Renewable Energy Certificates and Carbon Offsets and Carbon Offsets - - PowerPoint PPT Presentation

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Renewable Energy Certificates and Carbon Offsets and Carbon Offsets - - PowerPoint PPT Presentation

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presents presents Renewable Energy Certificates and Carbon Offsets and Carbon Offsets Strategies to Negotiate Offsets and Structure REC Transactions A Live 90-Minute Teleconference/Webinar with Interactive Q&A A Live 90-Minute

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presents

Renewable Energy Certificates and Carbon Offsets

presents

and Carbon Offsets

Strategies to Negotiate Offsets and Structure REC Transactions

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features: Claybourne F. Clarke, Partner Consultant, ClearCarbon Inc., Arlington, Va. Keith M. Casto, Partner, Shook, Hardy & Bacon, San Francisco

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Thursday, July 8, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific

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Strategies for Negotiating Offset Purchase Agreements Purchase Agreements

St ff d P bli ti CLE Strafford Publications CLE July 8, 2010 Claybourne Fox Clarke, JD, LLM

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Overview

  • Offset Basics
  • Offset Basics
  • Why offsets?
  • What Projects are Eligible?
  • Technical and Legal Considerations
  • Due Diligence

g

  • ERPA Key Terms
  • Price
  • Delivery

Delivery

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Offset Basics

Why offsets?

  • Cost effective reductions in GHGs
  • Drive reductions that otherwise would not have

incentive to be undertaken

  • Provide financing assistance projects that reduce

GHGs

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Offset Basics

What projects are eligible?

* eligible project types vary between programs * eligible project types vary between programs

  • renewable energy, energy efficiency, forestry,

gy, gy y, y, land use, landfill methane, coal mine methane, ag methane, industrial gases, SF6 from electricity transmission efficiency in buildings transmission, efficiency in buildings

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Offset Basics

Project eligibility (cont’d)

  • Project reduces emissions below a baseline –reductions quantified in

1 ton CO2e units

E i i d ti b tifi d d ifi d

  • Emission reductions can be quantified and verified
  • Reductions that are additional to business as usual -e.g. project not

required by law or would be carried out regardless of GHG reductions “Additional”

..emission

reductions

..reductions

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Technical and Legal Considerations g

Offset Due Diligence

P id B ( d S ll ) i h 3 d P E l i

  • Provides Buyer (and Seller) with 3rd Party Evaluation
  • More than “verification”

T h i l ( j t i i d ti )

  • Technical (project + emission reduction)
  • Financial
  • Legal
  • Provides Evaluation of Project Risks
  • Pricing strategy

g gy

  • Mitigation strategy

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Technical and Legal Considerations g

Offset Due Diligence

PROJECT CONSI DERATI ONS

  • PROJECT CONSI DERATI ONS

 Status and Planning  Design and Technology  Feasibility and Justification  Financing  Env/ Social I mpacts and Reputation I ssues  Env/ Social I mpacts and Reputation I ssues

  • OFFSET CREDI T I SSUES

 E l ti d li bl th d l  Evaluation under applicable methodology  Registration and Approvals  Emission Reduction Estimate  Monitoring

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Technical and Legal Considerations g

Offset Due Diligence (cont’d)

COUNTERPARTY CONSI DERATI ONS

  • COUNTERPARTY CONSI DERATI ONS

 Financial Standing  Experience and Capacity  Reputation

  • LEGAL CONSI DERATI ONS

LEGAL CONSI DERATI ONS  Structure  Offset Credit Ownership  St t f K C t t  Status of Key Contracts  Permits and Approvals

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Technical and Legal Considerations g

Emission Reduction Purchase Agreement (ERPA)

  • KEY TERMS

 Conditions of Effectiveness (conditions precedent)  Price (inc. upfront payments?)  Price (inc. upfront payments?)  Volume and Delivery  Listing as Project Participant d C i ti ith CDM EB and Communication with CDM EB  Damages/ Default  Monitoring and Verification  Governing Law, Costs, Force Majeure

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Technical and Legal Considerations g

Price Negotiation

  • FACTORS THAT AFFECT STARTI NG PRI CE
  • Project Type
  • Demand
  • Offset mkt prices, EUA price, sCER price
  • Policy developments
  • Timing of payments and delivery
  • Delivery “guarantees”/ remedies for under delivery
  • Delivery guarantees / remedies for under delivery
  • Risks

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Technical and Legal Considerations g

Price Negotiation

Market Price Simple Indexed Price Fi d P i I d d P i ith Fl & C ili Fixed Price Indexed Price with Floor & Ceiling

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Technical and Legal Considerations Technical and Legal Considerations

Volume and Delivery: Fixed vs. %

Fixed Default Amount Fixed with acceleration Default Amount Default % with Default

Green may or may not be default depending on seniority

Default Amount Default Amount

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Thank you Questions, Comments?

Claybourne Fox Clarke Claybourne Fox Clarke

cclarke@clearcarbonconsulting.com (202) 460-7494

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(202) 460 7494

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Renewable Energy Credits in California

GENEVA | HOUSTON | KANSAS CI TY | LONDON | MI AMI | ORANGE COUNTY | SAN FRANCI SCO | TAMPA | WASHI NGTON, D.C.

July 8 2010 July 8, 2010 Keith M. Casto Shook Hardy & Bacon, LLP

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Discussion Roadmap

  • Goals Of A Tradable Renewable Energy Credit Market

p

  • Legislative and Regulatory History
  • CPUC Decisions
  • CEC Decisions
  • Future Action?

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Glossary

  • Renewable Portfolio Standard (RPS)

y

  • California Public Utilities Commission (CPUC)
  • Renewable Energy Credits (RECs)
  • Tradable Renewable Energy Credits (TRECs)
  • Bundled and Unbundled RECs
  • Western Renewable Generation Information System (WREGIS)
  • Megawatt per hour (MWh)

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Goals Of A TREC Market

  • Encourage investment, production, and use of renewable energy though a

market driven system premised upon financial incentives market-driven system premised upon financial incentives

  • Improve California’s environment by minimizing use of fossil fuels
  • Give California a competitive advantage in the new green economy
  • Encourage investment and improvement of California's aging energy
  • Encourage investment and improvement of California's aging energy

infrastructure

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Legislative & Regulatory History

  • Senate Bill 107 (2006)

b b i h l f l i i ld

g g y y

  • by December 2010, requires that at least 20% of electricity sold to

retail customers be generated from qualifying renewable energy  referred to as the Renewable Portfolio Standard (RPS)

  • authorizes California Public Utilities Commission (CPUC) to

determine if “unbundled” Renewable Energy Credits (RECs) would be considered as qualifying renewable energy under the RPS

  • Executive Order S-14-08 (2008)
  • Gov. Schwarzenegger increased RPS target to 33% by 2020

b i it l i d th t l i l ti t t i d d

  • business community complained that legislative enactment is needed

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Legislative & Regulatory History (cont.)

  • California Energy Commission

g g y y ( )

  • authorized by SB 107 to determine if a facility which generates

renewable energy qualifies as RPS-eligible.  higher burden on out-of-state generators who must show that delivery of energy to an in-state market hub or in-state location  allows for unbundling of electricity after purchaser buys the TREC and the electricity as a bundled commodity

  • In 2008, announced that Western Renewable Generation Information

System (WREGIS) is ready for TRECs.

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Legislative & Regulatory History (cont.)

  • California Public Utilities Commission

g g y y ( )

  • empowered by SB 107 to authorize the use of RECs to satisfy RPS

requirements h d ll d t d t f b dl d REC d

  • has gradually moved towards acceptance of unbundled RECs under

the RPS so long as the underlying energy is delivered to California  2006 – initiated proceeding to define RECs  2008 – stated WREGIS is ready to track TRECs.  2008 – defined RECs as a certificate of proof, issued through WREGIS, that a MWh of electricity was generated by an RPS-eligible renewable energy resources and delivered for consumption by California end-use retail customers.

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CPUC’S Decision on Tradable RECs

  • Issued March 11, 2010

f h f l i d

  • after more than two years of evaluation and comments
  • Who Would This Effect?
  • load-serving entities
  • investor-owned utilities
  • energy service providers
  • community choice aggregators
  • What Would be the Consequence?
  • allows entities to purchase unbundled RECs which would count

towards their RPS requirements  previously, RECs had to be bundled with the energy underlying the REC the REC

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CPUC’S Decision on Tradable RECs (cont.)

  • Industry Complains About CPUC’s March 11 Decision

( )

  • narrow definition of a Bundled TREC transaction

 Pre-CPUC Decision = underlying energy delivered to California t t CEC d li l  TREC id d pursuant to CEC delivery rules  TREC was considered bundled  Post-CPUC Decision = Bundled TREC only if underlying energy is first transmitted through a California balancing authority is first transmitted through a California balancing authority

  • retroactive in effect
  • unbundled TRECs can satisfy only 25% of an entity’s RPS

requirement

  • price-cap of $50/mega-watt hour until at least December 30, 2011

 applies only to credits bought by utilities applies only to credits bought by utilities  few complaints as elsewhere in the country, prices have exceeded $600/MWh

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CPUC Stays I ts TREC Decision (cont.)

  • May 6, 2010 – CPUC stays its March 11 TREC decision.

y ( )

 some Commissioners called the decision to stay “ill-advised” and “unprecedented” and noted that “nothing has changed in the intervening weeks [since the March 11 decision] except relentless lobbying by the utilities at this Commission and in relentless lobbying by the utilities at this Commission and in Sacramento to overturn a decision they didn’t like.”  will remain in effect until CPUC acts on requests for rehearing/modification rehearing/modification

  • New decision was supposed to be rendered June 24, 2010

 nothing has been issued/decided as of yet nothing has been issued/decided as of yet

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Future Action?

  • CPUC to issue a decision on petition for rehearing on TRECs
  • Will Congress preempt California RPF?
  • Legislature currently working with Gov. Schwarzenegger to pass Senate

Bill 722 this year to:

  • provide legislative backing for increased RPS targets of 33% by

2020 2020

  • clearly outline limits on RPS-qualifying TRECs
  • balance required use of in-state renewable energy against out-of-

q gy g state renewable energy imports and unbundled REC

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Takeaways

  • A robust market for offsets/TRECs has been created worldwide in

the absence of federal legislation in United States

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  • California set to take the lead in United States on TRECs
  • The CPUC decision to stay its 3/11/10 decision has thrown the TREC
  • The CPUC decision to stay its 3/11/10 decision has thrown the TREC

market into disarray

  • California Legislature about to set a more aggressive RPF Standard

California Legislature about to set a more aggressive RPF Standard

  • CPUC reconsideration upon petition for rehearing will be critical to

stability and volume of TREC market

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Contact I nformation

Keith M. Casto

Partner Shook Hardy & Bacon LLP Shook, Hardy & Bacon LLP 333 Bush Street Suite 600, San Francisco, CA 94104-2828 (415) 544-1900 EXT. 59070 Direct: (415) 544-1980 ll ( ) Cell: (408) 221-1304 Fax: (415) 391-0281 E-Mail: kcasto@shb.com

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