Renewable Energy Credit Lawyer

Padua Law Firm’s renewable energy credit attorneys have extensive experience in representing investors, businesses, and consumers in transactions and litigation, purchase and sale agreements, and other related topics involving renewable energy credits, or “RECs”.  RECs are a type of environmental commodity that are experiencing rapid growth. This article will provide an introduction and background to renewable energy credits and the Texas REC trading program that has been developed to simultaneously assist energy producers in meeting their renewable energy obligations and promote renewable energy projects and investment across the nation.

Introduction

Renewable energy, as its name suggests, is energy that can be generated from a source that is naturally renewed (i.e., from a source that is not depleted when used, such as wind, solar, and/or geothermal energy). Unlike other sources of energy that are not sustainable and only available in limited quantity, renewable energy sources are virtually inexhaustible in duration^[1]U.S. Energy Information Administration, Renewable Energy Explained, https://www.eia.gov/energyexplained/renewable-sources/ (last visited Sep. 23, 2021). and only limited by the amount of energy available or “generated” per unit of time. In recent years, the global energy economy has shifted its focus to the research, development, and use of renewable (or “clean”) energy systems to limit dependence on nonrenewable resources and reduce carbon emissions. Consequently, the focus on the development and implementation of these systems has attracted a great deal of investment in the United States and, in particular, the Texas renewable energy sector^[2]Antoine Gara, Berkshire’s renewable Energy Investment to Hit $15 Billion, The Street (Mar. 1, 2014, 10:29 A.M.), … Continue reading. (RPS), that specify certain renewable energy production standards for retail electric providers operating within its borders to increase the use of renewable energy generation.^[3]U.S. Energy Information Administration, Renewable Energy Explained—Portfolio Standards,https://www.eia.gov/energyexplained/renewable-sources/portfolio-standards.php (last visited Sep. 23, 2021). Although there is currently no federal RPS in force and effect,^[4]U.S. Energy Information Administration, Renewable Energy Explained—Portfolio Standards,https://www.eia.gov/energyexplained/renewable-sources/portfolio-standards.php (last visited Sep. 23, 2021). many states, including Texas, have developed their own RPS policies.

What is a Renewable Energy Certificate?

A Renewable Energy Certificate or a Renewable Energy Credit (REC)^[5]Renewable Energy Certificates are also commonly known as Renewable Energy “Credits”. is a digital instrument that represents and— importantly—conveys the bundle of property rights attributable to the environmental, social, and other non-power attributes of renewable electricity generation.^[6]Minn. Solar Energy Procurement Workshop, Renewable Energy Certificates 101, E.P.A (Sep. 18, 2019), … Continue reading RECs are created when one megawatt-hour (MWh) of electricity is generated from a renewable energy source and delivered to the electricity grid it serves. RECs are created when one megawatt-hour (MWh) of electricity is generated from a renewable energy source and delivered to the electricity grid it serves.^[7]James Critchfield, Understanding renewable Energy Certificates (RECs) and the Green Power Procurement Process, E.P.A. (Apr. 15, 2015), … Continue reading After the REC has been created, it may be traded on its respective open market as an environmental commodity to serve as “proof” that one megawatt-hour of electricity was generated from a source of renewable energy.^[8]ENERGY WATCH, https://energywatch-inc.com/renewable-energy-credits-recs-explained (last visited Sep. 23, 2021). RECs will generally correspond to the power producing region of the United States where the renewable energy project that generated such renewable electricity is located. Accordingly, RECs can be bought or sold to match each power producing region via the respective REC registries that maintain, issue, track, and warehouse RECs.

Texas RECs: How Do They Work? Who Oversees the Trading Program?

In the State of Texas, Renewable Energy Credits are defined similarly: one megawatt hour (MWh) of renewable energy physically metered and verified within Texas.^[9]Tex. Admin. Code § 25.173(c)(13) (2009). In other words, a renewable energy credit represents the “green energy” attributes attached to each Megawatt Hour of renewable energy generated in Texas. Thus, all RECs generated in the State of Texas are Texas “home grown” local property.
The Electric Reliability Council of Texas (ERCOT) administers the Texas REC trading program and tracks the production and transfer of RECs in Texas.^[10]Tex. Admin. Code §25.173(g). ERCOT’s tracking systems works by assigning a unique serial number to each generated REC to manage and monitor all Texas RECs accepted, delivered, or otherwise traded on its platform. Accordingly, Texas RECs are required to be accepted and delivered through ERCOT’s tracking system,^[11]See Public Utility Commission of Texas Substantive Rules, §25.173 (k)(2) (“the transfer of RECs between parties shall be effective only when the transfer is recorded by the program … Continue reading and all persons, corporations, and other traders and/or consumers (i.e., market participants) trading Texas RECs are subject to ERCOT’s regulations and contractual obligations to be able to trade RECs within the State.^[12]See Public Utility Commission of Texas Substantive Rules, §25.173 (k)(2) (“the transfer of RECs between parties shall be effective only when the transfer is recorded by the program … Continue reading ERCOT’S system is very attractive to market participants because it does not require any annual fees for account holders or REC retirement.

Must Energy Generated from Renewable Sources and the Corresponding RECs be Sold Together?

Simply put, no. Although electricity generated from renewable sources and the corresponding RECs are created simultaneously, producers may choose to sell the two separately or bundled together.^[13]See FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 61 (Tex. 2014).

Do Texas RECs expire?

Yes. A Texas REC can be banked up to three years.^[14]See Public Utility Commission of Texas Substantive Rules, § 25.173 at (k)(5) and (m).

Does Texas Have Minimum Renewable Energy Production Requirements?

Yes – in 1999 the Texas Legislature required the Public Utility Commission of Texas (“PUC”) to set forth minimum production requirements for renewable energy for all retail electric providers, municipally owned utilities, and electric cooperatives authorized to conduct business in the State.^[15]TEX. UTIL. CODE ANN. § 39.904(c)(1). The State Legislature also tasked the PUC with establishing a renewable energy credit trading program for the aforementioned entities.^[16]TEX. UTIL. CODE ANN. § 39.904(b). This program would serve to require all electrical providers doing business in the State of Texas that did not satisfy their minimum renewable energy production requirements to “purchase sufficient renewable energy credits to satisfy the requirements by holding renewable energy credits in lieu of capacity from renewable energy technologies.”^[17]TEX. UTIL. CODE ANN. § 39.904(b).

Who is required to purchase RECs?  Is there a Voluntary Market? What does the “Retirement” of RECs mean?

The purchase and sale of Renewable Energy Certificates (“RECs”) takes place within two separate but interdependent markets: The Mandatory (or Compliance) Market, and the Voluntary Market. The divide between these two markets, in simplest terms, is drawn between corporations who are required by law to buy renewable electricity credits from those who buy it voluntarily. ^[18]U.S. Renewable Electricity Market, E.P.A. (Apr. 9, 2019), https://19january2017snapshot.epa.gov/greenpower/us-renewable-electricity-market_.html. The mandatory market is generally comprised of energy producers that are required by their respective state legislatures to meet certain, specific renewable energy portfolio standards—such as the minimum production requirements referenced in the preceding section.^[19]U.S. Renewable Electricity Market, E.P.A. (Apr. 9, 2019), https://19january2017snapshot.epa.gov/greenpower/us-renewable-electricity-market_.html. The voluntary participants or “green power markets,” however, are not incumbered by regulatory mandates and are largely driven by non-power generation businesses and consumers with a preference for certain types of renewable energy.^[20]U.S. Renewable Electricity Market, E.P.A. (Apr. 9, 2019), https://19january2017snapshot.epa.gov/greenpower/us-renewable-electricity-market_.html. As corporations increase their commitments to source their energy from renewables, the voluntary market serves to “drive the growth of in corporate [renewable energy] goal-setting by working with stakeholders to establish guidelines aimed at maximizing the clean energy benefits of [renewable energy] and expansion.”^[21]Rob Hardison et al., Voluntary Renewable Energy Procurement Programs in Regulated Utility Markets, NATIONAL RENEWABLE ENERGY LABORATORY, (Oct. 2020) https://www.nrel.gov/docs/fy21osti/76927.pdf.

As aforementioned, all Texas RECs are regulated and tracked by ERCOT’s official trading platform or system. When a REC on this system has been claimed by the owner and can no longer be sold, the REC has been “retired”.

Conclusion

Renewable Energy Certificates are a fascinating development in the renewable energy space and will continue to drive investment and regulation initiatives in clean energy developments for years to come. As these transactions often involve the execution of complex purchase and sale agreements, it is not uncommon for litigation to arise from disputes related to nonconforming RECs and other transactional complications. If you are

1. actively involved in the mandatory market and trade RECs to meet minimum renewable energy production requirements
2. engaged (or hoping to engage) in the trade of renewable energy certificates to promote renewable energy projects around the country
3. involved in or anticipate a renewable energy credit dispute

Contact an experienced Renewable Energy Certificate Attorney at the Padua Law Firm, PLLC, today via telephone at 713-840-1411 or click here for a consultation.