United States

United States

Emissions credit trade finances new plant -- SeaWest makes strong link between more wind and less pollution

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The market for private trading in wind emissions credits is picking up. Last month a leading US wind project developer, SeaWest, announced it was seeking bids for the emission reduction credits to be generated by a new 44.4 MW wind project being built in October. Another wind related transaction, between as-yet-unnamed companies, has just been inked. Previous emissions trades involving wind, pioneered by Vision Quest of Canada, have been far smaller in scale.

SeaWest's Request for Proposals (RFP) for purchase of the CO2 emission credits was issued March 13 and was open until March 31. One of America's oldest wind companies, it was also soliciting bids on equity interest in the project and on trading the green power on California's Automated Power Exchange (APX).

"It is an attempt to split out the different value components of the project," says Jan Paulin, CEO of SeaWest of San Diego and a former investment banker. "We feel there is significant added value coming from the CO2 credits and green [APX] certificates -- and that it is a value that we can capture and we can quantify." The transaction could well become the largest involving wind to date. Much of the international wind industry's hopes are pinned on the emergence of such a market based approach to reducing greenhouse gases.

SeaWest estimates that its Mountain View Partners Project, to consist of 74 state-of-the-art Mitsubishi 660 kW turbines up and running by March 2001, will offset 60,000-100,000 imperial tons of CO2 equivalent yearly, a calculation it bases on an expected yearly output of 175 GWh.

The company's bold move has made waves. As of March 24, it had received more than 30 inquiries, including some for the greenhouse credits. Some inquiries were from utilities that have not worked with wind power before, says vice president Dave Roberts. All were from the US and Canada, which is where the RFP was circulated

Buyer of such credits tend to be heavy polluters who want to hedge their bets against the likelihood of future carbon restrictions. The concept has became a hot one in the last two or so years since the signing of the Kyoto Protocol, which recognised worldwide emissions trading as a way of easing global warming. Major industrial countries, however, do not yet have mandatory emissions limits, though Europe is seriously striving to meet self-imposed emissions goals.

The emissions market is now beginning to take shape. Also last month, the first international sale of wind related credits was inked in early March, confirms the New York broker handling the sale, Garth Edwards. Details of the transaction, in the contract stage in late March, are to be publicised in early May. Edwards is a principal of NatSource, an international institutional energy broker. The size of the trade, he says, involves only slightly less wind power than offered by SeaWest.

Vision Quest Windelectric Inc, of Calgary, the pioneer in the field, has been selling emissions credits from a small wind farm for two and a half years to Canadian buyers trying to meet the country's voluntary emissions reductions targets (Windpower Monthly, June 1999). Among its customers are the Alberta petroleum giant Suncor Energy Inc, which agreed to buy 350,000 kWh wind power yearly for five years just over a year ago (Windpower Monthly, January 1999). When Suncor had previously contracted to buy the same amount of wind almost a year earlier, Vision Quest calculated the trade would offset the equivalent of 350,000 kilograms of greenhouse gases yearly. Another buyer of Vision Quest's wind offsets is ENMAX, the city of Calgary utility system.

"It's a very promising market," says Edwards of CO2 trading involving renewables. A sizeable US "compliance market" already exists for SO2 and NOX, whose reductions are required by US clean air laws. Some $1.7 billion of SO2 and NOX credits were traded in the last two years.

First steps

The greenhouse gas market, for trade in what is known as "CO2 equivalent," is in its infancy. So far, there have been fewer than 80 trades worldwide of about 30 million tonnes of CO2 equivalent involving the purchase of cleaner -- or renewable -- energy, or by buying into "carbon sinks" such as forests. The average transaction is about 100,000 million tonnes yearly, similar to what SeaWest says its new wind plant will offset. The World Bank launched a prototype carbon trading fund in January, but only with the participation of four smaller countries -- Finland, the Netherlands, Norway and Sweden -- and a few private companies.

Some academics say the value of such credits could increase thirty-fold from, say, a dollar per tonne of CO2 equivalent to $30 or even $100. Others analysts are optimistic, but less so. They do not expect the price to rise so high once the market gets under way.

Since there is no formal framework for wind related trading -- and since there have only ever been a handful of wind related emissions -- the legal and administrative specifics of accounting for wind's "value" for reducing greenhouse gases are still being hammered out. The wind related transaction must show that it is offsetting a certain amount of dirty power, such as coal fired. The amount of CO2 that any renewable energy offsets is not clear, as there is no formal market or agreed upon analytical tools. "It's that trail of ownership that must be defined using a solid methodology," says Edwards, an economist who worked at the United Nations on the Kyoto Protocol.

The issue has been dealt with, apparently successfully, in other renewables related trade, he says. Moreover, European companies and the EU successfully simulated the parallel trading of CO2 and electricity, including renewables, in a simulation last autumn. And questions of which country would earn the CO2 credit connected with trading "green power credits" -- the seller or the buyer -- is currently a burning issue for analysts working on regulations for the EU's internal energy market.

There is also the question of whether wind will still be eligible for "green power premiums" from the public purse if its green value has already been traded. "We're still wrestling with the legal issues," concedes SeaWest's Roberts. "But we're not concerned -- we think we will still get the green-e certificate and the APX green ticket, as well as the California consumer credit." SeaWest had considered offering similar credits from its 25 MW Foote Creek III wind farm, completed in Wyoming last year. It was too early, but the time is ripe now. "We hope this is a new model for wind projects," says Roberts.

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