Germany trades wind credits with Canada -- Utility deal hailed as start of huge Kyoto-driven market

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In the first truly global trade in greenhouse gas emissions involving wind power, a German utility will sell seven years of credits for clean energy to a Canadian utility that is hedging its bets against future constraints on how much pollution it can release. Under the deal, announced last month in Bonn during preparatory talks for the Sixth Conference of the Parties to the Kyoto Protocol (COP 6), Hamburg Electric will sell 3000 tonnes of greenhouse gas reduction credits yearly for seven years to TransAlta of Alberta.

The deal is one of only four market-driven initiatives for purchase of wind emissions credits now in the works, the others being in the US and in Canada (Windpower Monthly, May 2000). The Hamburg Electric (HEW) agreement with TransAlta was inked in March (Windpower Monthly, April 2000) and according to NatSource, the New York company that brokered the deal, it is the first trans-Atlantic emissions trade involving any source of power.

"This transaction is truly a glimpse at the future of greenhouse gas emissions trading," says NatSource's Garth Edwards. "Corporations, environmental organisations, and countries will look for the most efficient source of emissions reductions -- and as TransAlta and Hamburg Electric have proven these need not be on your own continent."

Although the trade involves a relatively small amount of wind power -- the output of about 2 MW of installed capacity -- it does bolster the belief that wind stands to be a significant beneficiary of the global market for greenhouse gas credits that is expected to emerge from the Kyoto process. Last month in Bonn, EU governments reached a common position in readiness for COP 6 in November which, if adopted globally, will mean that nuclear power and the use of forests as "sinks" to absorb carbon dioxide emissions will not be sanctioned as investments for which emissions reduction credits can be claimed for at least the next 12 years.

NatSource specialises in emissions trading and Edwards, an economist who formerly worked at the United Nations on the Kyoto Protocol, is as convinced as ever that the potential market is huge. "The political writing is clearly on the wall," he said on his return from Bonn. Indeed news of the HEW-TransAlta deal was picked up at COP 6 by the British Broadcasting Corporation (BBC), which within days had visited HEW's wind plants.

Clean air derivatives

Trading in derivatives of clean energy is burgeoning as producers of dirty power seek to hedge their bets against mandatory reductions. Currently, a tonne of greenhouse gas reduction credits sells for $0.50-$2.50. Experts believe the market could one day be worth $100 billion yearly, although much about its details remains uncertain.

The terms of the TransAlta and HEW contract may set a precedent for how much greenhouse gas wind actually replaces. The price involved, however, is not being divulged -- and the parties may have agreed to renegotiate the price over the seven years. The electricity produced by the wind turbines will be verified by TUV Management Services of Munich, Germany's largest verifier of technical standards. "We expect more business coming out of Kyoto," says TUV's Bernhard Grimm.

HEW, owned partly by Swedish utilities Vattenfall and Sydkraft and the electric giant PreussenElektra of Germany, has been investigating the emissions trading market for some time through an in-house eight person unit. Last year, the utility agreed to market green power in Germany in co-operation with Deutsche Shell. This power was also certified by TUV.

"We see a major market," says HEW's Helmuth Groscurth of the global potential. While the deal with TransAlta is only a pilot project, HEW expects to sell and buy more wind emissions credits both within Germany and beyond, even though the German wind lobby is reluctant to embrace such a market driven industry, preferring to rely on legislation mandating a high wind tariff. HEW has installed about 20 MW of wind capacity in the Hamburg area, of which about 10% of the output -- from five wind turbines -- is designated for this deal.

Europe behind

North America is currently the hot market for sales of emissions credits. A sizeable "compliance market" already exists for SO2 and NOX, whose reductions are required by clean air laws. US companies tend to be less cautious than their European counterparts in embracing new market concepts. Some $1.7 billion of emissions credits were traded in the last two years and there have been almost 80 trades world wide so far for about 30 million metric tonnes of CO2 equivalent. These involved buying cleaner -- or renewable -- energy or by buying into "carbon sinks" such as forests. The average transaction is about 100,000 million tonnes yearly, or 33 times the size of the HEW TransAlta deal.

TransAlta, a private utility in Alberta, already buys some wind power from turbines sited in the province. The utility, a major producer of dirty electricity, has also announced that it eventually intends to offset all of its carbon emissions so that overall it has zero emissions. Its deal with HEW may well be a wake-up call for Europe. "It will push utilities and [electricity] producers to think about what is possible," predicts TUV's Grimm. And HEW's Groscurth stresses that the importance of the transaction must be recognised. "We should not be left behind in Europe," he says.

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