Viewpoint: Virginia will increase REC demand in 2021

Virginia's new clean electricity mandate is expected to boost demand significantly for renewable energy certificates (RECs) in the broader PJM Interconnection, especially between 2021-24.

Virginia earlier this year passed the Clean Economy Act, a statute establishing the latest renewable portfolio standard (RPS) in the PJM region. The measure gives Dominion Energy, Virginia's largest utility, until 2045 to convert its non-nuclear load to 100pc renewable energy and fellow utility Appalachian Power until 2050 to reach the same benchmark.

To meet the Virginia RPS, the two utilities will need to retire more than 7mn RECs from qualifying renewable energy projects within the PJM Interconnection footprint in 2021. That could lead to a shift in how RECs are used in the region as the Virginia utilities try to meet their targets.

Virginia contributed the largest amount of credits retired by Maryland utilities in 2019 with almost 2.8mn of the 11.4mn total, including nearly 35pc of the landfill gas credits, 19pc of the hydro RECs and 73pc of the certificates from wood and waste solids.

Virginia also accounted for 17pc of the Tier I RECs retired in Pennsylvania for 2019, and a combined 133MW of Virginia-based resources, primarily landfill gas, qualify for the District of Columbia's mandate.

In part, the new regional market dynamics will revolve around the resources Virginia lawmakers chose for the RPS. Their list includes RPS stalwarts like wind and solar, as well as waste-to-energy, landfill gas and biomass facilities located in Virginia. And while the law bars pumped storage, the state will accept RECs from hydroelectric facilities in Virginia owned by the two utilities, as well as certain facilities throughout the PJM region smaller than 65MW.

Dominion must also meet a 1pc/yr distributed energy resource (DER) requirement, retiring RECs from anaerobic digesters, solar farms and wind projects up to 3MW in size, with 25pc of the total from qualifying low-income facilities.

Dominion expects its inaugural compliance obligation, 14pc, to translate into a little over 6.3mn RECs. That figure would increase to 11mn credits by 2024 — the final year before Dominion has to procure 75pc of its RECs from sources within Virginia's borders. The company projects that the DER requirements would begin at around 63,000 RECs next year, with almost 16,000 from low-income projects.

By 2035, the utility forecasts a need for 35.4mn RECs to satisfy that year's 59pc overall obligation.

Portions of a filing with state regulators that detail the generation from which Dominion will derive its RECs — including credits sourced from the broader PJM Interconnection — are redacted. But the utility expects its hydropower, solar and wind portfolio to supply over 1mn RECs during the 2021 compliance year.

At the same time, Dominion may bank the RECs generated by Virginia-based resources between 2021-24 for use in 2025, when it must source 75pc of an expected 13.3mn credits from projects located in the state.

Appalachian Power's requirements are less aggressive. The utility — a subsidiary of American Electric Power that serves 1mn customers in Tennessee, Virginia and West Virginia — projects its 2021 needs at around 816,000 RECs, only 6pc of which are expected to come from within the state. While the utility is not subject to the same in-state requirements as Dominion beginning in 2025, the expansion of Appalachian Power's solar fleet will lift the in-state contribution to 41pc by 2035.

Some environmental advocates are already pushing the state to turbocharge the RPS, installing a 100pc clean energy by 2035 requirement to ensure Virginia aligns itself with the 2015 Paris climate accord, retaining the current RPS targets for 5,200MW of offshore wind by 2034 and 3,100MW of energy storage by 2035.

But lawmakers seem unlikely to increase the mandate anytime soon. A more aggressive "Green New Deal" bill that called for 100pc renewables by 2036 stalled in committee, even though Democrats hold majorities in both chambers of the state General Assembly.

By Patrick Zemanek