Additionality Myth Buster: The Case for Greene Certified RECs Representing Additional Reductions of

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Additionality Myth BusterThe Case for Green-e
Certified RECs Representing Additional
Reductions of GHG

• November 6, 2006
• EMA 10th Annual Fall Conference
• Marina Del Ray, CA
• Presented By Gabe Petlin
• Senior Manager Regulatory Affairs
• 3 Phases Energy

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What does 3 Phases Energy do?
GREEN CERTIFICATES Retail and Wholesale Sales of
Green Certificates
UTILITY PARTNERSHIPS Utility Green Power Program
Design and Management
CARBON OFFSETS Retail and Wholesale Sales of
Verified Emission Reductions
GREEN DIRECT Direct Access 100 Renewable Retail
Electricity Sales
GREEN ONSITE DEVELOPMENT Renewable Generation
Daylight Savings PPA and Construction
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About 3 Phases Energy

• Company Highlights
• Offices in San Francisco, Los Angeles, Portland,
  other locations pending
• Serving 9 of the top 13 U.S. EPA Green Power
  Partners including 27 Fortune 500 Companies
• Awards
• 2005 U.S. DOE/EPA Renewable Energy Supplier of
  the Year
• 2005 EPA/CRS Beacon Award for origination of
  business demand
• Utility partners include some of the most highly
  rated nationally, achieving 4-15 participation
  in green pricing programs
• PacifiCorp (4.5)
• City of Palo Alto Utilities (15.3)
• Silicon Valley Power (5.5)
• Roseville Electric (1.5, launched Dec. 05)
• National average green pricing participation
  1.3.
• Largest volume REC marketer in United States,
  2005
• Supporting 450 MW of new renewable energy
  capacity representing approximately 15 of
  national voluntary demand.

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Selected Corporate Institutional Customers
OTHER PARTNERS INCLUDE Wells Fargo Bank, Coca
Cola, HSBC Bank, Toyota, Safeway, Adobe, Baxter,
IBM, Gap, Rockwell Collins, Keystone, Steamboat,
Union of Concerned Scientists, Pepsi, Pitney
Bowes, Environmental Protection Agency (EPA), US
General Services Administration, Prana, and
others.
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Selected Wholesale Customers
OTHERS PARTNERS INCLUDE City of Burbank,
Southern Minnesota Municipal Power Agency, Sempra
Energy, Roseville Electric, City of Palo Alto
Utilities, Texas Commercial Energy, Silicon
Valley Power, TerraPass, Carbon Fund
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3 Phases Energy Supports Development of New
Renewable Generation Across the U.S.

• Supply-side business supporting 67 renewable
  generators in 21 States including IL, IA, MN, ND,
  SD, KS, NE, OK, IN, MI, KY, WV, PA, NC, MA, CA,
  OR, WA, WY, NM, CO, and Canada.
• Contracting forms include PPAs, project
  development, advanced commitments to purchase
  renewable energy certificates (capital, forward
  contracts), spot market REC procurement.
• 3 Phases Energy supports all renewable generation
  resources believing that significant market
  transformation requires a balanced and
  sustainable mix of renewable energy.

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Purpose Additionality Myth BusterThe Case for
Green-e Certified RECs RepresentingAdditional
Reductions of GHG

• Green-e Certification and Verification is both
• Quality standard for voluntary retail renewable
  energy products
• Additionality screen enabling buyers to easily
  identify renewable products that offer
  incremental benefits.

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Quality

• Supply of RECs equals quantity and type sold
• Customer communications are accurate and
  transparent
• Independent verification audit of all marketers

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Additionality

• New renewable resources built to serve voluntary
  demand
• Above and beyond mandates or renewables in rate
  base
• Environmental attributes assigned to buyer
  contractually --no double
  counting

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Green-es Approach Has Broad Support

• US EPA Green Power Partnership
• US EPA Climate Leaders
• World Resources Institute (WRI) GHG Accounting
  Protocol
• WRI Green Power Market Development Group
• California Climate Action Registry
• Chicago Climate Exchange
• IETA/Climate Group Draft Voluntary Carbon
  Standard
• WWF Climate Savers
• US Green Building Council LEED Certification
• Sierra Club
• Greenpeace
• Union Of Concerned Scientists

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Are we up to the task?
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Sources Of Misconceptions About The Additionality
Of RECs

• Competitive Concerns
• Lack of Understanding of Green-e Standard
• No Defined Standard for Voluntary GHG Reduction
  Products
• Fear and Hope of Influencing Government Policy

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Misconception 1A REC is supposed to represent
displaced emissions, but we cant say for sure
what is being displaced so any claim is suspect.

• EPA guidance recommends E-Grid accepted approach
• Green-e requires substantiation of claims
• A REC from Kansas displaces more than a REC from
  California

• Estimating displaced emissions
• System Average
• Operating Margin
• Build Margin
• All Methods come with trade offs
• Cost
• Accuracy
• Complexity

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Misconception 2RECs are an indirect GHG
reduction so it is unclear what property right
you are buying. Any reduction is automatically
claimed by the energy producer making any other
claim double counting.

• RECs are sold by contract with clear assignment
  of title to associated claims.
• Established GHG registries recognize the indirect
  reductions of green power.

• Generator and/or utility signs attestation
  agreeing not market null power as green.
• Often multiple entities seeking to purchase RECs
  from any given facility.
• Green-e audits transactions and enforces
  allegations of double claims.

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Misconception 3There is way more renewable
energy available than sold as RECs, thus RECs
have little or no impact.

• Only a subset of RECs eligible for voluntary
  sales
• New Facilities Post 1997
• New Vintages 6 months back, present year, 3
  months forward
• Qualifying definition of renewables
• Additional to RPS
• Additional to Rate base
• Not double sold/claimed

• Green-e Standard
• Screening tool protecting buyers
• Removes uncertainty
• Ensures quality

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Misconception 4Renewable energy has become a
business as usual practice and does not represent
additional reductions of GHG

• What is business as usual in US electricity from
  1997 -2004?
• What portion is Green-e eligible?
• What portion of new RE generation is used to
  comply with mandates?
• Is it common practice to develop new renewables
  in the US that are not used for compliance?

• New capacity was 95 natural gas. (EIA)
• 2.33 of new capacity was Green-e eligible
  renewables (5,758 MW), mostly wind. (EIA)
• 2,300 MW built for compliance mandates. (EIA
  2003)
• 2,200 MW built to serve voluntary markets. (NREL
  2004)
• Punch Line Voluntary market represents 1-1.5 of
  new capacity and is not business as usual.

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Misconception 5RECs are so cheap they couldnt
possibly represent any additional GHG reduction.

• REC prices range from 50 to
• Factors are
• Geography
• Fuel Type
• Vintage and Online Date
• RPS Demand
• Low cost RECs reflect market efficiency, drive up
  demand for renewables

• Price of RECs function of supply and demand.
• Price is not an indication of additionality.
• RECs effective cost per CO2 ton comparable to CCX
  prices.
• Illustration
• 2.40 REC displacing .6 tons CO2/MWh 4 ton

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Misconception 6Not all RECs are created
equally, so buyers don't know what they are
getting.

• That is why we have Green-e, the preeminent
  quality standard for the voluntary renewable
  industry covering
• REC Markets
• Utility Green Pricing
• Restructured Markets
• Buyers know what they are buying and get what
  they pay for.

• Marketers must disclose prospectively/
  historically
• Price, terms and conditions incl length of
  commitment and cancellation policies
• Fuel source, geog origin by state and online date
• Marketing claims verified and regulated by
  Green-e
• Supply portfolio audited

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Misconception 7RECs and CO2 Offsets are
fundamentally different instruments and should be
kept separate.

• CO2 offsets represent 1 ton of direct emission
  reductions.
• RECs represent the displaced emissions of 1 MWh
  of system average power.
• Each market and GHG trading regime sets its own
  policy on instruments that are accepted.
• Sensitivity around use of the term offset

• Offset in formal sense
• a project-based GHG reduction carried out by a
  non-capped entity.
• sold to a capped entity
• Offset in informal sense
• Basis of voluntary claims
• We offset our emissions through purchase of RECs
  or other GHG reduction credits.
• Leads to claims 100 Green Powered or Carbon
  Neutral

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Misconception 8Only front loaded RECs paid
forward prior to project construction can be
considered additional.

• Future REC Model
• Give your now
• When we collect enough we will build a wind
  turbine
• Buyer claims 30 year stream of GHG reductions now
  before project is built.
• A different way of financing a wind project.
• How a project is paid for is separate from the
  question of additionality.

• Concerns with Future Model
• Artificially inflated GHG reduction claims
• Verification occurs decades into future for
  claims made in present
• Effectiveness
• Compared to 5.2 million MWh sold as Green-e RECs
  in 2005

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Misconception 9There is no quality standard for
RECs and RECs face no additionality test.

• RECs face a rigorous additionality test through
  the Green-e Standard.
• Buyer Beware warnings for the REC market are
  completely misplaced
• The forthcoming VCS recognizes RECs as an
  eligible offset source for issuance of VCUs into
  the voluntary market.

• A more important question is what is the quality
  standard for retail carbon reduction products
  sold in the voluntary market?
• To date there is no Green-e for the voluntary
  retail GHG reduction product market.
• We need one.

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Responding To Market Demand Green-e is Developing
a Certification Standard For Retail GHG Reduction
Products

• Carbon retailers are springing up
• There is no standard for
• Accuracy of communication
• Quality of offsets
• Assurance of verification
• Transparency and customer disclosure/education
• Green-e stakeholder review process in late 2006
• Certification program expected in early 2007

• Green-e GHG Standard
• Supply of GHG Reductions Equals Sales
• GHG Reduction Types Retired are those Advertised
• GHG Reductions Originate from Certified GHG
  Projects

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Additionality Myth BusterThe Case for Green-e
Certified RECs Representing Additional
Reductions of GHG

• Thank you
• Contact
• Gabe Petlin
• 3 Phases Energy
• [phone]
• gpetlin_at_3phases.com
• www.3phases.com