Increased Corporate Renewable Claims Lead to the Need for Standardization of Voluntary REC Transactions

Increased Corporate Renewable Claims Lead to the Need for Standardization of Voluntary REC Transactions

Corporations worldwide are increasing their commitments to employ renewable energy in their day-to-day operations by procuring renewable energy certificates (RECs) to meet their renewable claims. RECs are market-based instruments that represent the right to one megawatt-hour of renewable generation.  RECs are purchased for state renewable portfolio standards to maintain compliance requirements, but there is also a growing market for voluntary RECs that has bloomed over the past decade as corporations strive to demonstrate their claims of renewable electricity usage and meet corporate goals.[i]  As this market has grown, the need for standardization has become more apparent, as opportunities to increase efficiency and eliminate redundant terms and processes present appear throughout the industry. For example, standardization decreases the need for administrative staff to learn regional or state-by-state terms and improves the speed of transactions when consumers deal with multiple states or regions.

To address this issue and to support the voluntary REC market, wholesale and retail entities are holding a series of virtual meetings, through the North American Energy Standards Board (NAESB), to develop a NAESB Base Contract for Voluntary Renewable Energy Certificates (NAESB REC Contract) and the technical implementation that could lead to the digitization of the contract.  While the efforts are still underway, the following paragraphs briefly examine RECs, the growth of the voluntary renewables market, and the industry-driven process to develop the NAESB REC Contract.

May 28 is the deadline to submit early comments regarding the North American Energy Standards Board (NAESB) Draft Base Contract for Renewable Energy Certificates.  After approval of a final draft by the NAESB subcommittee later this year, a subsequent 30-day comment period will be announced.  Any interested parties are welcome to submit comments or questions on the draft NAESB REC Contract.  Please email naesb@naesb.org to join a NAESB meeting or for more information about how to access the draft NAESB REC Contract for the purpose of submitting comments.

The Growth of the Voluntary Renewables Market

The growth of demand for corporate renewable energy claims is rapidly increasing.  According to a recent RE100 report, over 260 of its member entities, an estimated demand of over 300 TWh/yr, have committed to 100% renewable electricity, on average the goals aim for 2028.[ii]  NREL recently reported that, in 2019, about 164 million MWh of renewable energy was procured through green power markets. [iii]

Chart from: https://www.nrel.gov/analysis/green-power.html.

A Renewable Energy Certificate, or “REC,” is “a certificate, credit, green tag, or other transferable indicia (other than the electric energy produced), howsoever entitled, created by an Applicable Program indicating generation of a particular quantity of energy, or product associated with the generation of a specified quantity of energy, from a Renewable Energy Source by a Renewable Energy Facility.”[iv] In short, a REC is a unique and trackable instrument and a valuable commodity, that represents the right to claim one megawatt-hour of renewable energy delivered to the grid.  There are two general types of RECs, voluntary and compliance.  Compliance RECs are used to meet Renewable Portfolio Standard (RPS) obligations and are often fed into proprietary tracking systems and voluntary RECs verify corporate renewable consumption claims.  In order to track the ownership of renewable energy in the US energy market, there are two approaches –tracking systems and the manual method, called contract-path tracking. In a tracking system, a third-party, transfers RECs among account holders.  The NAESB REC Contract will serve the voluntary markets, thus, it is focused squarely on manual contract-path tracking.  Just like the tracking systems, contract-path tracking is used to “verify, track, and trace, the chain of custody of renewable energy ownership from a generator to the end customer.”[v]  The conveyances are accompanied by attestations or other proof of generation or transference from each.

A Brief Overview of NAESB

NAESB was created in 1994, then named the Gas Industry Standards Board (GISB), with the strong support of the Department of Energy.  In 2001, GISB changed its name to NAESB in a move that reflected the development of standards to support the wholesale and retail electric, and retail gas markets.  In the beginning, GISB was called upon to facilitate the wholesale gas markets development of standards the Electronic Bulletin Boards and other business practice standards to support communications and transactions in the wholesale gas industry. NAESB serves as an industry forum for the development and promotion of standards which will lead to a seamless marketplace for wholesale and retail natural gas and electricity. As an American National Standards Institute (ANSI)-accredited organization[vi], NAESB has drafted over 4,000 industry standards, and supports these standards with certification programs, and industry classes and webinars.  NAESB membership consists of about 300 corporate members and as many as two thousand participants have volunteered in our standards development processes.

NAESB solicits participation from all segments of the wholesale and retail electric and gas industries in order to develop a work product with wide consensus and industry support gained through a balanced voting process.   NAESB has relationships with the Federal Energy Regulatory Commission (FERC), National Association of Regulatory Utility Commissioners (NARUC), Department of Energy (DoE), North American Electric Reliability Corporation (NERC), Department of Commerce, National Institute of Standards and Technology (NIST), National Petroleum Council (NPC), and numerous state regulators.

In 1996, NAESB released the NAESB Base Contract for the Sale and Purchase of Natural Gas (NAESB Base Contract).  Before the drafting of the NAESB Base Contract, the gas market players had to maneuver through, and specialize in, numerous proprietary approaches that resulted in various terms and diverse procedures for identical concepts across different states and territories. Through its consensus-based process, NAESB convened meetings with participants from every facet of the wholesale gas industry – end users, producers, pipelines, services, and local distribution companies – and conducted balanced votes to ensure each segment had an equal voice in the development of the NAESB Base Contract.  It is now estimated that the copyrighted NAESB Base Contract or some form of its general terms and conditions move over 90% of domestic natural gas transactions in the United States.  The NAESB Base Contract supports long and short-term transactions, while remaining flexible with the allowance of special provisions to meet the mutual needs of contracting parties, and, through its longevity, provides predictability to transactions. 

Just as the NAESB Base Contract brought efficiency and consistency to the wholesale gas industry, the draft NAESB REC Contract is striving to achieve the standardization of terms, conditions, and electronic communications used in the voluntary market in order to deliver predictability and to possibly reduce the man hours spent deciphering the variety of agreements and attestation documents in place today.

Looking ahead, the NAESB REC Contract will utilize the NAESB Base Contract as a template to expedite the drafting effort.  The development of related datasets for the digitization of the NAESB REC Contract, has gained momentum over the past few months as participants have completed a working draft that seeks to support, rather than disrupt, the current myriad of approaches within the voluntary REC market.

The Process of Drafting the NAESB REC Base Contract

NAESB is a stake-holder driven organization.  The NAESB REC Contract was spurred by a recommendation from Tennessee Valley Authority that NAESB consider a REC contract for distributed ledger technology, or blockchain technology.  The proposed development effort is divided into two parts.  First, NAESB considered the development of the contract general terms and conditions.  Next, the technical implementation for the contract is under consideration.  The participants will identify the data elements and structures needed to execute the contract electronically, including the information needed to develop the terms and conditions for one or more “smart contracts” to be utilized on distributed ledger technology.

In December of 2019, the Joint Subcommittees held a kick-off meeting during which participants aimed to first gain consensus on definitions and use cases.  Subsequent meetings continued to analyze terms and issues identified through subcommittee conversation, such as tracking through retirement, fundamental requirements of attestation declarations, billing details, etc.  To date, NAESB has hosted nineteen meetings to discuss the NAESB REC Contract and technical implementation and about thirty-seven entities have participated.

In the upcoming meeting on June 1, the participants are diving further into the technical implementation, such as common datasets and data dictionaries.  As the technical implementation development proceeds, aspects of the contract may need to be revisited, especially in light of the informal comments received on the contract before the June meeting.

If the draft NAESB REC Contract is approved by the Joint Subcommittees, it will be posted for a thirty-day formal industry comment period.  As always, any interested parties are welcome to submit comments.  At the conclusion of the formal comment period, the Executive Committees will review the draft NAESB REC comment, along with any comments received, and consider whether to approve, reject, or remand the document to the subcommittee for further work.  If approved, the NAESB REC Contract will be posted for a ratification period by the NAESB member and, once ratified, will become available as a NAESB Business Practice Standard.  If ratified by the membership, NAESB anticipates that the document will be available to the industry early next year.

Conclusion

As transactions increase within the voluntary REC markets, the need for standardization provides opportunities to increase efficiency and eliminate redundant terms and processes throughout the industry.  The request from TVA to draft the NAESB REC Contract has brought the retail and wholesale markets together to achieve the standardization needed to support voluntary REC transactions.  If you are interested in joining the NAESB Renewable Energy Certificate meetings, please call NAESB at 713-356-0060 or email naesb@naesb.org for more information. 

[i] See RE100 Annual Progress and Insights Report 2020: Growing renewable power: companies seizing leadership opportunities (December 2020).

[ii] Id at Page 3.

[iii] NREL Voluntary Green Power Procurement.  Available at: https://www.nrel.gov/analysis/green-power.html.

[iv] WGQ Contracts Subcommittee draft definition, NAESB Draft Base Contract for Renewable Energy Certificates as of April 28, 2021.  Available at: https://www.naesb.org/member_login_check.asp?doc=weq_bps_rmq_bps042821reqcom_a1.doc.  You must be a NAESB Member to sign into this link. If you are not a NAESB Member, NAESB offers a waiver to parties for the purpose of commenting on the draft standard. Please contact our office at 713-356-0060 or email naesb@naesb.org.

[v] Id.

[vi] NAESB is a member of the American National Standards Institute and follows the ANSI Essential Requirements, including Openness, Lack of Dominance, Balance, Notification of Standards Development, Appeals, etc.