Renewable Energy Certificates and their Role in Maine Wind Power

Renewable Energy Certificates and their Role in Maine Wind Power Bob Grace, President, Sustainable Energy Advantage, LLC Maine Wind Energy Conference October 6, 2009 Augusta, ME

1 Sustainable Energy Advantage, LLC What We Do Building Renewable Energy Businesses, Markets & Policies Through Analysis, Strategy & Implementation Consulting & Advisory Services Renewable Energy Market Outlook sm Subscription briefings REC supply, demand & price Eyes & Ears sm RE policy, legislative & regulatory tracking New England Wind Forum web site & newsletter (for NREL/DOE) www.windpoweringamerica.gov/newengland

What is a REC? a.k.a. Renewable Energy Credit, Renewable Energy Certificate A REC is a tradable certificate, typically in electronic form, representing: generation of 1 MWh of production from specific electric generator carries with it the descriptive characteristics of that generator E.g. the generator type, location and actual emissions. Carries on it other key info: Timing of generation Eligibility for various purposes Unique financial responsibility, claim RECs may be transacted bundled with or independent of electricity Renewable Electricity REC Commodity Electricity 2

A REC is NOT RECs do not inherently include the secondary or indirect benefits or impacts of the generation which they represent e.g. displaced emissions and tradable emission commodities. These secondary or indirect attributes (if they exist) may, however, be: Required to be acquired, conveyed and/or retired for various purposes/by various users Contractually attached to the REC through bilateral negotiation 3

4 Why Tradable RECs? Challenges for Renewable Energy Transactions Difficult to track source-specific property rights (financial commodity energy market, physical flow of electrons) Verification of RPS compliance Support green power sales/claims Operations/optimization Difficulty proving claims Transmission constraints and market access Intermittence, mismatches in market timing Lack of liquidity, etc. Kibby Mtn. Photo Credit: TransCanada Power Marketing Ltd.

Why RECs? Compared to the alternative (energy contract path) Verification: Simpler, less costly verification with high credibility, low potential for intentional or inadvertent fraud or double counting Commerce: Ease of transaction, flexibility, low transaction cost Facilitates creation of a spot attribute market Enhances liquidity, introduces potential for price visibility Potential for visible attribute forward market, price curve to support hedging and financing Operations: Ability for buyers to procure just what they need Settlement over months or years (solves variability, supply vs. load mismatch) Access: Overcomes transmission constraints 5

Where RECs? Electronic REC Tracking Systems NEPOOL Generation Information System M-RETS 2007 GIS 2002 WREGIS 2007 GATS 2005 ERCOT 2001 Operational Under Development Source: Lawrence Berkeley National Laboratory 6

How are NEPOOL GIS Certificates (RECs) created? In the New England Power Pool (NEPOOL): For each MWh of generation within NEPOOL, one certificate is created within the NEPOOL Generation Information System (GIS) Renewable Energy Certificate is a NEPOOL GIS Certificate for renewable energy generation in, or imported to, ISO-NE Serial numbered/time stamped GIS Administrator (APX) creates GIS certificates for: Generator in ISO Market Settlement System automatically created Behind-the-meter generation self-report (for most uses, states independent 3 rd party verification & state certification) Generators in adjacent control areas earn GIS Certificates if energy import is settled in NEPOOL + meet NEPOOL GIS verification rqmts. State eligibility ruling required to get those boxes checked! RECs generator accounts, then transferred to trader &/or LSE accounts as bought & sold 7

How are NEPOOL GIS Certificates (RECs) created? 8

How are RECs bought and sold? Timing: Trading quarter & compliance year -- Trading Periods -- 2008 - Q4 2009 - Q1 - Closed 2009 - Q2 - Attribute Open Until 10/11/2009 2009 - Q3 4/15/2009 to 6/16/2009 7/15/2009 to 9/16/2009 10/15/2009 to 12/16/2009 1/15/2010 to 3/16/2010 No central market or exchange Bilateral transactions Most RECs sold thru short-term transactions resembling an over-the-counter spot market Some RECs are sold through mid- and long-term forward transactions (illiquid market, thinly-traded, limited price transparency) Hard to lock in long-term value Offers, RFPs, Brokers, GIS Bulletin Board, etc. Bundled vs. unbundled However RECs bought or sold, all transfers of title between GIS accounts registered thru NEPOOL GIS 9

Other REC Issues Shelf life Banking Borrowing Fuel switching/dual fuel Behind-the-meter generation eligibility 10

Maine REC Market Unique Aspects NEPOOL vs. NMISA NMISA is adjacent control area from perspective of other states ( Import ) For Maine RPS, generation can be within NEPOOL OR NMISA (or imported) NMISA currently has no REC registry verification of energy purchase currently accepted for RPS compliance NMISA REC system may be created in future (?) 150% REC multiplier for certain wind projects under pending Community-Based Renewable Energy Pilot Program Projects < 10 MW, locally-owned, program 50 MW max (LD 1075/PUC Docket 2009-213) Mars Hill Wind Farm (NREL PIX Database #15333 (Skip Babineau) 11

REC MARKET DYNAMICS. Confidential. Subject to Terms of Subscription Agreement. 12

Why Do Maine Wind RECs Have Value? RECs enable regional (and importing) generators to monetize the characteristics of individual facilities What is the market for RECs from ME Wind Generators? RECs = tradable currency used to demonstrate & document compliance with state RPS regulations ME RPS (Class 1), or Other regional RPS Mandates: MA-I, CT-I, RI-new, NH-I (VT goals?) Support marketing claims made in assoc. with green power purchased voluntarily by New England consumers (much smaller market) Behind-the-meter eligibility ME as in-state; CT & MA allow BTM from out-of-state Few long-term buyers of Maine Wind RECs Credit, load uncertainty, MA/CT/RI focus on in-state resources 13

Maine Wind REC Prices Expectations of Shortage Expectations of Surplus & Banking Future???? 14

Factors Influencing REC Prices Eligibility Demand (targets) for Maine Wind 15

Factors Influencing REC Prices for Maine Wind Price caps (ACPs) Upper Limit 16

Factors Influencing REC Prices for Maine Wind Supply vs. demand banking,& borrowing too Implications of Supply-Demand Balance on REC Price $60.00 $50.00 $/MWh $40.00 $30.00 $20.00 Shortage Surplus $10.00 $- ACP Spot REC Price No Banking Long-Term Contract Cost Premium for Marginal RE Source Spot REC Price w ith Banking & Future Demand 17

Factors Influencing REC Prices for Maine Wind Longer-term price trend: Cost of entry/supply curve/competition (non-wind, imports) 2011 NE Supply Curve REC Premium $/MWh $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $- - 500 1,000 1,500 2,000 2,500 3,000 Cumulative GWh 18

Factors Influencing REC Prices for Maine Wind Gap between cost (revenue requirement) & commodity revenues Commodity market revenues Energy, capacity (ancillary services) Impact of energy prices Role of carbon Federal policy/incentives 19

Factors Influencing REC Prices for Maine Wind Regulatory/legislative risk 20

New England Wind Forum. It s Back! Restart! Spring/Summer 2009 New Content Posted, Next Newsletter Coming Soon 21

22 Good Information Helps Good Decisions New England Wind Forum web site and newsletter - NREL/DOE s Wind Powering America Program www.windpoweringamerica.gov/newengland

New England Wind Forum (NEWF) Established: 2005 through NREL s Wind Powering America Program Objective: To create a central clearinghouse and provide a single, comprehensive and objective source of up-to-date, Web-based information to all stakeholders on a broad array of wind energyrelated issues pertaining to New England. Funding: Historically funded in part by NREL, in part by 4 NE states (MA, ME, CT, NH) Funding interrupted/lost suspending project in 2008/9 NEWF Restart: Summer 2009: Modest amount of new funding has been secured (NREL 3 yrs; MRET 1 yr) Covers only modest effort: newsletter, project and policy updates Funding for 2009 2010 and beyond: Minimal NREL funding in place; state or other non-industry co-sponsorship needed to fulfill objectives NEWF Needs Your Help 23

Coming Soon. Need a better name! New England Wind Energy Education Project (NEWEEP) Another Wind Powering America Project 24

Introduction to NEWEEP Objective: To develop and disseminate accurate, objective information on critical wind energy issues impacting market acceptance of hundreds of land-based projects and off-shore wind developments proposed in the 6-state New England region. Goal: Through this educational initiative, NEWEEP intends to accelerate the pace of wind installations towards the region s 20% by 2030 goal of 12,500 MW. By cutting through the clutter of competing and conflicting information on critical issues, this project is intended to encourage the market s acceptance of appropriately-sited wind energy generation. 25

NEWEEP Status Applicants: Sustainable Energy Advantage & NREL Selected by DOE for 2 years of funding Contract pending expected start ~Oct 2009? Participants (contributing time & effort, participating in steering committee) the Massachusetts Renewable Energy Trust (MRET, or the Trust ); the Maine Public Utilities Commission/Efficiency Maine (MPUC/EM); the New Hampshire office of Energy & Planning (NH OEP); the Connecticut Clean Energy Fund (CCEF); ISO New England (ISO-NE); the Utility Wind Interest Group (UWIG); the University of Massachusetts Wind Energy Center 1 (WEC); Renewable Energy New England, a new partnership between the renewable energy industry and environmental public interest groups); and Lawrence Berkeley National Laboratory. 2 26

NEWEEP: Implementation 1. Develop a steering committee to ID topics 2. Conduct a series of topic-specific webconference briefings 3. Hold a one-day NEWEEP conference (back-toback w/ a UWIG regional conference) 4. Post all materials on the NEWF website for maximum reach and stakeholder input 5. Collaborate with WPA (including the all-states summit) and regional wind working groups 27

28 Sustainable Energy Advantage, LLC Office: 10 Speen Street, 3 rd Floor Framingham, MA 01701 www.seadvantage.com Contacts: Bob Grace tel. 508.665.5855