Strange days

Author Patrick Zemanek, Reporter

Out-of-state coal subsidies. Natural gas groups teaming up with renewable energy advocates. Allegations of a communist conspiracy. It is a weird time for clean energy in Ohio.

After a number of failed attempts, Ohio lawmakers have scaled-back the state’s renewable energy mandate, a policy that requires utilities to use resources like wind and solar power for a certain percentage of their sales. With the same new law, Ohio will subsidize two nuclear plants and two coal plants, one of which is located in Indiana.

In the process, lawmakers may have hurt Ohio’s ability to expand its clean energy sector and reduced demand for renewable energy certificates (RECs) across the PJM Interconnection.

Let’s back up.

Renewable energy is an odd commodity because it technically does not exist. Once electrons hit the grid, there is no difference between the electricity generated at a wind turbine and a coal plant. So, in order to track the “green attributes” from clean resources, states use RECs, credits that typically represent 1MWh of generation.

RECs symbolize an abstract concept and, as such, lack the objective value of a fossil fuel like natural gas. Instead, they depend on state policies, which – combined with basic supply and demand – determine the ebb and flow of prices. When states share an electric grid, as they do in the PJM Interconnection, RECs from a project in one state often can be retired for compliance purposes in another. That interstate market can increase the supply and demand for the credits.

RECs are also important for building new solar and wind farms. Developers can sell the RECs from their projects, recouping some of the construction costs. But that incentive requires stability – companies are going to build where they know the rules are not going to change on them.

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And with states across the US raising their renewable energy requirements, companies have options. Other states in the PJM region like Maryland and New Jersey are moving in the opposite direction, with both recently setting more aggressive clean energy requirements. Neighboring Pennsylvania is considering whether it will follow their example.

Ohio’s decision to curtail its RPS could affect the region as a whole. A substantial number of the RECs retired to meet the state’s mandate come from outside its borders. With the Ohio requirements now diminished, demand for RECs in the PJM region will also decline, at least in the short term. This has already lead to lower pricing for PJM RECs in the wake of the law taking effect, although the market has rebounded in recent weeks.

The final supply and demand picture will depend on whether the law sticks.

A coalition of renewable energy and natural gas groups are trying to repeal the law with a ballot initiative next year, assuming they get the 265,000 petition signatures they need.

Utility FirstEnergy Solutions, which owns the nuclear plants supported by the new law, is trying to block the ballot measure in the state Supreme Court, and a counter-campaign claims the attempt to kill the new law is part of an attempt by the Chinese government to coopt the Ohio electric grid.

Even if Ohio voters opt to repeal the law, the weaker REC mandate still will have been in place for at least a year. And that alone will cast a pall over the state’s solar sector.

What’s next for the North American environmental markets?

In this series of blog posts, our Argus Air Daily team are tackling the key trends for these markets. We’ll bring you up to speed on the latest changes and upcoming developments on a state and federal level. Take a look at last week’s post, All cap, no trade.

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