Emissions trade opens opportunities -- Wind registers first claim

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So far, the only generator to claim part of the renewables set-aside allowance under Ontario's NOx and SO2 emissions trading program is a single 660 kW wind turbine installed on the shores of Lake Huron. But even though the system is still in its infancy, says energy consultant Mike Butters, it presents an opportunity others should not ignore.

In January 2002, the Canadian province capped total annual emissions of nitrogen oxides and sulphur dioxide from fossil-fuelled power plants larger than 25 MW and introduced trading that allows emitters to meet the limits by buying emissions reduction credits from sources within Ontario's airshed, including 12 US states and the District of Columbia.

Although renewable energy and energy efficiency activities cannot generate credits under the program, they can claim part of an annual set-aside pool of one kilotonne of NOx and four kilotonnes of SO2 allowances.

Butters was hired by the Independent Power Producers Society of Ontario to prepare an application on behalf of Port Albert Wind Farms Ltd and shepherd it through the claims process, testing the system and helping work out any administrative issues along the way. The Port Albert application submitted claimed only one tonne of NOx and three tonnes of SO2, a fraction of the available allowances. But its impact belies its small size, says Butters.

"Psychologically it was very important. It is like a small, but significant battle. It got people to sit up and take notice." It also, he adds, showed there is an opportunity available to wind farm developers. "The main advantage is that they now have a choice," Butters explains. "They have the ability to strategically determine which is in their best interest, to sell the electricity as green and gain the price premium for the commodity, or claim the allowance."

A long way to go

Butters acknowledges, however, that the province's emissions trading market is far from being fully operational. Right now only fossil generation owned by Ontario Power Generation (OPG), the province's monopoly generator before electric industry competition was introduced in 2001, is subject to emissions caps. With only one buyer, a functioning market for credits has yet to develop and their value is nowhere near that of credits in the US, where emissions trading has been working for a number of years. There, for example, prices for NOx credits are typically in the range of US$1500-$2500/ton, and have peaked at more than US$11,000/ton close to compliance deadlines.

Still, Butters believes the Ontario emissions market will develop dramatically over the next few years. In 2004, other fossil fuel generators will be capped and the trading system will be extended to other industry sectors like mining and pulp and paper. Whether a wind producer will be able to sell allowances to, for example, a mining company is not clear, but Butters says the larger market will cause both trading activity and prices to climb considerably. In addition, the size of the caps will decrease, placing continued pressure on emitters to find real and sustainable reductions.

Viable revenue

"The price is expected to be many magnitudes greater than what it is today," Butters says. Eventually, he predicts, emissions trading will become a viable revenue source for wind producers. "It is not a question of if, but a question of when and how much."

Wind producers should not wait for the market to fully develop before getting involved, says Butters. They can claim allowances now and, if they choose, bank them for sale later when prices rise. "Even if you don't use them right now, it's important to get them registered so you have that additional financial flexibility," Butters says.

Participating in the market could also give the industry influence as the system evolves, he argues. "If wind producers have a voice by virtue of actually having done something, then the ministry is more inclined to listen to them when it comes time to define some of the specifics of the trading program as we move forward. If they were all just to sit and wait, they'll lose by default."

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