio standards also have a special requirement “carved out” to encourage the development of solar power.

Under the renewable portfolio standard or RPS, power companies are required to purchase a certain amount of renewable power or credits per year, or they must pay a fine.  The fine thus establishes a base price for renewable power or credits, because the power companies know they will have to pay the fines anyway, so they would at least pay the same amount to purchase power or credits to meet the RPS.

How do power companies meet the RPS?

The RPS creates a certain amount of demand for renewable power every year.  Power companies can invest in their own generating facilities and meet their target with their own production, they can buy electricity from independent producers, or they can purchase enough credits from independent producers and small generators to meet their annual quota.

What are renewable energy credits and SRECs?

The renewable energy credit system makes it possible for even very small producers to benefit from the RPS even though they don’t generate enough energy to sell directly to a power company.  Renewable power from solar power sources are called Solar Renewable Energy Credits or SRECs.  One SREC is equal to 1000 kilowatt hours of generated electricity, also called one megawatt hour.

So an SREC is not electricity.  It is a certified credit that results from the production of 1000 kwh of electricity which has been used by the producer or sold back to the power company through net metering.  An SREC is verified evidence that renewable power has been produced by a particular producer in a particular time period.

If a power company needs credits to meet its annual RPS quota, it participates in an auction that the state creates for the purpose of selling and buying credits generated in that period.  People who have SRECs or other RECs to sell list their credits at the auction along with the prices they will accept.  The power companies purchase the credits, starting with ones with the lowest offered prices until they have purchased all the credits they need to meet their RPS quotas.

In regulated states like WV, power companies are allowed to include the costs of renewable energy credits in the rates they charge their customers.

How are SRECs generated?

But customers can also benefit from the RPS system by installing renewable power systems and selling credits.  All producers of RECs or SRECs must meet certain standards and must be certified, usually by the state’s PSC.  Producers then record the production from their facilities with an authorized agency which verifies their SREC availability.  Producers can either sell directly in the auction markets themselves, or they can use brokers to sell for them on commission.

What do SRECs sell for?

In states around WV, such as PA and MD, SREC prices run around $150 per SREC (1000 kwh) for credits produced within the state.  OH and PA allow out of state producers to sell in their states if they are certified by these states.  Because WV SREC producers have no WV SREC market into which to sell their credits, they can only sell into PA and OH as out of state producers.  Out of state producers are penalized in PA and OH and only receive between $15 and $30 per SREC in those states.

Benefits from a solar carve out and SREC market

  1. The potential to generate regular income in states with RPS and SREC systems also provides a unique opportunity for power companies to help people who want to install solar PV systems.  In OH, AEP’s companies will purchase the rights to ten years of SREC payments for a single upfront cash payment which homeowners can use to pay for their system installation.  These payments can be thousands of dollars, depending on the size of system to be installed.  A bigger system will generate more SRECs in ten years, so that cash payment will be larger.  The homeowner won’t get any SREC payments for ten years, but they get cash right away to reduce their installation cost.
  2. Businesses that are installing larger arrays can depend on steady cash flow from SRECs to finance their start up and construction costs.
  3. The state as a whole benefits because increased solar power capacity generates jobs for installation and development of our own solar power industry.  An active WV solar power industry will generate innovation and new business opportunities as businesses grow and everyone becomes more familiar with PV technology and potential.
  4. Because solar power is generally produced from small facilities, spread across WV, income from SRECs and the businesses they generate will be spread broadly across the state, instead of being concentrated in just a few areas.
  5. WV may be able to use a well established SREC system to offset increased federal carbon pollution limits as those are phased in.  This has to potential to limit the impacts of new federal requirements on both power companies and rate payers.  Passing the solar carve out amendment now would give WV time to have an effective system in place before the federal carbon offsets are created.

The WV Legislature needs to pass HB3080 this session to:

  • Repair the existing ARPS law which actually blocks development of a renewable power industry in WV by allowing power companies to meet their portfolio standard using natural gas and coal-fired generation technologies,
  • Create a small incentive to diversify WV’s electrical generation mix to add flexibility and resilience to our electrical system,
  • Create a market based system which includes a self-limiting auction mechanism to keep solar power development within economical limits,
  • Create new financing opportunities for businesses and homeowners who cannot afford the initial investment that solar power systems require.

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