CHP & ENVIRONMENTAL COMMODITIES: MARKET & POLICY UPDATE FOR MONETIZING RENEWABLE ENERGY CREDITS FROM CHP PROJECTS. Thomas Jacobsen October 2012

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1 CHP & ENVIRONMENTAL COMMODITIES: MARKET & POLICY UPDATE FOR MONETIZING RENEWABLE ENERGY CREDITS FROM CHP PROJECTS Thomas Jacobsen October 2012

2 ELEMENT MARKETS US Emissions House of the Year Launched in 2005, Element Markets has become the leading producer and marketer of renewable natural gas and environmental commodities in the U.S. Focus on Renewable Energy & Energy Efficiency, Emissions, GHG, Transportation Credits and Biomethane Transacted over $750,000,000 in environmental commodities since inception Provides Environmental Asset Management Services for over 8,000 MW of generation Customer base of over 700 companies and compliance entities within the environmental markets EM is one of the largest developers of biomethane projects in the US and owns the largest Anaerobic Digestion Project in North America (Huckabay Ridge Anaerobic Digestion Project in Stephenville, TX) Business Units Renewable Energy Group Greenhouse Gas (GHG) and Emissions Services Biogas Development Credit Marketing GHG Offset Projects Credit Marketing

3 RENEWABLE PORTFOLIO STANDARDS Thirty states, plus the District of Columbia, have implemented Renewable Portfolio Standards (RPS) where a certain percentage of a state s electric load must be met by eligible renewables NY : 15% by 2015 WI : 10% by 2015 IA : 105 MW : 8% by 2013 *CO : 10% by 2015 : 10% by 2011 US Renewable Energy Credit Markets State RPS Proposed RPS Voluntary RPS and Goals Element Markets Assets & Representative Transactions Regionalization of markets yields fungibility of RECs across state boundaries Renewable facility registration in multiple states. Is the trend shifting? Without any national Renewable Energy Standard (RES), the RPS Markets are driven by legislation at the state level and the dynamics of largely illiquid markets Integrating renewables into a dynamic energy portfolio means understanding, and responding to, (influencing?) complex and continuously changing state legislation

4 WHAT IS A RENEWABLE ENERGY CREDIT (REC)? Production of Renewable Energy Commodity Electricity Renewable Energy Credit (REC) The environmental attribute created when electricity is generated using renewable resources Wind, Solar, Biomass, Energy Efficiency (CT, MA, PA) Distributed Generation One REC = One MWH per year of renewable generation REC BUYERS Compliance: purchase RECs in states that have adopted a renewable portfolio standard (RPS) Voluntary: purchase RECs to reduce the environmental impact of their business activities and to green their electricity consumption

5 REC MANAGEMENT & TRACKING SYSTEMS Value of Tracking Systems Substantiation of ownership and sales of RECs Transparency, transactional efficiency and reduced costs Electronic access to REC portfolio from any location A single source to manage, transact, acquire, allocate and retire RECs Ease of access to non financial/csr reporting data Inter registry transfers, tracking and retirement of RECs

6 RENEWABLE ENERGY MARKETS Trend toward supporting in state generation Northeast and some Mid Atlantic States RPS programs adjusting to promote instate only resources New Jersey legislation to revise RPS and support in state, off shore wind, LFG, biomass, carve out and funding for CHP California Feed in tariff for CHP <20MW target of up to 6,500 MW of new CHP by 2030 Politically sellable supports in state jobs, potentially lowers burden on the rate payers, increases energy security (CT micro grids) Trend toward decentralized power & energy efficiency (CHP, demand side management) Connecticut, Massachusetts and Pennsylvania allow for the creation of Renewable Energy Credits (RECs) from Energy Efficiency projects including: Combined Heat & Power (CHP) Also Waste Heat Recovery (WHR); Energy Conservation; Flywheel Storage; Coal Gasification; Paper Derived Fuel and Efficient Steam Technologies

7 ENERGY EFFICIENCY CREDITS CONNECTICUT CLASS III RECs Sources of Class III RECs Combined Heat & Power (CHP) Customer Sited non renewable CHP; Units using renewable fuel qualify for class 1 RECs Waste Heat Recovery (WHR) Retrofits that use waste heat from industrial process to displace power consumption; Ex. Using waste heat from a furnace to run a boiler or heat a building Energy Conservation Efficient Lighting Retrofits; HVAC Replacement, Chiller Replacement Programmed Power Reductions (e.g. changing HVAC schedule) CT CHP Generation Requirements CHP unit must have an operating efficiency level of at least 50% 20% of energy output to electricity 20% of energy output to thermal energy CT RPS currently under review CHP plays a strong role; how to address Class III REC oversupply?

8 MASS ALTERNATIVE ENERGY CREDITS (AECs) Alternative Energy Portfolio Standard (established Jan. 1, 2009) Similar to the RPS, it requires a certain percentage of the state s electric load to be met by eligible technologies Included Technologies: Combined Heat and Power (CHP), flywheel storage, coal gasification, paper derived fuel and efficient steam technologies These resources contribute to the Commonwealth s clean energy goals by increasing energy efficiency and reducing the need for conventional fossil fuel based power generation. Alternative Compliance Payment (ACP) 2011 ACP: ~$21.10 The ACP Rate shall be equal to the previous year's ACP Rate adjusted up or down according to the previous year's Consumer Price Index. AECs currently trading between $19 $21 Compliance Year Cumulative Minimum Percentage

9 EXAMPLE OF ENERGY EFFICIENT CREDIT MONETIZATION CT & MA 15 MW CHP Unit Load (MW) 15 Hours per Year 8,760 Capacity Factor 80% CT Class III REC Monetization 2012 Class III Value (historically reached $30) $10.00 (floor price) Potential Annual Generation (MWh) 105,120 Estimated Annual RECs net 25% to C&LM Fund 78,840 Annual $$ value of REC sales at floor price $ 788,400 Massachusetts AEC Monetization Current $ Value for 2012 Mass AECs Approx $21.00 Potential Yearly AEC Generation **useful heat counts 150,000 Annual $$ value of AEC sales at current market value $ 3,150,000 * New Jersey has strong support for CHP, Connecticut reviewing role of CHP. Which states to follow? PJM?

10 MONETIZATION OF A CONNECTICUT ENERGY EFFICIENCY CREDIT Engineers Develop Measurement & Verification Plans for the State State Reviews Technical and Engineering Specs Electricity used on site, any surplus is sold to the grid Project Registered & Power Generated CHP Plant RECs Sold Direct End Buyers RECs Sold Wholesale Wholesale Buyers RECs Sold Retail Retail Electric Provider Generation captured and Uploaded into REC Tracking System (NEPOOL GIS) & Attributed to Generator RECs Retired for Compliance

11 Promoting CHP investment & policy August 2012 White House issued Executive Order Accelerating Investment in Industrial Energy Efficiency National goal of 40GW of new CHP in the U.S. by % more than current levels of U.S. CHP capacity DOE and EPA issued study CHP A Clean Energy Solution Drivers, barriers & solutions for CHP deployment Natural gas supply & price as driver for CHP How are goals to be reached? Need to encourage and lobby for state level development and implementation of incentivized CHP policies Increased role of CHP w/in State Renewable Portfolio Standards CT, MA, PA as models in other states? Long term REC off take agreements? Promote RPS structure with guaranteed floor price?

12 ELEMENT MARKETS Thomas Jacobsen Element Markets, LLC 3555 Timmons Lane, Suite 900 Houston, TX Office: US Emissions House of the Year 2010 by Energy Risk Nominated as Rising Star in Platt s Global Energy Awards Best Carbon Trader North America 2011 by World Finance #1 Mandatory GHG Credit Dealer (2009,2010) Energy Risk #1 Voluntary GHG Credit Dealer (2008, 2009,2010) Energy Risk Runner Up, Best Trading Company, N.A. Mandatory GHG (2009) Environmental Finance Top 5 Developer, North American Voluntary Greenhouse Gas Markets (2009) Point Carbon #1 NOx & SO2 Dealer (2009,2010) Energy Risk Best Trading Company, SO2 Emissions Credits (2008, 2009, 2010) Environmental Finance