1. 1 Renewable Energy Certificates Presented by Janice Moore, Partner jmoore@mcguirewoods.comjmoore@mcguirewoods.com (202-857-1752)

2. 2 Renewable Energy Certificates Represent attributes of electricity generated from renewable energy sources Also called “green tags” Unbundled from the physical electricity Currency of renewable energy markets

3. 3 Renewable Energy Certificates Flexible enough to make attributes a commodity Not subject to geographic or physical limitations of electricity Certificates are used to –Show compliance with regulatory requirements –Supply end-use costumers with renewable energy products

4. 4 REC Challenges

5. 5 Issues to be Resolved REC substantiation and verification National REC Markets Ownership uncertainty Emissions markets REC definition

6. 6 Tracking and Verification Bilateral contract between buyer and seller with affidavit as to source, ownership and exclusive sale Third-party entity that issues certificates

7. 7 EPA’s SO2 Program – Obstacles Emissions allowances primarily granted to fossil plants, with limited amount set aside for renewables; optimal allocation is difficult Program limits participation to utilities; renewable energy developers may participate only if join with a utility So2 capped by federal law; allowances allocated only to polluting plants

8. 8 REC Tracking Systems Verify compliance with renewable energy definitions Substantiate voluntary marketing claims Provide protection against trading abuses

9. 9 REC Tracking Systems Issue an electronic certificate Record changes of certificate ownership Retire certificates when used for different purposes

10. 10 PJM’s GATS Generation Attributes Tracking System

11. 11 GATS PJM Market (Pennsylvania, New Jersey, Maryland) Motivated by state requirements for distributing emissions information to customers See: http://www.pjm-eis.com and http://www.pjm.com/committees/working- groups/dsrwg/downloads/20050921-item-6-gats- update.pdfhttp://www.pjm-eis.com http://www.pjm.com/committees/working- groups/dsrwg/downloads/20050921-item-6-gats- update.pdf

12. 12 NEPOOL/ERCOT/PJM REC Tracking Systems Comparison NEPOOLERCOTPJM All generation in or delivered to area Existing and new renewable generation All generation in PJM control area Lifespan 1 quarter to one year, depending on issue date Lifespan 3 calendar yearsLifespan undecided Annual membership feeERCOT feesSubscription fee and volumetric fees 6 New England StatesTexas only13 states, including PA, MD, NJ

13. 13 NEPOOL/ERCOT/PJM REC Tracking Systems Comparison NEPOOLERCOTPJM Unit-specific imports or exports must be physically delivered to/from NEPOOL system Imports under certain circumstances Imports only from regions offering reciprocal treatment of PJM RECs Mandatory participation for all generators and LSEs Mandatory participation for competitive retail suppliers that must meet RPS Mandatory participation for all generators and LSEs

14. 14 NEPOOL/ERCOT/PJM REC Tracking Systems Comparison NEPOOLERCOTPJM System administered by APX, sharing some responsibilities with NE regulators System administered by ERCOT, sharing some responsibilities with PUCT System administered by PJM, sharing some responsibilities with regulators End of RPS compliance period: RECs retired after used for compliance; unsold certificates assigned to residual mix End of RPS compliance period: RECs retired after used for compliance; unused certificates remain in REC account until retired End of RPS compliance period: RECs retired after used for compliance; unsold certificates assigned to residual mix

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