rec presentation to - home - california biomass ... · rec presentation to january 26, 2005 fresno,...

New Markets. New Solutions.www.evomarkets.com

REC Presentation to

January 26, 2005

Fresno, CA

New Markets. New Solutions.

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About Evolution Marketsn Evolution Markets LLC was founded in 2000nOffices in New York – San Francisco – London –

Prague – Bratislava Services

•Introductory Brokerage Services •Structured Transactions•Expert Advisory Services

Markets•SO2 Emissions Allowances •NOx Emissions Allowances•OTC Coal Markets •Emissions Reduction Credits•GHG Reductions •Houston/Galveston NOxAllowances•RECLAIM (Los Angeles NOx & SOx)•Discrete Emissions Reductions•Renewable Energy Credits •Weather Derivatives •Natural Gas & Power


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Evolution Markets LLC:Market Leader

nHighest Volume Emissions BrokernHighest Volume U.S. REC Broker

o More than $6.5 billion in brokered environmental transactions

Named “House of the Year: Weather/Emissions”

Voted “Best Broker: REC (US)”

Voted “Best GHG Broker”


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RECs 101

nWhy RECs?nWhat are RECs?nRECs – O – RamanAdditional terminology


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RECs 101: What are RECs?

nRECs represent the environmental, social, and other benefits of renewable energy generation

nBy acknowledging a second commodity (in addition to the energy itself), it allows project developers to realize a second revenue stream and a second market for their product

nThe additional revenue from RECs directly and indirectly supports the renewable energy market


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RECs 101: RECs – O – Rama…

“Renewable Energy Credits” (RECs)

“Renewable Energy Certificates” (RECs)

“Tradable Renewable Certificates” (TRCs)

“Green Tags”

…they’re all the same thing!

“Renewable Energy Attributes”


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RECs 101: Additional terminology

n“Unbundled RECs” – RECs traded separately from the underlying electricityn“Bundled Power” – Grid power plus RECsn “Green Energy” – Electricity generated from

a renewable generation facility that includes the REC.

RENEWABLE ENERGY

“GREEN”ATTRIBUTES

ELECTRICITY

New Markets. New Solutions.www.evomarkets.com

Transactions 101


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Transactions 101: How do RECs trade?

nOne REC represents the attributes associated with one megawatt hour (MWh) of energy from a renewable source.

nRECs are assigned a “vintage” based on the year in which they were generated.

nRECs are quoted by resource type and/or the market eligibility.

nExamples:o “5,000 vintage 2005 California wind RECs”

o “10,000 vintage 2006 Massachusetts-eligible RECs”


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Transactions 101: Key contractual terms

nProduct (resource type, region, eligibility)nPricenQuantitynVintage/TermnDeliverynPaymentnCreditnCertification (i.e. Green-e)


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Markets and Market Participants

nMarket participantsn Voluntary market basicsn Voluntary market pricingnRenewable portfolio standards (RPS)nCompliance market basicsnCompliance market pricing


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Market Participants

nDevelopers/Generators

n“Green Marketers”, power marketers

nTraders and Brokers

nUtilities/Municipalities

nCorporations/Institutions

nBanks/Funds


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nDriven by environmental disclosure, consumer demand, corporate commitments

n The most salient feature of the voluntary market is that it is dramatically oversupplied prices are very low compared to the compliance markets.

n Voluntary buyers - generally less concerned about geographic location, but often have a preference for a specific resource type – usually wind.

n In 2004, total sales in the voluntary markets (Green-e sales as well as utility green pricing programs) were approximately 4 million MWh

n = roughly 450MW of around-the-clock generation.

Voluntary Market: Basics


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Voluntary Market: Pricing

Solar: $30 - $200

Biomass/Low-impact Hydro: $1 - $3

Wind: $1.5 - $20

Landfill Gas: $1 - $3

Geothermal: $1-$10

price discretion based on resource type:


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Voluntary Market: Buyersn Corporate buyers

o DuPonto Alcoao Stapleso Kinko’so Johnson & Johnsono IBMo General Motorso Pitney Bowes

n Green pricing programs(Leaders by volume of sales Dec.2004)

o Austin Energyo Portland General Electrico PacifiCorpo SMUDo Xcel Energyo Los Angeles Dept. of Power

& Watero OG&E Electric Serviceso Puget Sound Energyo We Energies1,322,365MWh’s = Approx. 150MW Baseload Green

Source: www.eere.energy.gov/greenpower/topten.shtml


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n Created by Renewable Portfolio Standards (RPS)

n The most salient feature of the compliance markets is that they differ considerably from state to state, prices differ.

n Compliance buyers are generally indifferent to the type of resource that created the REC (insofar as it qualifies), but they are limited to a specific geographic region from where the REC can be sourced.

n Approximate total volumes required in the compliance markets in 2005 are as follows:

o Texas: 2.6 million MWh

o Massachusetts: 1,000,000 MWh

o Connecticut: 450,000 MWh

o New Jersey: 750,000 MWh

Compliance Markets: Basics


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Renewables Portfolio Standards

Goal

*PA: 18%¹ by 2020*NJ : 6.5% by 2008

CT: 10% by 2010

MA: 4% by 2009 + 1% annual increase

WI: 2.2% by 2011

IA: 105 MW

MN: 1,125 MW wind by 2010

TX: 5,880 MW by 2015

*NM: 10% by 2011*AZ: 1.1% by 2007

CA: 20% by 2010

*NV: 15% by 2013

ME: 30% by 2000

State RPS

*MD: 7.5% by 2019

*Minimum requirement and/or increased credit for solar¹ PA: 8% Tier I, 10% Tier II (includes non-renewable sources)

HI: 20% by 2020

RI: 15% by 2020

*CO: 10% by 2015

*DC: 11% by 2022

DSIRE: www.dsireusa.org January 2006

NY: 25% by 2013MT: 15% by 2015

*DE: 10% by 2019


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nRPS vary, so do the markets they create…

nThe impact of an RPS is a function of supply (eligible resources) and demand (percentage requirements), enforced by penalties…

o Maine: 30% requirement, but 50% of supply qualifies price ~$0.30

o Massachusetts: 2% requirement (’05), but limited resources qualify, and $53 “alternative compliance payment” prices $50+

Compliance Markets: Pricing


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Compliance Markets: in Detail


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Compliance Markets: in Detail

n Californian PJM

o New Jerseyo Marylando Pennsylvania

n NEPOOLo Massachusettso Connecticut


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California Snapshot

n Municipalities (Munis) are required to implement their own “internal RPS”.

n Only Investor Owned Utilities (IOUs) are required to comply with the state’s RPS.

n However, the IOUs may not use “unbundled” RECs for RPS compliance.

n As a result: ironically, a state with one of the nation’s most aggressive RPS has some of the lowest REC prices.

n Consequently, unbundled wind RECs in CA are currently offered as low as $1.50/MWh with low liquidity. In the absence of regulatory changes, unbundled California RECs will continue to be worth very little.


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California: Market Outlook

nUltimately, REC prices in California are almost certainly going to depend on the following:

o The eligibility of unbundled RECs for compliance purposes.

o The eligibility of RECs generated outside of California for compliance purposes.

o The role of ESP’s and CCA’s in the RPS.o An increase in percentage requirements and/or a change in

target dates of the current RPS.o 8,469 MW of New Installed Renewables Needed by 2017


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PJM Snapshot

nNJ currently the only active compliance market

nMD has passed RPS – begins in 2006

nPA has passed RPS – begins in 2007 (but not for everyone)


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PJM Snapshot: New Jersey

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

8/26

/200

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11/2

6/20

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2/26

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5/26

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8/26

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11/2

6/20

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11/2

6/20

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Class 2Class 1

oNJ is the first compliance market in PJM

o Began 2002, new RPS rules went into effect June 1, 2004

o Relatively aggressive target (2.5% by 2008)

o Alternative compliance: $50 for Class I/II, $300 for Solar

o Prices: Class I -- $7.00; Class II --$2.00; Solar -- $225-$260

o NJ RPS expected to be extended through 2020 with a goal of 20%

o Supply & Demand: forward picture very murky – demand could increase with other state RPS, but supply will increase as PJM expands.

$150.00

$170.00

$190.00

$210.00

$230.00

$250.00

$270.00

7/30

/200

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8/30

/200

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9/30

/200

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10/3

0/20

04

11/3

0/20

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12/3

0/20

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1/30

/200

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2/28

/200

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3/30

/200

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4/30

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SRECs


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PJM Snapshot:Maryland

nMD will be the second compliance market in PJM

o RPS passed in May 2004, 2006 will be first compliance year.

o RPS target (Tier I): 7.5% by 2014.

o Alternative Compliance: Tier I - $20; Tier II - $15/MWh.

o Prices: only one Tier I trade has occurred, price was ~$3.00.

o Supply & Demand: supply will depend on geographic eligibility – some regulatory uncertainty.


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PJM Snapshot:Pennsylvania

nPA has the newest compliance market in PJMo RPS passed in November 2004, 2007 will be first compliance year (but several utilities exempt until 2009-2010)o RPS target: 18% by 2021.o Alternative Compliance Payment: $45/MWh (Tiers I & II) o Prices: too early to tell, but likely to follow NJ REC prices?o Supply & Demand: RPS rules not final. Qualifying generation resources likely to be located anywhere in PJM service territory or deliver into PJM grid.


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NEPOOL Snapshotn Uses GIS systemn Three states have RPS:

o Massachusettso Connecticuto Maine

n Maine RPS is relatively lax, prices are quite low

n Massachusetts and Connecticut have very aggressive RPS

o MA & CT likely to be undersupplied for the next few years; changes in CT’s “import”rules could change thiso certificate prices highest in country o disconnect between developers’ and buyers’ time horizons


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MA Snapshot

n 2004, 2005 REC supply is almost “sold out”

n “Imports” from NY providing much-needed breathing room

n 2006 supply picture looks a little better, but also likely to be tight…(Recent ruling against Low-emission Biomass)

n 2005 prices have gone as high as $52.80 (against a $53.19 alternative compliance payment)

n 2006 ACP expected to be between $55.50 - $56.00, 2006 has already traded $53.25


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CT Snapshot

n RPS passed June, 2003 - rules finalized October, 2004n 2005 CT Class 1 market was short until the upgrading

of older Biomass facilities that qualified for CT RPSn Prices were trading between $35-$40 (as of 7/15/05)

and by end of 2005 markets was “no bid” @ $2.50n Energy Independence Act ruled against “Mail In”

RECs until 2010n 2006 CT Class 1 market trading between $6.75 and

$7.75…market expected to be quite oversupplied again

n Regulatory uncertainty has prevented term trading from happening


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NEPOOL : Resource Mixn The RECs sold in the MA and CT compliance markets are

almost exclusively from landfill gas, biogas and biomass.

n Biomass is likely to dominate the compliance RECs market for the next few years, primarily because of:

o the relative ease/low cost of retrofitting existing facilities.o relatively plentiful fuel supply (whereas wind resources are

generally not good).

n Although wind is an eligible resource, there are no major wind projects operating in NEPOOL at present. In terms of wind, the proposed 420 MW Cape Wind project is by far the biggest potential source within NEPOOL.

n However, New York state has excellent wind resources, and while exporting to NEPOOL involves additional cost and some technical obstacles, many developers are considering this option.


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www.evomarkets.com/evoid


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Voted Top Renewables Broker Voted Top Renewables Broker –– North AmericaNorth America2003, 2004, 2005 Environmental Finance Customer Survey2003, 2004, 2005 Environmental Finance Customer Survey

New York Office:New York Office:

Peter Peter ZaborowskyZaborowsky –– Managing Director, Renewable Energy and Emissions MarketsManaging Director, Renewable Energy and Emissions Markets

Andrew Andrew KolchinsKolchins –– Director, Renewable Energy MarketsDirector, Renewable Energy Markets

San Francisco Office:San Francisco Office:

Lenny Hochschild Lenny Hochschild –– Director, Renewable Energy MarketsDirector, Renewable Energy Markets

Laura Laura MeadorsMeadors –– Associate, Renewable Energy MarketsAssociate, Renewable Energy Markets

EVOLUTION MARKETS LLCEVOLUTION MARKETS LLC

10 Bank Street 10 Bank Street –– 4th Floor4th Floor

White Plains, NY 10606White Plains, NY 10606

914914--323323--0255 Tel0255 Tel

914914--328328--3701 Fax3701 Fax

EVOLUTION MARKETS LLCEVOLUTION MARKETS LLC

425 Market Street, Suite 2200425 Market Street, Suite 2200

San Francisco, CA 94105San Francisco, CA 94105

415415--955955--0561 Tel0561 Tel

425425--955955--2612 Fax2612 Fax

rec presentation to - home - california biomass ... · rec presentation to january 26, 2005 fresno,...

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