What is a REC? – The Basics •1 MWH of electricity = 1 REC (there are exceptions) •Tracked/traded separate from physical electricity, generally via: oElectronic tracking systems (ex.PJM Generator Attributes Tracking System) •Dual Purpose: • Ease tracking of environmental attributes and AERS Compliance Provide incremental revenue stream to renewables to make them economical
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What is a REC? – The Basics 1 MWH of electricity = 1 REC (there are exceptions) Tracked/traded separate from physical electricity, generally via: o Electronic.
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Transcript
What is a REC? – The Basics
•1 MWH of electricity = 1 REC (there are exceptions)
•Tracked/traded separate from physical electricity, generally via:
oElectronic tracking systems (ex.PJM Generator Attributes Tracking System)
•Dual Purpose:
• Ease tracking of environmental attributes and AERS Compliance
Provide incremental revenue stream to renewables to make them
economical
New vs. Existing Power Projects•To incentivize investment in new projects, expected revenues must cover:
•Fixed capital costs •Fuel Costs (if any)•Operating and maintenance costs (O&M)•Return on investment
•To keep existing projects operational, actual revenues must only cover: •Fuel costs (if any)•Operating and maintenance costs
Key Point: For most existing power plants, fixed capital costs have been recovered directly from rate-payers through government guaranteed rates of return for investor owned utilities.
Project Finance Fundamentals
RECs & Project Finance
$ $
$ In an efficient market the value of a REC should be the difference between the value of wholesale market energy and the value a new projects needs to recover its fixed capital costs and variable fuel and operation and maintenance costs, plus a reasonable rate of return.
Role of RECs•RECs are necessary to support economics of new projects because:
•Wholesale power prices now set competitively by existing projects•Projects financed by rate-payers (unlike renewables)
•RECs fill funding gap between new project cost and wholesale power price
REC Market Economic Fundamentals
1. REC market demand is fixed
Y axis: REC demand
X axis: Years 2024
6.25%
×
×
×
2. Supply < Demand = REC prices, rising towards ACP
Efficient REC markets rely on supply and demand equilibrium. SB 315 immediately upsets that equilibrium and produces scenario 4. Because of unanticipated oversupply REC revenues fall towards zero. This creates a “lose-lose” situation in which neither new renewable energy or co-gen and CHP projects are encouraged.