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

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 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 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 You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations.

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Strategies for Negotiating Offset Purchase Agreements Purchase Agreements St Strafford Publications CLE ff d P bli ti CLE July 8, 2010 Claybourne Fox Clarke, JD, LLM 4

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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 6

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 7

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 8

Offset Basics Project eligibility (cont’d)  Project reduces emissions below a baseline –reductions quantified in 1 ton CO 2 e units  E Emission reductions can be quantified and verified i i d ti b tifi d d ifi d  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 9

Technical and Legal Considerations g Offset Due Diligence Provides Buyer (and Seller) with 3 rd Party Evaluation i h 3 d P  P id B ( d S ll ) E l i  More than “verification” • Technical (project + emission reduction) T h i l ( j t i i d ti ) • Financial • Legal  Provides Evaluation of Project Risks • Pricing strategy g gy • Mitigation strategy 10

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 Evaluation under applicable methodology l ti d li bl th d l  Registration and Approvals  Emission Reduction Estimate  Monitoring 11 11

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 Status of Key Contracts f K C t t  Permits and Approvals 12 12

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 and Communication with CDM EB d C i ti ith CDM EB  Damages/ Default  Monitoring and Verification  Governing Law, Costs, Force Majeure 13 13

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 14

Technical and Legal Considerations g Price Negotiation Market Price Simple Indexed Price Fi Fixed Price d P i I d Indexed Price with Floor & Ceiling d P i ith Fl & C ili 15

Technical and Legal Considerations Technical and Legal Considerations Volume and Delivery: Fixed vs. % Fixed Default Amount Fixed with Default acceleration Amount Green may or may not be default depending on seniority % with Default Default Default Default Amount Amount 16

Thank you Questions, Comments? Claybourne Fox Clarke Claybourne Fox Clarke cclarke@clearcarbonconsulting.com (202) 460-7494 (202) 460 7494 17

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 18

Discussion Roadmap p • Goals Of A Tradable Renewable Energy Credit Market • Legislative and Regulatory History • CPUC Decisions • CEC Decisions • Future Action? 19

Glossary y • Renewable Portfolio Standard (RPS) • 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) 20 20

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 21 21

Legislative & Regulatory History g g y y • Senate Bill 107 (2006)  by December 2010, requires that at least 20% of electricity sold to b b i h l f l i i ld 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  business community complained that legislative enactment is needed b i it l i d th t l i l ti t t i d d 22

Legislative & Regulatory History (cont.) g g y y ( ) • California Energy Commission  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. 23 23

Legislative & Regulatory History (cont.) g g y y ( ) • California Public Utilities Commission  empowered by SB 107 to authorize the use of RECs to satisfy RPS requirements  has gradually moved towards acceptance of unbundled RECs under h d ll d t d t f b dl d REC d 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. 24 24

CPUC’S Decision on Tradable RECs • Issued March 11, 2010  after more than two years of evaluation and comments f h f l i d • 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 25