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The California Renewable Energy Resources Act (SB X 1-2), obligates all California electricity providers to obtain at least 33% of their energy from renewable resources by the year 2020. This requirement constitutes the most aggressive renewable portfolio standard in the country. (More)

The law makes it easier to use out-of-state sources of renewable energy to satisfy California’s renewable portfolio standard (RPS). More than 30 states have some form of RPS.
Before the new law, California had a statutory delivery requirement. The delivery requirement can be understood in the context of California’s energy debacle during 2000 and 2001. In response to that debacle, California policymakers wanted to assure that, to the extent out-of-state energy sources were going to be used to meet the state’s RPS, the physical electricity generated by those sources was delivered into the state to meet its burgeoning needs.

Most states allow their RPSs to be satisfied by the actual consumption of renewable electricity in the state or by the surrendering of so-called renewable energy credits. These credits represent the environmental benefits—chiefly the greenhouse gas emissions avoided—of renewable energy.

Most states allow these credits to be stripped from the underlying energy that created them, referred to as unbundling. This means an entity that must demonstrate compliance with the RPS can do so by surrendering credits to the regulators as opposed to demonstrating the actual consumption of renewable energy within the state. There are rules that each credit must be counted only once.

The reason for allowing credits to be used to demonstrate compliance goes back to the environmental problem that renewable energy addresses: emission of greenhouse gases. Greenhouse gases do not cause a problem locally; they cause a problem in the upper atmosphere. For that reason, it does not matter where geographically their production is stopped. The benefit remains regardless.

Until the recent changes in the law, California did not allow use of entirely unbundled renewable energy credits from out-of-state renewable energy resources. Under a strict reading of prior law, for California utilities to use wind resources in Oregon, for instance, the electricity from the Oregon wind farm had to be consumed in California to be counted for compliance with the California RPS.

Yet, the California Energy Commission recognized that to meet even the state’s previous 20 percent renewable energy goal, it would have to accommodate more flexibility from out-of-state supplies. So the commission relaxed the statutory delivery requirement. After an initial purchase with the associated energy, the commission allowed the use of renewable energy credits stripped (unbundled) from the associated renewable electricity to satisfy the RPS.

Because of the delivery requirement, those wanting to use the credits originating from out-of-state sources had to match those credits with other electricity (referred to as firming and shaping). Prior law allowed firming and shaping to account for the variability of certain renewable resources. The commission, however, took this limited authorization and turned it into a mechanism allowing unbundled renewable energy credits.

The new law eliminates the statutory delivery requirement and with it any need for an initially bundled purchase of credits with their associated electricity.  (Electric Light & Power, Sep/Oct/2011)