Vermont, HQ and REC Additionality

Across the country, state legislatures are considering all kinds of interesting legislation, but this Vermont Public Radio story on proposed legislation caught our eye (ear?).  H. 781, which passed the Vermont House earlier this month, would remove the limitations on the size of hydro-electric projects that can be considered “renewable energy” resources under Vermont law. Current law limits eligibility to hydroelectric projects less than 200 MW.   Vermont does not have an RPS at present, though its current law is structured so that if its utilities don’t meet certain benchmarks by 2012, an RPS will go into effect.

Hydro Quebec has been lobbying for its massive hydro-electric projects to be eligible for
state and (if enacted) national RPS requirements, but has met with little success
thus far.  The primary opposition has been from the domestic renewable energy industry: state RPS requirements (and the associated revenue from RECs) remain the primary driver for renewable development, and domestic developers are appropriately concerned about being crowded out of the REC market by cheap hydro from north of the border.  Some environmental advocates have also questioned the environmental and carbon impact of HQ's large dams. 

Vermont utilities recently agreed to a 26-year power purchase agreement with HQ to supply about 25% of Vermont ’s power needs.  As part of the deal, the Vermont utilities receive a share of the revenues of any RECs associated with the energy. If the Vermont utilities are successful, some of the benefits will accrue to Vermont ratepayers, rather than a foreign corporation owned by the government of Quebec . HQ can then use the Vermont decision as useful precedent in its efforts to have other states--or the federal government--do the same.

As a practical matter, the legislative change, if enacted, is likely to have minimal impact: it will prevent Vermont from establishing an RPS, but the Vermont REC market would have been too small to have much of an impact on the rest of New England.   Vermont's other renewable energy incentives, most notably its feed-in tariff, will continue to promote in-state renewable development. The bill is currently being considered by the Vermont Senate.

In some ways, the debate over the status of power from HQ echoes the RPS debate in Connecticut we discussed earlier: if the goal is percentage of renewables, the source is irrelevant.  But eligibility also raises an issue more familiar to debates surrounding carbon offsets: additionality.  Some critics of offsets argue that payments to carbon reducing projects represent a windfall to developers, who might have done the project absent carbon credits.  Similarly, HQ doesn't need REC revenue to build its massive dams: it's able to finance them off its own balance sheet (the same goes for the transmission lines that will bring the power to New England markets).  And the costs to produce the power are low enough that the energy price will almost certainly be an attractive proposition to New England utilities regardless of their state-mandated renewable goals.  Like dubious offsets in carbon markets, the overall effect would be to keep the price of an RPS low, and make us feel better about the percentage of power we obtain from renewable sources.

Comments

[Robert McCullough]

At the heart of the debate is whether characterizing Hydro-Quebec's hydro developments as "renewable" actually helps or hurts the environment. The James Bay projects are characterized by a massive disruption of the surrounding Boreal forest -- traditionally without an extensive environmental review. Although more recent development, such as the diversion of the Rupert, does have such a review, it is sketchy by U.S. standards and depends on the intervention of neighboring aboriginal groups for enforcement.
The primary impact of classifying these projects as renewable will be the elimination of large forested tracks -- on La grande reservoir covered 1,800 square miles of forest -- which then gradually decay, adding to greenhouse gases and reducing carbon sequestration.
The secondary impact is the replacement of truly renewable resources like wind, which do not require deforestation and will face substantive environmental reviews.
Before anyone simply assumes that hydro is renewable, it is useful to simply enter Caniaspicau Reservoir into Google and consider the environmental impacts.