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Feeling smug about your solar rooftop? Not so fast

Severin Borenstein, professor of business | January 21, 2016

If you installed solar panels on your roof and feel aglow with environmental virtue, you may be in for a rude awakening. There’s a good chance someone else has purchased your halo and is wearing it right now.

In most states (including California) power generated by rooftop solar panels earns Renewable Energy Certificates, which quantify how much clean electricity they produce. But if panels are leased or installed under a power purchase agreement, it’s the “third-party owner” — not the homeowner — who gets those certificates. Most then turn around and sell the RECs, which magically turns some other brown electrons green.

man installing rooftop solar panel

(Photo: Roofjockey via Wikimedia Commons)

Here’s how it works: Joe’s Solar puts panels on your roof that produce 7,500 kilowatt-hours a year, and Joe sells you the electricity under a power purchase agreement. Because Joe still owns the panels, he gets credit — in the form of RECs — for that renewable electricity. Meanwhile, Bob’s all-fossil utility wants to “green up” so it buys the RECs from Joe. That allows Bob to relabel 7,500 kilowatt-hours of its coal or gas-fired power generation as “renewable energy.”

It may sound strange, but a market to sell or trade RECs can be extremely useful.  California, for instance, has a mandate for its utilities to use 33% renewable power by 2020, but some parts of the state have little sun or wind resources.  Still, utilities in the best locations for renewables, can produce more than their requirement and then sell the extra RECs to areas where it would much more costly, or impossible, to hit the target.  Thus, the RECs market allows a utility in one area to finance additional green energy production in another area where it is cheaper, supporting more carbon reduction at a lower cost to consumers.

That seems sensible enough. But something’s wrong if the buying and selling utility companies both claim that green power as their own. That, however, is essentially what’s been going on with solar rooftops.

Today about 70% of new solar systems are owned by third parties that typically resell the associated RECs to a company with a well-publicized goal of being “carbon neutral” or to a power company that wants to claim it’s delivering a high percentage of green energy. (Homeowners are notified of this in the fine print of their contracts, which they probably never read.)

One might see this as a creative way to make both the solar homeowner and the REC buyers feel good about saving the planet. But the Federal Trade Commission is a real killjoy when it comes to such double counting of virtue.

The FTC recently issued legal guidance that says if a solar company sells certificates, it is deceptive to tell homeowners they are getting “clean,” “renewable,” or maybe even “solar” electricity with their lease or power purchase agreement. The FTC guidance uses this illustration:

A toy manufacturer places solar panels on the roof of its plant to generate power, and advertises that its plant is ‘‘100% solar-powered.’’ The manufacturer, however, sells renewable energy certificates based on the renewable attributes of all the power it generates. Even if the manufacturer uses the electricity generated by the solar panels, it has, by selling renewable energy certificates, transferred the right to characterize that electricity as renewable. The manufacturer’s claim is therefore deceptive.

To be clear, there is nothing necessarily wrong with installing solar panels in one location and letting someone in another location claim credit, as long as everyone understands that is what’s happening.  But many individuals who signed up for a rooftop solar system might be unhappy to learn that they were enabling some fossil-powered company to claim it has gone green.

The lesson here is that if you choose to go solar, find out what will happen to the RECs. If they are sold to someone else, you still get to use the electricity, but you have to give back the halo.

Severin Borenstein is the E.T. Grether Professor of Business and Public Policy at U.C. Berkeley’s Haas School of Business and a Research Associate of the Energy Institute at Haas.  This column was originally published in the Los Angeles Times.  A more detailed version appears on the blog of the Energy Institute at Haas.

Comments to “Feeling smug about your solar rooftop? Not so fast

  1. Is what is being discussed here what is called “Null Electricity”?

    Null Electricity (or Power) is the underlying power remaining when the RECs have been stripped off and sold elsewhere. Null power is not renewable but is the unspecified and undifferentiated power that has the attributes of the overall system mix or the residual mix where specified power purchases have been removed.

    See http://www.green-e.org/learn_glossary.shtml for “Null Electricity” definition.

    How does rooftop solar differ from community solar (utility scale) that the renewable energy credits stripped off and sold elsewhere?

    Doesn’t the physics of the grid provide the advantage of the shortest path to consumption to the rooftop, with the other users on the same secondary side of the step-down transformer?

    Based on this CEC report http://www.energy.ca.gov/2005publications/CEC-500-2005-028/CEC-500-2005-028.PDF in Table 7 on PDF page 47, distributed generation voltage support is listed as a benefit. The report is from 2005, there are some who now believe that voltage support is not much of a benefit.

    While both rooftop and community may have the same value in allowing the sale of non-renewables (GHG generation) the Grid has its losses that may not happen with rooftop.

    Either way, these systems (rooftop or community), appear to need the economic support of renewable energy credits stripped off and sold elsewhere.

    This means, the Null power is not renewable but is the unspecified and undifferentiated power that has the attributes of the overall system mix or the residual mix where specified power purchases have been removed.

    ever onward,

    Steve Uhler

  2. Please just call it what it is, “Null Electricity”, something that now I know the scam, will avoid.

    See http://www.green-e.org/learn_glossary.shtml for “Null Electricity” definition.

    Rooftops aren’t the only solar to not feel smug about.

    Community Solar such as SMUD’s SolarShares appears to be the same.

    The SMUD customer may be thinking they are increasing the available renewable solar, when they are just enabling SMUD to sell more non-renewables and increase their revenue at the same time.

    Based on SMUD’s RPS Procurement Plan FINAL November 21, 2013 (PDF page 8), http://www.energy.ca.gov/portfolio/pous/smud/RPS_Procurement_Plan_FINAL_11-21.pdf SMUD’s SolarShares renewable energy credit don’t stay with the “buyers” of SMUD SolarShares.

    On top of that they “bake into the rates” the costs for renewables, they then sell renewable solar to customers as SMUD SolarShares at below what it costs for renewable solar. see https://youtu.be/d9DSodlnbqw

    They also complain that rooftop solar can negatively effects voltage support, even though they once thought voltage support would not be a problem. The table lists “Voltage Support” as a benefit as shown here http://carbonconscience.us/2013/VoltageSupportPV.htm#phrase_05

    ever onward,

    Steve Uhler

  3. The solar movement could really do with a credible leader who is able to level the playing field and route out these questionable practices. Here in New Zealand the power companies are starting to actually charge customers with solar an extra tax. They say it is so that other individuals without solar do not have to pay extra to keep the grid maintained.

    How backward thinking is this and for some reason our clean green countries government is doing nothing? They give no incentives at all for solar and never have. The buy-back rate for solar is already so low it’s criminal… $6c per kWh. The solar revolution could really do with a credible leader.

  4. “SRECS,” as they are known in the industry, are a viable economic incentive for homeowners to move forward with residential solar installations. Unfortunately, California does not have an active SREC market, since the state demands that SRECs be purchased by the utilities and cannot be sold separately.

    On the east coast, residential solar companies, such as Direct Energy Solar, aggregate the SRECS earned by its customers and pay them dividends. If a polluter is purchasing SRECS on the free market, that should disincentivize environmental destruction just like taxes on liquor and cigarettes reduce demand for those products. — Jeff Flanzer, Ojai CA

  5. We have solar panels on our house that we own, and they make about 85% of our electricity. Could we be selling REC’s to increase our return on investment?

  6. I don’t have solar panels on my house, but I think to keep the renewable energy certificate yourself, you would have to buy the panels, operate, and maintain the system.

  7. The only economically sensible and environmentally friendly way to deploy solar panels is via large arrays where installation, maintenance, repair, and disposal can benefit from economy of scale. This should be managed by power companies in concert with state regulators, or by industrial companies with sufficiently large rooftop acreage.

    Rooftop installations in individual homes each need custom array designs, custom installations, custom maintenance and repair and custom disposal arrangements. Cities have fallen prey to the pseudoscientific pseudoeconomic fashion promoted by installation companies, lazy “environmentalists” who do not do their homework, and politicians who lack the sincerity and character necessary for real leadership.

  8. How many angels can dance on a pin doesn’t change the miracle of angels. Someone claiming a “halo” is not as disturbing as the confusion and sabotage that the fossil-fuel industry has created around solar PV generation.

    Rooftop solar is an effort by many of us to Do Something to get away from the tyranny of fossil-fuel addiction. Wearing the “halo” is thin gruel as your planet is on fire.

  9. I found your article very interesting. I am planning on installing solar panels. Is it possible to get a contract that will give me the renewable energy certificates and not sell them to someone else? How can I keep this from happening?

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