Publications Details

Gains from Trade versus the Cost of Transmission: The Economic Effects of Interregional Trading of Renewable Energy Certificates in the WECC. Draft

Perez, Andres; Sauma, Enzo; Munoz-Espinoza, Francisco D.; Hobbs, Benjamin F.

In the United States, individual states enact Renewable Portfolio Standards (RPSs) for renewable electricity production with little coordination. Each state imposes restrictions on the amounts and locations of qualifying renewable generation. Using a co-optimization (transmission and generation) planning model, we quantify the economic benefits of allowing flexibility in the trading of Renewable Energy Credits (RECs) among the U.S. states belonging to the Western Electricity Coordinating Council. The flexibility was analyzed in terms of the amount and geographic eligibility of out-of-state RECs that can be used in meeting state RPSs' goals. Although more trade would be expected to have economic benefits, the magnitude of these benefits relative to the cost of additional transmission infrastructure is less certain. It is also unclear the effects of such trading on CO₂ emissions and energy prices. We find that most of the economic benefits are captured with approximately 25% of interstate exchange of RECs. Furthermore, increasing REC trading flexibility does not necessarily result in either higher transmission investment costs or a substantial impact on CO₂ emissions. Finally, increasing REC trading flexibility decreases energy prices in some states and increases them in others, while WECC-wide average energy price slightly decreases.