RECs and RPS

Here we’ll look at 2 calculations:

1. How much would it cost Belmont Light if it  chose to meet the state RPS requirements?  How much would that come to per year for a typical Belmont family?

2. How much would it cost if a family decided to buy all its energy from renewable sources through Mass Energy or Mothers Out Front?

A detailed explanation of renewable energy, RECs and the Massachusetts RPS can be found here.

Data from different years will be freely mixed and approximations and estimates will be made when necessary.  The idea is to come up with ball-park estimates and by no means are these reliable numbers.  Criticisms and corrections are welcome and can be made in the comments section below.

1. First let’s look at Belmont Light.  Belmont Light purchases and distributes about 130,000 MWh of electricity each year.  The state RPS for 2014 is 9% (rising 1% per year until it is 15% in 2020) and the solar carve-out is about 1%.   The price for RECs is about $50-60/MWh but they can be bought for cheaper if part of a longer term contract.  Let’ s use 2 estimates then:  $35/MWh  and $55/MWh as numbers to work with.  The price for SRECs is about $230/MWh.   The calculation would look something like this.

9% of 130,000 = 11,700 (the number of RECs BL would need to buy)

11,700 RECs at $35/REC is about $400,000.

11,700 RECs at $55/REC is about $640,000

1% of 130,000 = 1,300 (the number of SRECs BL would need to buy)

1,300 at $230/SREC is about $300,000.

$300,000 + $400,000 = $700,000 (total cost of meeting RPS for RECs selling at $35/REC)

$300,000 + $640,000 = $940,000 (total cost of meeting RPS for RECs selling at $55/REC)

Belmont Light sells about $23,000,000 of electricity per year.  $700,000 represents about 3% of the total income.  $940,000 represents about 4% of the total income.  The average yearly family’s electricity bill is about $1345.  3% of $1345=$40.  4% of $1345 =$54.

So the answer to question 1 is that the average family would have to spend between $40 to $55 more in yearly electricity bills to meet the state RPS than it would have to spend if Belmont bought no new renewable electricity.

2. Next let’s take a look at a family who wants to buy all its electricity from renewable sources.  The average yearly energy consumption of a family is 7290 kWh or about 7.3 MWh.  We will only use the $35/MWh cost for a REC because the Mass Energy program sells RECs at prices actually cheaper than this.

7.3 MWh at $35/MWh for a REC = $255

So it would cost about $255 for a family to buy all its electricity from renewable sources.  But is the family really buying all its energy from renewable sources?  Well, not really.   It is buying RECs associated with the same amount of electricity that the family uses in a year.  Since electricity is mixed from all sources on the grid there is no way of knowing where the electricity the family is using actually came from.   Additionally, the kWh associated with the RECs purchased could very well have been put on the grid by wind turbines at times when the price per kWh was low.  Wind blows greatest at night when energy prices are low.  So then the RECs that our family are purchasing could be associated with energy that was predominantly put on the grid in the middle of the night or at other times of low kWh value.   Is all this such a bad thing?  Absolutely not!  Such a family is still encouraging the construction and development of new renewable energy sources that will contribute in a small way to our transformation to a carbon-free economy—-which if you are concerned about climate change is definitely a very good thing to do.

3 thoughts on “RECs and RPS”

  1. So if Belmont Light would have to pay between $700,000 and $940,000 per year in REC’s were it bound by the MA-laws for investor owned utilities, why not use at least some of that saved money to support renewable energy installations in town? A rebate for solar systems comes to my mind. Other towns that don’t have to pay REC’s have incentivized solar systems by up to $6,000 (Hudson Power & Light). Out neighbor Concord subsidized them by up to $3,150. Even if we would get 100 solar installations per year, a $3,000 incentive would only be $300,000 total, or still less than half of what most towns in MA have to pay for REC’s.

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