Assigning environmental attributes to power imports and exports: How might it
work from New England?
At the July 10 inter-regional meeting it was suggested that it might be helpful to try to
think concretely about cross-border information needs from the vantage point of a
particular information system operator who needs to assign attributes to imports and
exports. This is a first, very rough, attempt to conduct that “thought experiment” for
New England.
Background & context:
As described in the July 10 meeting summary, New England is currently planning to
pursue a certificates approach in which certificates are issued for the output of each
generating unit in the system. Once issued, certificates can be traded independently
in a secondary “attributes” market.
Ultimately, all retail suppliers subject to information disclosure or other requirements
will have to hold certificates equal to the load they serve; hence it’s been assumed
that almost all suppliers will actively participate in the certificates market. More
recently, there’s been discussion of whether retail suppliers or exporters who are
indifferent to their environmental attributes could be “assigned” a residual or net
value -- similar to Ontario’s approach -- based on an average of all unclaimed
certificates.
Nevertheless, a very substantial portion of the New England market will be subject to
at least RPS (CT, MA, and ME) and potentially EPS (MA and CT); presumably retail
suppliers in these states will need to actively manage their certificates portfolios. By
comparison, Ontario, New York, and PJM states besides NJ primarily need to support
information disclosure and verify green marketing claims – hence a greater portion of
the power transacted in those regions may be sold with undifferentiated spot market
or net system average characteristics.
Because several New England states have RPS there is an interest in making it
possible for renewable resources outside the region to help meet these requirements.
That means being able to assign resource-specific attributes to at least some power
imports.
Most New England states require disclosure information to be updated quarterly.
Accordingly, the New England certificates market may need to be settled on a
quarterly basis. If so, the assignment of attributes to imports and exports would
probably also need to be settled on a quarterly basis.
Information inputs and outputs at the border
It may be helpful to think about information inputs and outputs at the border in the
context of several specific cases:1
(1) The case of power exported from New England where the exporter is indifferent to
the environmental attributes associated with the power.
1
Throughout this discussion, references to the information system administrator are intended to mean
whichever entity is responsible for managing the information system. This may or may not be the ISO.
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(2) The case of “environmentally preferable” power exported from New England where
the recipient of the power wishes to “get credit” for specific environmental attributes.
(3) The case of power imported to New England where the importer is indifferent to the
environmental attributes associated with the power.
(4) The case of “environmentally preferable” power imported to New England where the
importer of the power wishes to “get credit” for specific environmental attributes.
(5) The case of “environmentally preferable” power wheeled to or from New England
across an intermediary power pool (e.g. PJM to New England via NY).
In case (1) there are two options: either the exporting entity is required to obtain
certificates or it is automatically assigned attributes based on a residual pool of unclaimed
certificates. If the exporting entity is required to obtain certificates, it will buy the
cheapest certificates available – presumably those associated with less desirable
generation. Whether the exporter actively procures low or no-cost certificates or is
assigned a residual certificate average, the attributes associated with this export (from the
standpoint of the New England information system) are likely to be dirtier than a default
value based on all New England generation.2 In any case, the New England system
administrator will know what environmental attributes have been assigned to the export
and could report that information to the administrator of the receiving region. If the
receiving region chooses just to apply a default New England average, the information
might not need to be communicated, as long as it is appropriately “netted out” of the New
England information system by the New England administrator.
On the receiving end, if the exporter has a bilateral contract with an importer in
New York, the New York tracking system can make a specific assignment of the
attributes to a receiving entity. It there is no bilateral contract the attributes would
presumably be added to the New York spot market average. If the power is exported to
Ontario, its attributes would likely be incorporated in Ontario’s “net system average”. In
theory, an Ontario importer could claim the environmental attributes of this export by
taking ownership of the associated certificates or, if the New England system has simply
assigned a “residual certificates average”, by demonstrating to the Ontario administrator
that it has a bilateral contract with the New England supplier. However, this seems
unlikely since we are talking about a case where the New England exporter (and hence
presumably the Ontario purchaser) are indifferent to the environmental attributes
associated with the export.
In case (2), certificates would need to be purchased by the New England exporter
(or perhaps directly by the importing entity? 3). Again, the assignment of specific
certificates to a quantity of exported power would be known to the New England system
administrator and could be communicated to the system administrator of the importing
region. At the receiving end, it would be important to require that the importing entity in
2
How much dirtier is hard to anticipate because it will depend on the relative demand for “environmentally
preferable” power in New England, which will in turn depend on the status of EPS and RPS requirements
and on consumer demand for “green” products.
3
Note that if entities outside New England are allowed to participate in New England’s certificates market,
the New England system administrator may need to exercise some control to ensure that the quantity of
certificates sold out of the region does not exceed actual power exports (thereby creating a potential
shortfall in certificates available to New England retail suppliers who need them). .
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fact holds the New England certificates necessary to back up any claims it is making in
the context of its own information system. If an importer in NY or Ontario were allowed
to simply report that it had negotiated a contract or conversion transaction with a New
England generator but the actual certificates stay in the New England market there is an
obvious problem of double-counting. If no claim were made on the part of the importer,
the specific attributes of the New England export in this case would presumably be
absorbed into the importing region’s spot market or net system average, as in case (1).
This situation again seems unlikely, since there would be no reason for the exporter to
obtain environmentally preferable certificates if these were not valued in the importing
region.
In case (3), the New England system administrator could issue certificates to the
importer of environmentally undifferentiated power based on the spot market average in
the case of imports from New York4, the net system average in the case of imports from
Ontario, or some other default average in the case of other importing regions.5 Unlike
certificates generated in New England (which will be unit specific), certificates issued to
imports will generally reflect average emissions rate and fuel mix characteristics from
multiple units.6 Once issued, they would be available to be traded just like any other
certificate. Note, however, that the information on spot market or net system average
needed to assign certificates to undifferentiated imports might be available from
neighboring regions only on a quarterly basis. That could make it difficult to issue
import certificates monthly. Given that New England meets most of its demand with
internal generation, a quarterly rather than monthly release of import certificates might be
acceptable, provided this occurs with adequate lead time before New England’s
certificates settlement period for a given quarter closes.
In case (4), the importer will need to establish a claim to unit (or company?)
specific attributes from the exporting region such that the claim can be accounted for in
the information systems of both New England and the exporting region. For example, the
importer could enter into a bilateral contract with a generator in New York or Ontario, or
– if the imported power were purchased from the New York spot market – the importer
could negotiate a conversion transaction with a New York generator. To verify these
claims, the exporting system’s information administrator could show that it was aware of
such contracts or conversion transactions and had accounted for them in its internal
tracking system. To keep the New England system “whole”, specific claims to attributes
– as established through contracts or conversion transactions with generator(s)in the
4
Obviously, this would be the NY spot market average after deducting all NY conversion transactions.
5
Note that undifferentiated power imports from PJM would have to pass through an intermediary system.
Since this a case where no affirmative environmental claims are being made, I assume for the moment that
those attributes will be “washed through” the information system of the intermediary control area (i.e. they
will be reflected in the net system or spot market average of the intermediary area). A question we may
need to address is what happens in the case where a New England entity contracts for midwestern spot
market power that is wheeled across New York. Is it acceptable (from either New York or New England’s
perspective) for the relatively “dirtier” characteristics of this power (e.g. an ECAR average) to be
incorporated into New York’s spot market average before being accounted for in New England?
6
All certificates for New England generation will be identified with a specific unit or facility. One could
imagine that certificates for imports might be labeled simply as “import”, perhaps also including the source
region (e.g. “NY Import”).
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exporting region – would need to be converted to certificates. Obviously the New
England system administrator would also need to deduct the portion of imported power
that comes with differentiated attributes from the portion of imported power that is issued
certificates on the basis of undifferentiated system average or default attributes.
In case (5), the situation is similar, except that the unit (or company?) specific
attributes need to be conserved as the power is wheeled over an intermediary control
area. It seems that this could be accomplished, provided all information system
administrators involved are aware and can account for the transaction internally. For
example, if a New England company has a unit contract with a New Jersey generator and
the power is wheeled across New York, the New York system administrator would need
to be able to keep that power “separate” and ensure that it isn’t incorporated in its spot
market average. This seems like primarily an accounting issue that should be
manageable, provided the timing issues can be worked out. A more difficult question
might be whether New England is willing to accept an attribute-specific claim in cases
where the exporting region has no information system at all. In that instance, there is no
obvious way to ensure that the “environmentally preferable” attributes aren’t being
double-counted in the exporting region. The policy and legal implications of this
situation need to be further explored.
Finally, there may be a separate issue concerning the ability of some types of
information system designs to value the attributes of intermittent types of resources (such
as wind and some hydro) without “diluting” those attributes through system or spot
market averaging. This could be an issue for potential importers of renewable energy in
New England and potential exporters in other regions.
Summary:
At this time it appears that the information systems being planned for Ontario, New
England, New York, and PJM can, at a minimum, account for all generation within their
systems, for the amount of power exported and imported in a given time frame, and for
all specific claims made concerning the attributes of power generated within their system.
Superficially, at least, it would appear that this information should be adequate to allow
for an assignment of attributes to exports and imports (including the preservation of a set
of attributes across an intermediary control area) in a way that serves each region’s policy
objectives and ensures that there is no double-counting of attributes. To do this,
however, will clearly require that information systems regularly exchange information.
Specifically what information and in what format is a key issue for further exploration.
In addition, timing may prove to be a significant challenge and must be considered in
greater detail. To facilitate matters, regions may wish to consider synchronizing a
common schedule for information exchange. For example it may be helpful to establish a
protocol whereby, within some defined time period after the end of each quarter, each
information system administrator issues a standardized report containing aggregated
information about its own system average, import and export quantities, and a summary
of all specific claims made (or certificates issued, as the case may be) in connection with
imports and exports. Whether and how specific attributes can or should be allowed for
imports from regions that have no information system or a purely claims based system, is
a separate but also important question.
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