Los Angeles Department of Water & Power (LADWP) has approved an 87% reduction in the amount of money it pays for Renewable Energy Credits to customers in their Solar Incentive Program (SIP), from $0.40/watt to $0.05/watt. Since the beginning of the SIP program, LADWP has offered participants the option of keeping the RECs for themself, or transferring the ownership to LADWP to be used for RPS compliance. To date, virtually all SIP participants have opted to take the $0.40/watt larger rebate, and assign ownership of their RECs to LADWP.
The recent SIP changes were approved by the LADWP Board of Commissioners, and will be effective for applications submitted after July 15, 2013. The changes were made in response to a June 12th ruling from the California Energy Commission (CEC), which determined that all SIP program unbundled REC purchases are classified as ‘Portfolio Content Category 3’ transactions. The CEC is responsible for establishing RPS enforcement procedures for Public Owned Utilities (POU’s). In a presentation from LADWP which summarized their proposed modifications, they stated that ‘Portfolio Content Category 3’ RECs are presently valued at $0.02/watt, which is far less than the $0.40/watt LADWP had been paying SIP participants.
From a price perspective, ‘Portfolio Content Category 3’ is the least desirable of the three categories. Leaf Exchange has written previously about the bearish supply/demand fundamentals: on the demand side utilities are currently capped at satisfying only 25% of their RPS through ‘bucket 3’ purchases; the cap declines down to 10% in the 2017 – 2020 compliance period. On the supply side, ‘bucket 3’ is the most well supplied category, because it includes unbundled REC generators from anywhere within the WECC territory, which includes portions of 14 western states, 2 Canadian Provinces, and Baja California.
‘Bucket 3’ RECs have traded under $1/REC this year. At this price, the potential revenue gain simply does not overcome the administrative cost of registration, certification and ongoing reporting. The vast majority of CSI solar program participants in the PG&E, SCE, and SDG&E territory who have ownership their credits, are not able to capture any monetary value for their RECs.
Even after an 87% reduction, we would still advise LADWP SIP participants to take the $0.05/watt premium, and assign their RECs to LADWP. It is not practical to sell RECs on your own; solar system (REC) owners in the IOU territories clearly illustrate that point. Given the supply/demand fundamentals discussed above, we are not optimistic on the ‘bucket 3’ market price ever improving. In our view, the only thing that could fix this situation would be the passing of a legislative bill, which clarifies the language in SBX1-2, and reclassifies in-state unbundled REC generators as ‘bucket 1’. We believe the chance of that happening is low.
It is understandable for LADWP to slash the price they pay SIP participants for their RECs, they have been significantly overpaying all this time for ‘bucket 3’s’. In our opinion, the recent CEC ruling was expected, the only surprise is that it took so long to get finalized. The real news story happened back in December 2011, when the CPUC (interpreting language of SBX1-2) made the determination that all unbundled RECs (regardless of being generated in-state) were to be classified as ‘bucket 3’. That decision sealed the fate of in-state unbundled REC generators, effectively rendering their value worthless. The CEC simply maintained consistency with the earlier CPUC decision, in order to avoid creating market uncertainty of having different rules for POU’s than for IOU’s, in RPS compliance.
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