maximum generation, llc monetizing environmental revenue streams - webinar
DESCRIPTION
TRANSCRIPT
Monetizing Environmental Revenue Streams
William Pentland amp Mark Graffagnini
MAXIMUM GENERATION LLC
MAXIMUM GENERATION LLCMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Boom Time for Renewable-Energy
New Investment in Sustainable Energy 2002-2008 $ billions
Source New Energy Finance Source National Renewable Energy Laboratory
Growth of Global Wind Power Capacity
Maximum Generation LLC - Monetizing Environmental Revenue Streams
0
1000
2000
3000
4000
5000
6000
7000
mill
ion
20
00$
US DOE ENERGY RDampD FY1978-FY2010
Fission Fusion Efficiency
Renewables Fossil including CCT demo Electricity TampD
Hydrogen EERE ARPA-E RE-ENERGYSE
Source Gallagher KS DOE Budget Authority for Energy Research Development and Demonstration Database Energy Technology Innovation Policy John F Kennedy School of Government Harvard University June 2008Maximum Generation LLC - Monetizing
Environmental Revenue Streams
The scale and scope of policies promoting renewable-energy resources today have returned to levels not seen since the 1970s
Source Mercom CapitalMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Beware the Black Swan
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Boom Time for Renewable-Energy
New Investment in Sustainable Energy 2002-2008 $ billions
Source New Energy Finance Source National Renewable Energy Laboratory
Growth of Global Wind Power Capacity
Maximum Generation LLC - Monetizing Environmental Revenue Streams
0
1000
2000
3000
4000
5000
6000
7000
mill
ion
20
00$
US DOE ENERGY RDampD FY1978-FY2010
Fission Fusion Efficiency
Renewables Fossil including CCT demo Electricity TampD
Hydrogen EERE ARPA-E RE-ENERGYSE
Source Gallagher KS DOE Budget Authority for Energy Research Development and Demonstration Database Energy Technology Innovation Policy John F Kennedy School of Government Harvard University June 2008Maximum Generation LLC - Monetizing
Environmental Revenue Streams
The scale and scope of policies promoting renewable-energy resources today have returned to levels not seen since the 1970s
Source Mercom CapitalMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Beware the Black Swan
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
0
1000
2000
3000
4000
5000
6000
7000
mill
ion
20
00$
US DOE ENERGY RDampD FY1978-FY2010
Fission Fusion Efficiency
Renewables Fossil including CCT demo Electricity TampD
Hydrogen EERE ARPA-E RE-ENERGYSE
Source Gallagher KS DOE Budget Authority for Energy Research Development and Demonstration Database Energy Technology Innovation Policy John F Kennedy School of Government Harvard University June 2008Maximum Generation LLC - Monetizing
Environmental Revenue Streams
The scale and scope of policies promoting renewable-energy resources today have returned to levels not seen since the 1970s
Source Mercom CapitalMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Beware the Black Swan
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The scale and scope of policies promoting renewable-energy resources today have returned to levels not seen since the 1970s
Source Mercom CapitalMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Beware the Black Swan
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Beware the Black Swan
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
ERS ndash Cap and Trade Programs
Existing In Development
Regional Greenhouse Gas Initiative Western Climate Initiative
NOx Budget Trading Program Midwest Greenhouse Gas
Reduction Accord
Clean Air Interstate Rule California AB32
ACES
ERS ndash Offset Programs REC Programs
New Source Review ndashNOx Renewable Portfolio Standards
CO2 offset programs Voluntary Green Power Programs
What Are Environmental Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Major US Environmental Markets
Environmental Trading Markets
Emissions Cap and Trade
Allowances
New Source Emissions
Offsets
RenewableEnergy
Markets ndashVoluntary and Compliance
ldquoParties are transacting in a
milieu in which rules are
often not yet fully set and
likely to change mid-stream
The only thing certain about
change in law risks is that
there will be change in law
risks that the drafters did not
anticipaterdquo
-Environmental Markets
Assoc REC Committee
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Is Environmental Revenue
bull One-time or ongoing payments by an entity (such as a state) to the developer or owner of an energy-generation project to reward the use of highly efficient andor renewable energy generation technologies
bull Environmental revenue streamsrdquo refer to the financial value received for the sale of property rights over previously non-monetizable attributes of renewable-energy energy-efficiency and emissions-control projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Environmental Attributes
ldquoEnvironmental Attributes or Green Tagsrdquo means any and all credits benefits emissions reductions offsets and allowances howsoever entitled attributable to the generation from the Unit(s) and its displacement of conventional energy generationldquo
Environmental attributes include but are not limited to 1 Any avoided emissions of pollutants to the air soil or water such as sulfur oxides (SOx)
nitrogen oxides (NOx) carbon monoxide (CO) and other pollutants 2 Any avoided emissions of carbon dioxide (CO2) methane (CH4) and other greenhouse
gases (GHGs) that have been determined to contribute to the actual or potential threat of altering the Earthrsquos climate by trapping heat in the atmosphere and
3 The reporting rights to these avoided emissions such as Green Tag Reporting Rights in compliance with federal or state law if applicable and to a federal or state agency or any other Party at the Green Tag Purchaserrsquos discretion
Primary REC Attributes Derived REC Attributes
Renewable fuel source Emissions of the renewable generation Geographic location of the generator Vintage of the generator Eligibility for certification or RPS
Avoided emissions Price stability Eligibility for ERCs or offsets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
One REC confers ownership to the environmental and other non-power attributes of one MWh of electric power produced from renewable energy
Sold separately from commodity electricity
Where RECs Originate
One MWh of Electricity Generated from
Renewable Energy
Power sold in power markets and delivered
to end-users for consumption
Renewable Energy Credit
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What RECs Represent
bull A REC is a property interest in one or more of the environmental attributes associated with specific renewable energy or energy-efficiency projects The ldquoMaster Renewable Energy Certificate Purchase and Sale Agreementrdquo created by the American Bar Association the American Council on Renewable Energy and the Environmental Markets Association defines three possible forms RECs can take
bull ldquoStandard RECrdquo includes all environmental attributes associated with the generation of electricity from renewable energy whether or not such Environmental Attributes have been Verified or Certified and whether or not creditable under any existing Applicable Program
bull ldquoBasic RECrdquo includes only the Certification of the generation of electricity by a Renewable Energy Resource without any additional Environmental Attributes
bull ldquoSpecified RECrdquo includes specified Environmental Attributes in addition to the generation of electricity by a Renewable Resource Additional environmental attributes may be specified individually or as the residue after specific Environmental Attributes are removed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
REC Market Drivers
Voluntary Markets Compliance Markets
Competition from RPS compliance markets
Renewable Portfolio Targets
Consumer demand for local resources Availability of cost-effective resources
Type and location of resource Ability to site new projects
Time limitations on eligible projectsGeographic eligibility banking penalties under RPS programsMaximum Generation LLC - Monetizing
Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable Portfolio Standards (July 2009)
State renewable portfolio standard
State renewable portfolio goal
Solar water heating eligibledagger
Extra credit for solar or customer-sited renewables
Includes separate tier of non-renewable alternative resources
WA 15 by
2020
OR 25 by 2025
CA 20 by
2010
NV 25 by 2025
AZ 15 by
2025
NM 20 by 2020
HI 20 by
2020
Minimum solar or customer-sited requirement
TX 5880 MW by
2015
UT 20 by 2025
CO 20 by 2020
MT 15 by
2015
ND 201510
by
SD 10 by 2015
IA 105
MW
MN 25 by
2025
MO 15 by
2021
IL 25 by
2025
WI Varies by 20B
MI 10 + 1100
MW by 2015
OH 25 by
2025dagger
ME 30 by
2000
NH 238 by
2025
MA 15 by
2020
RI 16 by
2020
CT 23
by 2020
NY 24 by
2013
NJ 225 by
2021
PA 18 by
2020
MD 20 by
2022
DE 20 by
2019
DC 20 by
2020
VA 15 by 2025
NC 125 by 2021
VT (1) RE meets any increase 2012
KS 20 by
2020
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Eligible Projects for REC Markets
Source US Environmental Protection Agency
Bio
fue
ls
Bio
mass
CH
PW
aste H
eat
Energy Efficien
cy
Fuel C
ellsDagger
Geo
therm
al
Hyd
ro
Lan
dfill G
as
Mu
nicip
al Waste
Ocea
n T
he
rma
l
Ph
oto
volta
ics
Sola
r Th
erm
al
Electric
Tid
al
Wa
ste T
ire
Wave
Win
d
AZ X X X X X X X X
CA X X X X X X X X X X X X
CO X X X X X X X
CT X X X X X X X X X X X X X
DE X X X X X X X X X X
DC X X X X X X X X X X X
HI X X X X X X X X X X X X X X
IA X X X X X X
IL X X X X X X X
MA X X X X X X X X
MD X X X X X X X X X X X
ME X X X X X X X X X X X
MI X X X X X X X X X X X
MN X X X X X X X X
MO1048732 X X X X X X
MT X X X X X X X
NC X X X X X X X X X X X
ND1048732 X X X X X X X
NH X X X X X X X X X X X
NJ X X X X X X X X X X
NM X X X X X X X
NV X X X X X X X X X X X X
NY X X X X X X X X X X
OH X X X X X X X X X X X
OR X X X X X X X X X X
PA X X X X X X X X X X X
RI X X X X X X X X X X
SD X X X X X X X X X
TX X X X X X X X X X X
UT1048732 X X X X X X X X X X X X
VA1048732 X X X X X X X X
VT1048732 X X X X X X
WA X X X X X X X X X X X X X
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Approval Process for RECs
bull Certification ldquoDoes this product meet acceptable standards for qualityrdquo Certified products come from eligible renewable resources and meets product-marketing standards Certification validates the productrsquos environmental attributes
bull Verification ldquoHow do I know Irsquom getting what I paid forrdquo Third-party certification usually carries a requirement for independent verification to document that the amount of green power generated equals the amount of green power sold to customers Third-party independent auditors apply the verification process to retail and wholesale electricity providers The audit verifies that the green power behind the product was produced and placed on the utility grid and helps verify the productrsquos environmental benefit Verification serves as a form of buyer protection against deception or fraud
bull Deliverability Power generators subject to an RPS are typically required to meet their mandates with power produced from renewable energy in-state or delivered for consumption within the state or regional transmission system where the RPS policy applies Although some states like Missouri do not include delivery requirements the vast majority of RPS programs include delivery requirements of any sort or another
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Voluntary Markets REC Prices
Generation Region TermVolume (MWh)
Bid Offer
LFG SERC 2006-2007 40000 $100 $150
Wind WECC 2008-2012 30000 $350 $500
Wind SPP 2006-2010 30000 $200 $450
Wind National 2008 25000 $150 $300
Geothermal CA 2006 50000 $175 $225
Biomass PNW 2008-2011 50000 $250 $350
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Compliance Market REC Prices
CT CLASS I CERTIFICATES
Term Bid Offer Last Date
2006 $700 $1000 $875 6112006
MA NEW CERTIFICATES
Term Bid Offer Last Date
2006 $4900 $5500 $5225 7262006
TEXAS RECs
Term Bid Offer Last Date
2006 $300 $600 $400 7272006
NJ SOLAR
Term Bid Offer Last Date
PY 0607 $22500 $26000 $24000 8302006
NJ CLASS I
Term Bid Offer Last Date
PY 0607 $650 $950 $775 7142006
Source Evolution Markets August 2006
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Renewable-Energy Regional Supply and Demand
Supply and demand for the Midwest 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and Demand Projections for the New England New York amp Mid-Atlantic 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Supply and demand Projections for Heartland amp Southeast 2004-2015 (MWh)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RECs ndash Risk Transfer
bull Risk transfer mechanisms in REC transactions
3rd party certificatesVerification methodologyVerifying vlidity of RECs creation on voluntary market
Do ERCs or Voluntary RECs count for RPS compliance13 states + DC NO3 states YES5 states Uncertain
REC Procedures
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
The American Clean Energy and Security Act
Section 101 establishes a program requiring retail electric suppliers to submit renewable energy credits and electricity savings equal to a percentage of their annual electricity sales beginning in 2012
Distributed renewable generation facilities are issued 3 Federal renewable electricity credits for each megawatt-hour of renewable electricity generated with the granting of triple credits to be reviewed for adjustment in 2014 and every 4 years thereafter It is assumed that the adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt hour issued to distributed generation facilities starting in 2014
However distributed renewable generators placed in service during a year when triple credit is granted continue to receive triple credit for 10 years
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bingaman Markey Waxman
RES Target4 by 2011 20 by 2021 (through
2039)
6 by 2012 25 by 2025
(through 2040)Same as Markey
Covered EntitiesAll suppliers selling more than 4
million MWh (except in Hawaii)
All suppliers selling more
than 1 million MWhSame as Markey
ldquoExistingrdquo vs
ldquoNewrdquo
Renewables
RECs for existing renewables
cannot be tradedNo distinction No distinction
Energy
Efficiency
Allowed
Yes ndash EE can be used to meet up to
25 of target each year
No ndash Markey proposes an
independent EERS in a
separate bill (HR 889)
Yes ndash States may petition
to reduce annual
obligation by up to 20 if
utilities comply with
separate EERS
Credit
Multipliers
Two federal RECskWh for projects
on tribal lands three RECskWh for
distributed generation (at
ldquocustomer siterdquo 1MW limit)
Three federal RECskWh
from distributed
generation sources
(nonshycombustion projects
ldquoat or nearrdquo customer
site up to 2 MW)
Same as Markey
How Will Senate Shape Federal RES
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Federal RES Affect on State RPS
bull Dual RECs System All three proposed bills create a dual RECs system with federal RECs separate from state renewable electricity standard RECs While this method may be required based on other elements of the legislation it may also create tracking problems and confusion over appropriate claims because there could be two RECs (federal and state) issued for a single megawatt hour of renewable generation Because state RECs generally specify that they contain renewable energy attributes and establish a basis for claiming renewable energy the federal REC cannot also contain these attributes
bull The Environmental Tracking Network of North America (ETNNA) is convening a national dialogue the goal of which is to address the technical issues associated with interregional REC trading If successful ETNNArsquos efforts will create a foundation where it will be possible to trade RECs among regions the actual practice will likely depend on the state rules for eligible renewable resources for their RPS (not addressed by ETNNA)
bull State RES Interaction All of the bills call for preserving the integrity of existing state RES standards although the Markey and Waxman bills contain more specific language to that effect One key issue is whether state RES standards can be more stringent than the federal standard For example utilities in states with higher RES targets than the federal target in a given year may be allowed to sell ldquoexcessrdquo RECs to utilities in other states for federal compliance If this is allowed state targets would not necessarily be more stringent than the federal RES Both the Markey and Waxman bills include language that gives states the authority to decide how to address this issue The Bingaman bill is less clear and includes only a generic state savings clause that does not directly address the issue Maximum Generation LLC - Monetizing
Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
What Next
Feed-in Tariffs ndashWhen and where
Cap and Trade Markets
National RPS solar carve-out
Accelerating state RPS requirements
Looming Changes for REC Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
CO2 Markets
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Cap amp Trade
Market-based approach to reduce GHGs and emission
levels across specific industry sectors in specific geographic
regions
Sets a limit on emissions and establishes a tradable set of allowances for emissions for the sector (ie the ldquoCaprdquo)
Allowances are then allocated to sector companies for free
or for a fee through an auction-type process (the
basis for the ldquoTraderdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade Programs
Control Period
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
Reducing pollutionemissions through greater pollution control (eg carbon
sequestration)
Improving energy efficiency (eg installing a CHP system more efficient lighting etc)
or
Purchasing additional allowances available on the market
State uses proceeds to fund REEE projects with grants
tax credits etc
Cap resulting in declining emissions
Ways to meet cap
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and Trade
bull 3 Main programs
ndash Regional Greenhouse Gas Initiative (ldquoRGGIrdquo)
ndash Western Climate Initiative (ldquoWCIrdquo)
ndash NOx Budget Trading ProgramClean Air Interstate Rule (ldquoCAIRrdquo)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Summary of RGGI Key Characteristics
Scope 25 MW or larger
StatesConnecticut Delaware Maine Maryland Massachusetts New Hampshire New Jersey New York Rhode Island and Vermont
Dates Compliance date began January 1 2009
Emissions reductions 10 by 2018
CompliancebullPurchase AllowancesbullEmission ReductionsbullIncrease Energy Efficiency
Offsets Allowances Limited compliance mechanism
Violations Strict penalties
Legal mechanism ldquoModel rulerdquo as implemented by states
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Emissions Caps by Year
155000000
160000000
165000000
170000000
175000000
180000000
185000000
190000000
2009 2015 2016 2017 2018
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
RGGI Model Rule ConceptsApplicability CO2 Budget Units amp Sources
Permitting Requirements Vary by state
Monitoring amp ReportingAccount representative must monitor compliance with program and report emissions
CO2 Authorized Account Representative Key figure in RGGI system
Compliance CertificateSubmitted by Authorized Account Representative to ensure compliance main enforcement mechanism of RGGI
Life expectancy of AllowancesCO2 allowances for 2009-2012 begin on January 1 2010 and continue each year thereafter for the allocation year that is three years after the applicable deadline for application
CO2 Allocation Tracking System (ldquoCOATSrdquo) Accounts
Key to concept of carbon allowance ldquobankingrdquo that is central to cap and trade
Bank account principals
Serial numbers for allowances
Authorized Account Representative controls
Penalties for noncompliance Forfeiture of allowances for next period fines sanctionsMaximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI State CO2 Budget (short tons) Auction Proportion
CT 10695036 77
DE 7559787 60 in 2009 increasing by 8 each year until 2014
ME 5948902 Up to 100 (see specific state formulas)
MD 37503983 100
MA 26660204 99
NH 8620460 At least 70 (up to 2011) at least 83 thereafter
NJ 22892730 99
NY 64310805 100
RI 2659239 100
VT 1225830 100
Total 188076976
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
ndash Voluntary Renewable Energy Set-Aside AllocationmdashEach state allocates a certain number of tons of emissions to this account
bull Voluntary renewable energy
bull Such data must be from reputable sources (retail electricity providers organizations that certify renewable energy products and other parties)
bull Data must be verifiable
bull As explained above voluntary RE purchases are controversial means to comply with requirements
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offsets Allowancesndash Specifics vary by state
ndash Limited deductions allowed = general rule
ndash Eligible programsndash Landfill methane gas capture and destruction
ndash Reduction in emissions of SF6
ndash Sequestration from afforestation
ndash Reduction or avoidance of CO2 emissions from natural gas oil or propane end-use combustion due to end-use energy efficiency and
ndash Avoided methane emissions from agricultural manure management operations
ndash CHECK YOUR LOCAL STATE
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull CO2 Offset Allowances (contrsquod)bull Project Locations
ndash Local State
ndash Any outside state in which the relevant state agency has signed a MOU with the RGGI states to carry out certain obligations with respect to offset projects including audit requirements
bull Eligible CO2 Emissions Credit RetirementsmdashEmissions Credit Retirements
ndash International permanent retirement of GHG allowances or credits that place a specific tonnage limit on GHG emissions provided those allowances or credits are valid at the time of filing the consistency application
ndash UNFCC certified GHG emission reduction credits
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Additional Requirementsmdashndash Government mandated reductions are not eligible
ndash CO2 allowances shall not be awarded to an offset project that includes an electric generation component unless the project sponsor transfers legal rights to any and all attribute credits (other than the CO2 offset allowances awarded under the model rule) generated from the operation of the offset project that may be used for compliance with a Renewable Portfolio Standard or other regulatory requirement to the state regulatory agency or its agent
ndash No double-dipping RPSRECs and offset allowances
ndash VARIES BY STATE
ndash CO2 offset allowances shall not be awarded to an offset project that receives funding or other incentives from any System Benefit Fund or funds or other incentives provided through the consumer benefit or strategic energy purpose allocation required by law
ndash CO2 offset allowances shall not be awarded to an offset project or CO2 emissions credit retirement that is awarded credits or allowances under any other mandatory or voluntary greenhouse gas program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
So you have a projecthelliphow does RGGI benefit you
bull Apply for project financing from statendash Auction proceeds are used to fund specified projects
bull Selling allowances to entities that need additional allowances for compliancendash Establish a General Account (see procedures for COATS
Accounts)bull June 30 2009 was cut off for projects prior to January 1 2009bull 6 Month Time Limit to file consistency application for projects
after January 1 2009bull HARD DEADLINES Any project that fails to meet these timing deadlines will be denied the consistency
application and will result in the ldquocontinued ineligibility of the subject offset projectrdquobull Consistency Applicationmdashused for allowances generated outside RGGI system one state per application
ndash Transfer allowances under a purchasesale agreement and have the transfer recorded in the COATS system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process
ndash Online auction platform administered by a 3rd party World Energy Solutions Inc
bull World Energy Solutions offers other ldquogreenrdquo credits services through the World Energy Exchange and World Green Exchange
ndash Each auction is in accordance with the statutory andor regulatory authority of each state offering CO2 allowances for sale in that auction
ndash Each state offering CO2 allowances for sale in a CO2 Allowance Auction retains the authority to make its own regulatory determinations in conducting the auction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)
ndash Uniform-price sealed-bid auction format
ndash Bids for each auction are entered separately and each auction clears independently For each auction all bids are first ranked by bid price from high to low
ndash Cumulative demand is noted at each bid
ndash The cumulative demand at each bid is the sum of the bid quantities of all bids with bid prices greater than or equal to the bid price of a particular bid including the bid quantity of a particular bid
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashClearing Price amp Number of Allowances
ndash If total demand lt or = supply of CO2 allowances
ndash Bid price is reserve price
ndash All CO2 allowances are awarded
ndash If total demand gt supply of CO2 allowances and
bull the cumulative demand at a bid exactly equals the supply of CO2 allowances offered for sale in the auction
bull the clearing price is the bid price of the bid or bids in the event there are multiple bids with the same bid price after the marginal bid(s)
bull CO2 allowances are awarded to all bids with bid prices greater than the clearing price
ndash the cumulative demand never exactly equals the supply of CO2 allowances offered for sale in the auction at some point the clearing price is the bid price of the marginal bid(s) CO2 allowances are awarded to all bids with bid prices greater than the clearing price
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull In addition CO2 allowances are awarded to marginal bid(s) according to the following possible scenarios ndash If there is one marginal bid at the clearing price that bid will be
partially fulfilled with the remaining available supply
ndash If there are multiple marginal bids the tie will be resolved by a random process Each tied marginal bid will be assigned a number that is randomly generated by a computer CO2 allowances will be awarded to bids in increasing order by the value of their assigned random number until remaining available supply is exhausted If the last accepted tied marginal bid is for more CO2 allowances than are available that bid will be partially fulfilled with the remaining available supply
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI Auction
bull Auction Example
ndash Assume 100000 allowances are being auctioned
ndash Reserve price is unknown
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Bidder Name Bid Price Bid Quantity Cumulative Demand
Bidder E $500 27000 27000
Bidder A $495 10000 37000
Bidder A $480 11000 48000
Bidder D $470 20000 68000
Bidder B $410 10000 78000
Bidder E $410 12000 90000
Bidder C $385 10000 100000
Bidder E $380 10000 110000
Bidder B $375 15000 125000
Bidder C $325 20000 145000
Bidder A $305 12000 157000
Bidder C $300 40000 197000
Bidder D $225 16000 213000
Bidder A $215 13000 226000
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Auction Process (contrsquod)mdashExample
ndash The bid price at which supply of CO2 allowances equals cumulative demand = $385
ndash 100000 allowances being auctioned cumulative demand = 100000 allowances bid on by market
ndash $385 is the marginal bid
ndash The next lowest bid is the clearing price in this case $380
ndash All bids with prices gt $385 are awarded
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
Previous Auction Results
Auction No Auction Format Allocation Year Quantity Offered
Quantity Sold Clearing Price
Auction 191508
Sealed Bid uniform price
2009 12565387 12565387 $307
Auction 2121708
Sealed Bid uniform price
2009 31505898 31505898 $338
Auction 331808
Sealed Bid uniform price
20092012
315137652175513
31505898 [sic]2175513
$351$305
Auction 461709
Sealed Bid uniform price
20092012
308876202172540
308876202172540
$323$206
bullObservations bullAllowances prices auctioned by state not very highbullFuture years are being priced lower than current control periodsbullPricing information on non-auction transfers from project developers not easy to find
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashRGGI
bull Next Auction
ndash September 9 2009
bull Auction 5-2009ndash 28408945 allowances Sealed bid Uniform Price
bull Auction 5-2012ndash 2172540 allowances Sealed bid Uniform Price
bull For more information see httpwwwrggiorg for future auctions and information
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue Streams
Cap and Trade Regimes
WCI NBP
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashWCI
bull The Western Climate Initiative (ldquoWCIrdquo) was initially launched in February 2007
bull Aims to reduce overall GHG emissions by 15 below 2005 levels by 2020
bull Only in Design Phase
bull Common characteristics with RGGI RGGI = official commentator on design
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNox Budget Trading Program (ldquoNBPrdquo)
bull Background
ndash Initiated in 1998
ndash Previously called the ldquoNOx SIP Callrdquo
ndash 2 Phases
bull Phase I 2003 or 2004 depending on state
bull Phase II 2007
ndash Expired at end of 2008
ndash Replaced by Clean Air Interstate Rule (ldquoCAIRrdquo) NOx season in 2009
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Cap and TrademdashNBPCAIR
bull July 11 2008mdashDC Circuit Ct of Appeals issued a ruling vacating CAIR in its entirety
ndash EPA must replace with a new set of rules
ndash Dec 23 2008mdashDC Circuit Ct allowed the current rules to remain in place until EPA issues new rules
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Monetizing Environmental Revenue StreamsOffset Programs
NSR Oregon Climate Trust WA State Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull Offsetsmdashmeasures to permanently retire and counteract emissions of pollutants into the atmosphere
bull Monetized through ndash ldquoERCsrdquo (Emission Reduction Credits)
bull Contrast prevention or cuts in pollution beforeemissions occur eg reducing electrical generation
ndash Carbon Financemdash$$ granted from state agency such as a climate trust
bull Example of offset programs afforestation wetland projects carbon sequestration etc
bull Overlap with cap and trade
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
REEE Project Proposal
bull AfforestationSequestration
bull Landfill methane capturedestruction
bull Avoided emission from EE
bull Approved RE Projects
bull Agriculture manure mgmt
Pre-construction Permitting
VerificationCertification Process
Permanent Reduction in Emissions
Emission Reduction
Credits (ldquoERCsrdquo)
Carbon Finance
bull Oregon Climate Trust
bull WA state offset program
Offset Program Life Cycle amp Monetization Stream
$$
$$
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
ndash RGGI and many other cap and trade devote certain of allowances to ldquooffset allowancesrdquo
bull Offset allowances in cap and trade are usually limited in nature
ndash Specific Offset programs
bull New Source Review
bull Oregon CO2 program
bull Washington State Offset Program
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
3
97
Relationship between Offsets and Cap and TradeOffset Allowances As A Cap and Trade Compliance Measure
(RGGI example)
Offset Allowances CO2 Allowances
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset Programs
bull State agencies set specific parameters
bull Common Criteria
ndash Additionality
ndash CertificationVerification
ndash Permanent
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNew Source Review
bull New Source Review (ldquoNSRrdquo)
ndash Applies in all areas of the US that are not in attainment with the National Ambient Air Quality Standard (ldquoNAAQSrdquo)
bull NAAQS established minimum levels on lead NO2
CO particulate matter (pm) smog and SO2
bull Air quality maintained throughout the US
bull Any area that has pollutants gt standard levels is a ldquononattainment zonerdquo
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
EPA New Source Review Ozone Non-Attainment ZoneSource EPA httpwwwepagovoaroaqpsgreenbkmap8hrhtml
Projects eligible for ERCs within the nonattainment zones will typically be valuable Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgrammdashNSR
bull Preconstruction permitting program designed to prevent more pollution from new or expanded sources of emissions and ensure that existing plants are as clean as possible
bull Major provision
ndashNew or expanded emission sources must offset more than 100 of increased emissions by making reductions within the local airshed
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Offsets must be obtained as part of the permitting process for the increased emissions project
bull To satisfy reduction requirements industries may purchase Emission Reduction Credits (ldquoERCsrdquo)ndash ERCs essentially a commodity that can be
traded among facilities win a ltd geographical area
ndashOne-time payment to the source generating reductions
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 3 basic types of NSR permits
ndash Prevention of Significant Deterioration (ldquoPSDrdquo)mdashfor major sources or major modifications in a nonattainment zone
ndash Nonattainment NSR permits
ndash Minor Source Permits
bull Issued by state environmental agencies
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Prevention of Significant Deterioration (PSD) Permit Status February 2009
SIP Approved Areas
EPA or Delegated Areas
Combination of SIP andEPA or Delegated Areas
Source EPA httpwwwepagovnsrwherehtmlMaximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull 1 ERC = 1 tonyear of reduced emissions
bull ERCs are strictly defined and limited to specific actions
bull ERCs are state-specific ie can only be used in the state in which they are created
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Elements of an ERC
Permanent measurableSurplus to other emission
limits that otherwise might apply
ldquoAdditionalityrdquo (discussed later)
Enforceable
Source creating emissions must take an enforceable permit condition for the
reduction
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Pricing varies widely within the NSR
bull In CA prices can exceed $120000 for NOx
ERCs
ndash Usually they are in the approximately $3000 to $7000 per ton range
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
Shutting down major permitted facilities in nonattainment zones
bull Surrender permit to state
bull File documentation to use ERCs generated from shut down
Scaling down operations in nonattainment zone
bull eg if permit allows operation at 100 capacity at 150 tons and owners scale down to 75 of operations owners may file application to create 375 tons of ERCs after the original permit is revised to reflect the scale down
Emission reduction technologyfuel switching
bull eg installing CHP technology at a large industrial facility in a nonattainment zone
bull Original permit must be revised to reflect new lower emissions
bull Revised permitrsquos lower emission rate is enforceable against operator
Ways to Generate ERCs under the NSR
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashNSR
bull Calculating ERCs at a particular site
ndash Establish a baseline period (usually most recent 24-month period)
ndash Determine prior annual emissions (usually from fuel use records)
ndash Determine future maximum annual potential (from permit modification documents after installation)
bull ERCs = [(Prior Annual Emissions ndash Future Max Potential)Mkt Value of Credits] ndash Transaction Costs
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOregon Climate Trust
bull Oregon established CO2 emission standards for certain types of new facilities
ndash Pre-construction requirement
ndash Technological limitations make it impossible to comply with EE alone
bull 2 options to comply
ndash Offset projects (direct vs indirect)
ndash Contribute capital to fund offset projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Orgeon Climate Trust
ndash Non-profit
ndash Only organization authorized to generate offsets
ndash Developers pay fixed $mton of excess emissions to Climate Trust
ndash Offset developers get $ by responding to RFPs from Climate Trust
ndash Case-by-Case
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull 2005 pricing $480metric ton CO2
bull 2007-08 $500metric ton CO2
bull Total investment in offset projects $88 million
bull 2 CHP projects
ndash OR State Univ
ndash Newark MA
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Climate Trust Model = different
ndash Spot market vs Climate Trust
bull Eg CCX
ndash Carbon finance to fund offsets projects that result in reduced emissions
ndash Strict quality assurance guidelines key
bull Additionality (3 tests)
bull Prior approval
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
OR Climate Trust Additionality Guidelines
Test Name Rule of Thumb
Test 1 Regulatory SurplusProject ne mandated by law policy statue or regulatory framework
Test 2Implementationbarriers
Financial technological institutional barriers (must meet at least 1 preferably gt 1)
2(a) Financial BarriersCapital constraint andor internal rate of return not feasible without carbon finance
2(b) Technological BarriersPrimary reason for projecttechnology is reduced emissions
2(c) Institutional Organizational cultural social barriers
Test 3 Common Practice ldquobusiness as usualrdquo
Offset ProgramsmdashOR Climate Trust
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashOR Climate Trust
bull Importance of OR Climate Trust program
ndash WCI
ndash Standards
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 2004 WA placed limit on CO2 emissions from new fossil-fuel powered plantsndash Also covers increased production gt 15 or 25
MW
bull Facilities must offset 20 of new CO2emissionsndash NOTE CHP systems receive credit need not
offset full 20
bull May 2007 New rule adopted CA air emissions standards took effect 7108
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull 3 ways to comply with emission limits
ndash Direct investment in CO2 offset projects
ndash Purchase carbon credits
bull Must be verified by regional authorities
ndash Indirect investment (pay 3rd parties to complete offset project)
bull Eligible Projects incl alternative energy EE CHP)
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Offset ProgramsmdashWA
bull WA Dept of Ecology or WA Energy Facility Site Evaluation Council must approve
ndash List of pre-qualified 3rd party offset providers
ndash Min price for 3rd party provider = $160ton of CO2
bull Pricing info not available for direct offsets
bull No new facility has chosen to purchase offsets through the program to date so notransactions have occurred
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
Hypothetical CHP Projects
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull Hypothetical Project Assumptions
ndash EPA Combined Heat and Power Partnership Environmental Revenue Streams for Combined Heat and Power December 2008 httpwwwepagovchpdocumentsers_program_detailspdf
ndash Massachusetts
ndash 10 MW gas-turbine-based CHP system
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS Gas Turbine CHP System
Performance
Net Capacity (kW) 10146
Fuel Use (MMBtuhr HHV) 1236
Heat Rate (BtukW) 12178
Electric Efficiency () 28
Steam Output (lbsHr) 48150
Steam Pressure (psig) 150
Steam Temperature (F) 365
Recoverable Thermal Energy (BtukWh) 5220
ElectricThermal Output Ratio 065
CHP Efficiency () 709
Emissions
NOx Emissions (lbMWh) 0672
NOx Emissions (tonsyear) 282
Net CO2 Emissions CHP Basis (lbsMWh) 738
CO2 Emissions (tonsyear) 28195Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull NSR Payment
ndash NOx Emissions from retired unit tonsyear
bull 91
ndash Transaction Cost ($5000-$15000)
bull $7500
ndash NOx credits (91-282) = 628
ndash Market Value of offsets = $4500
ndash NSR Payment = $275100
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull CO2 Offsets Paymentsndash Regional Emissions Rate
bull 0571
ndash MonitoringVerification costs $2500year
ndash CO2 Credits bull (Nameplate CapacityAnnual Capacity
Factor)8760-CO2 Emissions from generator
ndash Market Value ($5ton)
ndash ERS = CO2 creditsMarket Value ndash Costsbull $97585
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS
bull REC Market Payments
ndash RECs generated
bull Nameplate CapacityAnnual Capacity Factor8760
bull 84435
ndash REC Market Value
bull $2REC
ndash 84435$2 = $168870
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERS--Hypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 10146
Annual Capacity Factor 95
NOx emissions tonsyear 282
CO2 emissions tonsyear 28195
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 9100 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 6280
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 275100
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear 2001739
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year 9758696
REC Market Project Data Notes
RECs Generated MWh 8443501
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 16887002 Maximum Generation LLC - Monetizing
Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Calculating ERSmdashHypothetical
Environmental Revenue Streams Calculator
Source EPA Environmental Revenue Streams for Combined Heat amp Power 2008 httpwwwepagovCHPdocumentsers_program_detailspdf
Inputs (Info Needed) Project Data Notes
Generator Nameplate Capacity MW 0025
Annual Capacity Factor 95
NOx emissions tonsyear 034
CO2 emissions tonsyear 1117
NOx New Source Offsets for CHP Project Data Notes
NOx emissions from retired unit tonsyear 2500 Actual historical emissions
Offset transaction cost $ 750000 One-time pmt ($5k-$15k)
NOx Credits tonsyear 2466
Market Value of Nox credits $ton 450000 Latest price from brokers
Environmental Revenue Stream $ (one-time pmt) 103470
CO2 Offsets Project Data Notes
CO2 regional emission rate tons CO2MWh 0571 Obtain from eGRID or state-approved source for region
Cost of monitoring amp verfication $year 2500 $2500year
CO2 credits tonsyear (99820)
Market Value of CO2 credits $ton 5 Latest price from brokers
Environmental Revenue Streams $year (749102)
REC Market Project Data Notes
RECs Generated MWh 20805
Market Value of REC $kWh 2 Latest price from brokers
Environmental Revenue Stream $year 41610 Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams
Insurers offer special risk-transfer products that target complex risks connected with renewable energy projects including the performance guarantee cover Unique insurance covers performance warranty of solar modules for a period of 25 years that cover the possible risk of a performance deterioration in photovoltaic modules The warranty guarantees that the modules will perform to at least 90 per cent capacity in the first ten years and to at least 80 per cent in the remaining 15 years The insurance solution offers module producers a greater degree of business
Maximum Generation LLC - Monetizing Environmental Revenue Streams