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Capturing green commercial value

Although credit trading markets are still in their infancy, they offer significant potential for wind developers looking to extract the environmental value of the power they produce, experts in the field agree

Right now, electricity markets as a whole do not reflect either the environmental cost of fossil fuels or the benefits of clean generation. Splitting off the environmental attributes of wind and making them tradable is one way to surmount that barrier and tap into a substantial new source of revenue.

"That's really what this is all about, trying to capture the value that wind brings to the market, to public and private individuals and corporations, by monetizing that value through credit trading," says Kevin Rackstraw, who conducted a study on the issue for the United States' National Wind Co-ordinating Committee. "The principle problem we've got right now is just the acceptance of the idea of separating the attributes from the energy. It seems like a very simple concept, and it's done in other kinds of markets. It's not been very well accepted here."

Rackstraw told this year's American Wind Energy Association (AWEA) conference that a valuable aspect of credit markets is that they operate independently of energy markets. "When you can take that environmental benefit and sell it to somebody, regardless of where your wind project is located, then you've got something," he says. "You can market that green piece beyond your transmission constraints. So it gives a little more flexibility. The trick is going to be how much value is there?"

Rackstraw sees two types of credit markets emerging. In one, all the environmental attributes of green power are bundled together and sold in the form of green tags or certificates. The tags, traded through entities like California's APX electricity exchange and the Bonneville Environmental Foundation, have been selling for anywhere from $0.005/kWh to $0.04/kWh. In the other type of market the focus is on emissions compliance. Wind's green attributes are broken down and sold individually in the form of NOX, SO2 or carbon credits, to whoever needs them.

While the potential for wind in the compliance market is great, in practice there are hurdles to overcome. There's no "real market" for carbon yet and no regulations requiring companies to reduce CO2 emissions, says Rackstraw. "It's very difficult to predict what's going to happen with the carbon market," he says. "You can certainly make money on it. Wind projects can earn extra revenue from this. But it's essentially a private, voluntary market."

Regulated air quality markets do exist in the US, trading pollutants like NOX and SO2. But the programs are structured so clean generators have not had a "fair chance" to compete, says AWEA's David Wooley. With major amendments to the federal Clean Air Act expected in the next one to three years, the wind industry is lobbying to change that. Studies have found that participation in air quality trading programs could inject as much as $1.3 billion a year in additional revenue into the renewable energy sector. As importantly, says Rackstraw, it would bring market certainty.

adding market certainty

"If you have a defined set of allowances you can earn, there's certainty in that. You can sell over time much more easily," he says. "That's not to denigrate private, voluntary markets, whether carbon or green tags, or whatever it is. But you have to recognise from a developer's standpoint, they're very different markets in terms of being able to go out and get financing on that basis."

While carbon markets remain immature, wind producers should not lose sight of the opportunities they present, advises Marc Stuart of EcoSecurities, a small international company that helps clients incorporate emissions performance in project financing. "There are bilateral transactions going on. There are quite a few of them, they are multiplying rapidly right now, and it's something any developer needs to stay on top of." Other markets are also emerging, Stuart adds. In the international market place, the World Bank Prototype Carbon Fund is a major buyer and a growing number of public and private sector funds are getting into the carbon market. Some buyers, he adds, are opting for green certificates, assuming they are going to be able to claim the carbon reduction component against their ultimate target.

Be prepared

Although carbon markets are voluntary now, "many of us assume that is a temporary condition," he says. "You don't see firms spending millions, or in some cases, tens of millions of dollars on their emissions position if they don't think there's something coming down in the future." Wind producers must be prepared, Stuart told conference delegates. "The bottom line is that if you're going to get involved in this, it is really important you understand your position at the outset of a project, the outset of financing." If a carbon deal is not possible now developers should ensure they retain the reductions to sell in the future.

"Emissions value is an upside. There's an immediate need within all of your financing, all of your legal transactions, to make sure who within the transaction owns the legal right to the emission reductions."

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