by C HANSON · 2003 — type of renewable energy product that is gaining in This installment of WRI’s Corporate Guide to Green environmental benefits can be made.
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10 G Street, NEWashington, DC 20002 WORLD RESOURCES INSTITUTE WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTE WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTE SUSTSUSTSUSTSUSTSUSTAINABLEAINABLEAINABLEAINABLEAINABLEENTERPRISEENTERPRISEENTERPRISEENTERPRISEENTERPRISEPROGRAMPROGRAMPROGRAMPROGRAMPROGRAMINSTALLMENT 5 CORPORATE GUIDE TO GREEN POWER MARKETS202.729.7600T elephone202.729.7610Fax www.wri.org www.thegreenpowergroup.org SEPTEMBER 2003Printed on recycled paperRENEWABLE ENERGY CERTIFICATES : AN ATTRACTIVE MEANSFOR CORPORATE CUSTOMERS TO PURCHASE RENEWABLE ENERGYBY CRAIG HANSON AND VINCE VAN SONI. THE GROWING INTEREST INRENEWABLE ENERGY CERTIFICATES In the spring of 2003, commercial interior fabrics manufacturer Interface Fabrics Group announced thatit would purchase renewable energy certificates (RECs) to reduce the environmental impact of the electricity the company uses. Soon thereafter, The Tower Compa- nies, a major property developer and manager in theWashington, D.C. metro area, purchased RECs for 13 of its office buildings and apartment complexes. In Sep-tember, nine members of the Green Power Market Development Group completed the nation™s largest aggregate corporate purchase of RECs, buying certifi-cates equivalent to over 250,000 megawatt-hours (250million kilowatt-hours) per year, an amount equivalent to the annual electricity consumption of 22,000 homes.These companies are not alone ( Box 1).RECs have attracted the attention of companies rangingfrom major manufacturers to commercial property managers. But what are they?Many corporate energy and environmental managersmay be familiar with ﬁtraditionalﬂ forms of renewableenergy products, including on-site renewable genera-tionŠsuch as installing solar photovoltaic systemsŠandgreen powerŠpurchasing both electricity and theenvironmental attributes associated with renewable Renewable energy certificates (RECs)are a renewable energy product thatcompanies can purchase to reduce theenvironmental impact of their business activities. A REC represents theenvironmental attributesŠfor example,avoided CO2 emissionsŠthat are created when electricity is generatedusing renewable resources instead ofusing fossil fuel sources such as coal, oil, and natural gas. RECs can be soldseparately from their associatedelectricity and thus enable customers to purchase the environmental attributesof renewable power generationindependently of their retail powersupply. Purchasing RECs, therefore, can be an effective means for acompany to ﬁgreenﬂ the electricity itconsumes.RECs can provide many businessbenefits to companies. For example,they can help firms reduce corporate greenhouse gas emissions, meetrenewable energy targets, strengthenstakeholder relations, and differentiate products and brands. Since RECs can be sold independently from theirassociated electricity, they offer several advantages relative to traditional green power products, including: SummaryLower costWider selection of suppliers Greater variety of renewable resource optionsSimplified transactionsEasier ability to interact directly withrenewable energy projects.The emergence of RECs is an importantdevelopment, but the market is still in its early stages of evolution. Going forward, market participants and policymakerscan address several challenges and can take actions to accelerate REC marketdevelopment in order to advance a cleanenergy future.
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2CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEpower generation. A REC is a relatively novel, third type of renewable energy product that is gaining in interest and use.This installment of WRI™s Corporate Guide to GreenPower Markets provides an introduction to RECs for corporate energy users. In particular, this publication: Defines RECs, their business benefits, and their similarities to other renewable energy productsOutlines several advantages RECs provide relative to green powerShares strategies for purchasing certificates based on experiences of Green Power Market DevelopmentGroup partners and other companiesMakes recommendations to market participants and policymakers for addressing challenges and acceler- ating REC market development.II. WHAT IS A RENEWABLE ENERGY CERTIFICATE (REC)? Renewable power facilities1 create more than just electricity. For each megawatt-hour 2 (MWh) of power from renewable resources in the U.S., there is one less MWh of power generated from conventional sources, most of which burn fossil fuels.3 When displacing 4electricity generated from fossil fuels, renewable power plants reduce the emissions of carbon dioxide (CO2),particulate matter, and other pollutants that fossil-fired plants would have emitted. Renewable power facilitiesthus create two distinct ﬁproductsﬂ (Figure 1):Commodity electricity A set of environmental attributes, most notablyavoided emissions.These environmental attributes can be packagedtogether into a product called a renewable energycertificate or REC.5 One REC represents the environ- mental attributes generally associated with one MWh of electricity from renewable resources.6 In addition to these environmental attributes, each REC denotes thefuel source, location of generation, year of generation (also called ﬁvintageﬂ), and other non-power character- istics of a MWh from renewable resources.RECs allow the environmental and other attributes ofrenewable power generation to be sold separately (thatis, ﬁunbundledﬂ) from electricity. In contrast, in the case of green power RECs and electricity are sold together (Figure 1). Unbundling electricity and environmentalattributes enables each to go to the entity that values it most. It also allows customers to claim title to environ-mental attributes regardless of location and indepen-dently of their retail electricity provider. 7 Therefore, buying RECs is an efficient means for customers to ﬁgreenﬂ their commodity electricity supply. When RECs are sold separately, the electricity gener- ated at the same time as the RECs is sold as commodity Examples of CorporationsPurchasing RECsIn the 18 months since January 2002, numerous corporationsin the U.S. representing a variety of industries have started buying RECs. Some of these companies include:Alcoa Inc.BP (USA)Cargill Dow LLCDelphi Corporation DuPontFlying JHerman Miller, Inc. InterfaceJohnson & JohnsonKinko™s Inc. Lowe™s Home Improvement NikePatagoniaPitney BowesStaplesThe Coca Cola CompanyThe Tower Companies West Linn Paper Company White Wave, Inc. Box 1
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3CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEelectricity (also called ﬁgenericﬂ or ﬁnullﬂ electricity),and no claims about this power being ﬁgreenﬂ or having environmental benefits can be made. In other words, the ﬁgreennessﬂ or environmental attributes of renew- able electricity reside in the RECs and not in the electricity. Thus, only the REC purchaser can claim the environmental and other non-power attributes associ- ated with electricity from a renewable power facility. III. WHAT DO RECS PROVIDE? RECs provide many benefits to companies. They can help corporations reduce their greenhouse gas emissions, meet renewable energy targets, strengthen stakeholder relations, and differentiate products and brands.8Reduce corporate greenhouse gas emissionsOf particular interest to many companies are thegreenhouse gas (GHG) benefits of buying RECs. Among the environmental attributes represented by a REC arethe associated avoided CO2 emissions when 1 MWh of electricity from a renewable power facility displaces 1 MWh of power from fossil fuels in the plant™s wholesale market or power pool. By purchasing a REC, a companycan claim these avoided emissions to help it meet its own voluntary corporate GHG emissions goals or meettargets established in voluntary GHG emissions reduc-tion programs such as the U.S. EPA™s Climate Leaders Initiative or WWF™s Climate Savers Program. 9 When applying these reduced CO2 emissions against total corporate GHG emissions, the buyer must retire the REC; that is, the REC cannot be sold again to anotherentity. Johnson & Johnson, for instance, is buying and retiring RECs to help the company meet its voluntary corporate GHG emissions reduction targets.To be in a position to fully utilize RECs as emissionsoffsets, companies that purchase RECs should ensurethat a credible method has been used to quantify the associated CO2 reductions and demonstrate additionality. The resulting information can then be included in the purchasing organization™s GHG emis- sions inventory10 as a purchased project reduction or credit as recommended by the Greenhouse Gas ProtocolInitiative.11Meet renewable energy targetsWhen a company purchases 1,000 MWh of RECs, it iseffectively ﬁgreeningﬂ 1,000 MWh of the electricity it consumes. As a result, RECs are a means by whichcompanies with renewable energy targets can meet their goals. For example, DuPont has set a target of sourcing 10 percent of its energy from renewableresources by 2010. RECs are playing a role in thecompany™s overall strategy for achieving this goal. Strengthen customer and other stakeholderrelationsBuying RECs can strengthen a company™s relationships with customers, local communities, shareholders, andemployees. For instance, REC purchases are a way to demonstrate corporate leadership in environmentalperformance. RECs can appeal to environmentally concerned customer segments and can help establish a company as a responsible neighbor in local communi-ties. Such purchases can signal to shareholders that thecompany is taking steps to manage its GHG risks. In addition, REC purchases can communicate and substan-tiate corporate environmental values that may be important to current and prospective employees and other stakeholders. Each of these benefits can have an impact on overall corporate performance.What Is a Renewable EnergyCertificate (REC)?Figure 1Renewable power generationCommodityelectricityEnvironmental and other attributes Avoided emissions (e.g., CO 2) per MWh Fuel source Location of generation Date of generation green powerrenewable energy certificate}
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4CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEDifferentiate products and brandsPurchasing RECs can help a company differentiate itsproducts or services in a competitive marketplace. Interface Fabrics Group, for example, is using its recentRECs purchase to differentiate its Terratex ® brand of commercial interior fabrics from those of competitors.The benefits of RECs are not just for corporate energy users. As Box 2 discusses, RECs are being used by many others to meet a variety of needs.IV. GREEN POWER AND RECS: MORE SIMILAR THAN DIFFERENTElectricity is a pure commodity and flows without regard to how it was generated. Therefore, whether one buysgreen power or buys RECs (while purchasing commodityelectricity in a separate transaction) the outcomes arevery similar, for instance:A renewable power facility is generating and deliver- ing electricity to the wholesale power market (Figure2, A).The end customer does not physically receive elec-tricity specifically generated from the renewable power facility. Electricity from renewable and conventional generation facilities is mixed togetherin the wholesale power market (Figure 2, B). There-fore, all customers in that market receive the same mix of power, whether they are purchasing green power, RECs, or just commodity electricity. 12The reliability and quality of the electricity an endcustomer receives are the same.The renewable attributes are not necessarily gener- ated at the same time as the customer uses electric-ity. Since renewable attributes are independent of the electricity, they are balanced over an extended period of time, usually a year. Companies can ﬁgreenﬂ their electricity supply andclaim title to the environmental attributes of renew- able power generation. These attributes are ear- marked to those customers buying RECs with elec-tricityŠthat is, green powerŠor buying RECsindependently. The primary difference between green power and RECsconcerns the customer™s contract path for obtaining the environmental attributes of renewable generation. In agreen power transaction, the customer buys both RECsand electricity from its retail electricity provider ( Figure2, C ). Retail electricity providers typically source RECseither directly from renewable power facilities (Figure 2,D) or from REC providers (Figure 2, E ).Uses and Benefits of RECs BeyondCorporate Energy UsersApart from corporate energy users, RECs are used by manyother firms and organizations. Examples include:“Renewable power facilities generate and sell RECs as a revenue stream in addition to the revenue from selling commodity electricity. The revenue from certificates typically covers at least the incremental cost of renewable power generation over conventional power generation. The sale of RECs to marketers or directly to customersprovides the additional cash flow required for therenewable energy project to be financially viable over its lifetime (see Section VI for more details).Retail electricity providers purchase RECs directly from renewable power facilities or from REC providers,such as marketers or brokers, to meet regulatory compli- ance or voluntary market demands. First, some stategovernments mandate that a minimum percentage of aretail electricity provider™s delivered power in that state come from qualified renewable resources. Some of thesestatesŠsuch as Maine and TexasŠallow the electricity providers the option to purchase RECs to meet these requirements (see Section VI for more details) . Second,retail electricity providers are able to purchase RECs,ﬁbundleﬂ them with electricity, and sell the combination as green power to end customers.Non-industrial customersŠincluding private citizens,government facilities, universities, and other institutionsŠbuy RECs for many of the same reasons that attract corporations. For example, Pennsylvania State University purchases 17,600 MWh of wind-generated RECs annually in order to reflect staff and student commitment to reducing the university™s environmental impact. In 2003, the World Resources Institute purchased RECs from wind and other renewable resources to help it meet its climate commitment of emitting zero net greenhouse gas (GHG)emissions annually. The retired RECs offset a significant portion of the GHG emissions associated with WRI™s electricity consumption and employee travel. In 2003, WRI also used RECs to offset the estimated GHG emissionsfrom energy use and travel for two major WRI conferences.Box 2
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5CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEIn a REC transaction, the customer continues to buycommodity electricity from its retail electricity provider (Figure 2, F) but purchases RECs from a differentprovider. In other words, electricity and the environ- mental attributes of renewable generation are pur- chased separately, from two different providers in two different transactions. The customer can buy certifi-cates from REC providers (Figure 2, G) or directly fromrenewable power facilities (Figure 2, H).V. ADVANTAGES OF RECS RECs can offer customers several advantages relative togreen power primarily because they can be sold sepa- rately from electricity and can be purchased from anysource in the country. These advantages include: Lower cost: In many situations, REC prices arelower than the typical premium per MWh that aretail electric supplier charges for green power. For instance, REC prices can be 80 to 90 percent less than the median premium per MWh for green power in regulated electricity markets (~$25.00/MWh) and55 to 80 percent less than the median green powerpremium in deregulated electricity markets (~$11.50/MWh).13 This is because the unbundled nature of RECs breaks down geographic boundaries and thusprovides access to lower cost renewable resources.Wider selection of suppliers : RECs provide custom-ers with a wider selection of suppliers than green power. In states with regulated electricity markets a firm only has one potential green power provider, its utility. In some states with deregulated electricity markets, there may be more than one supplier ofgreen power. For instance, as of mid-2003, Maryland has two retail electricity providers offering greenpower. 14 However, no matter in which state a com- pany is located, it can choose from among more than a dozen retail and wholesale REC marketers or canapproach a number of REC brokers.In some areas of the country, RECs are the onlyretail renewable energy product available to custom-ers because there are no green power suppliers. For instance, in some states such as Arkansas, Kansas, and Nevada, no utility offers a green pricing pro-Green Power vs. REC Transactions Figure 2REC provider*Wholesale power marketRetail electricity providerCustomer 2: REC transaction RECs purchased independently from electricityCustomer 1: Green power transaction RECs purchased together with electricityConventional power facilitiesRenewablepower facilitiesFlow of RECsFlow of electricityABDECFGH* REC providers include retail and wholesale REC marketers and REC brokers. Renewable power facilities also can provide RECs directly to customers as Figure 2 illustrates.
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6CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEgram.15 Similarly, RECs may be the only renewable energy product available to tenants of facilities whereelectricity procurement is controlled by others. Insuch situations, tenants are unable to purchase their own green power. RECs, however, can circumvent this constraint.Greater variety of renewable resource options:Because RECs have no geographic constraints, they can provide companies with the option to buy arenewable energy product from any type of renew- able resource. Some retail electricity providers may be limited to offering green power from a select number of local renewable resources. For instance, utilities in the Southeast are unlikely to be able to provide geothermal-generated green power given thelack of significant geothermal resources in theregion. Through RECs, however, a company with operations in the Southeast would be able to access ageothermal-based renewable energy product.In addition, RECs allow customers to purchase the environmental attributes from several resources and multiple renewable facilities at the same time. For example, in one transaction Delphi Corporation wasable to access certificates from electricity generation projects using wind in the Great Plains and landfillgas in the Southeast.Simplified transactions: Since a firm™s retail electric supply arrangements are independent of RECs, purchasing certificates is a relatively simple andstraightforward transaction. The customer does notneed to change its electricity contracts or switch electricity providers. A customer can buy RECs atany time, regardless of whether or not its electricitycontract is up for renewal. Consequently, buying RECs does not change the reliability, quality, or terms of service for electricity. RECs also enable a company to acquire a renewable energy product for multiple facilities at the same time. For instance, instead of negotiating greenpower contracts for one facility at a time, Alcoa wasable to buy RECs for numerous facilities through one contract. Such transactional simplicity can lead to lower administrative costs relative to purchasinggreen power. Easier ability to interact directly with renewableenergy projects: Very few customers have the commercial or regulatory infrastructure to permit them to engage in wholesale power transactions. RECs, however, provide a conduit for firms to interact directly with renewable power generators.Buying RECs directly from renewable energy projects may also lower costs. In addition, it enablesa more direct linkage to a specific renewable energyproject which could increase the marketing or stakeholder-relation benefits renewable energy provides and enhance the sense of project ownership/sponsorship.VI. REC MARKETS AND PRICINGCurrently in the United States, RECs are being sold in two markets: the regulatory compliance market and thevoluntary market.Regulatory compliance market: As of June 2003, 15U.S. states16 have implemented legislation establish- ing that a certain percent of the electricity deliveredto a retail electricity provider™s customers in the state must be produced from renewable energy sources. These targets are binding in the 12 states withrenewable portfolio standards (RPS). Most states require the RPS to be satisfied by green power fromgeneration facilities that are located in the state orthat deliver power into the regional power pool. Several states with RPSŠsuch as Connecticut, Massachusetts, Maine, and TexasŠallow electricity providers to purchase RECs generated in-state or in the power pool to meet these requirements.17Voluntary market: In contrast, most companies as well as households, governments, universities, and other institutions purchase RECs in the voluntarymarket. Buyers in any state can access the voluntarymarket and purchase certificates from a variety of sources. For instance, they can choose from among more than a dozen retail REC marketers.18 To avoid some transaction charges, they can purchase certifi- cates from a REC wholesaler or approach a broker(Box 3). Alternatively, they can purchase directly from a renewable power generator. 19 The voluntary
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8CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEVII. PURCHASING RECSBuying RECs involves many of the same steps as procuring other goods and services. A company identi-fies prospective providers and approaches them to ascertain product options. This can be done by sendinga request for proposal (RFP) to REC marketers, con- tacting a REC broker, or directly engaging renewable power generators. The firm then evaluates options, conducts negotiations, makes the purchase, and moni-tors delivery performance. Experiences of Green Power Market Development Group partners highlight severalimportant insights and lessons learned for each stage ofthe REC purchasing process.Identifying and evaluating REC optionsThe first step in the process of identifying and evaluat- ing REC options is to determine the business rationalefor a REC purchase. Is it to reduce GHG emissions, tostrengthen customer relations, to help differentiate products in the marketplace, or to achieve some other business goal? Being clear from the outset within theorganization about the business case will enable the REC selection parameters to be more clearly defined.After identifying the business case for a RECs purchase,Green Power Market Development Group partner companies typically have taken several factors intoconsideration:Location of the renewable power facility: Compa- nies will need to determine whether or not thelocation of the renewable facility that is generatingthe RECs is an important buying parameter. Some companies specifically seek to purchase RECs thatcome from a facility located in the same state or region as the firm™s operations. These companies may want to demonstrate support for local resources,businesses, jobs, and communities or may want toaddress regional air quality issues such as urban air pollution. For example, when identifying and evaluat-ing REC options for its Virginia, North Carolina, and South Carolina branches, Kinko™s pursued RECs from renewable power facilities located in the Southeast.Some companies may not have a specific geographicpreference but may be more interested in RECs fromareas outside the firm™s region for several reasons. First, sourcing RECs nationally increases the likeli- hood of finding the lowest cost products since thenumber of options will be greater. Second, RECs generated from sources across the U.S. may beattractive to a company that has national brand namerecognition or operations throughout the country. Third, because the impact of GHG emissions isHow REC Markets Stimulate theDevelopment of Additional Renewable Power GenerationOne question that prospective corporate buyers of RECssometimes pose is ﬁWill my company™s purchase of RECs help stimulate the development of additional renewable power generation?ﬂ By helping to make renewable energyprojects financially viable, purchasing RECs can spur thedevelopment of additional renewable power generationwhether RECs are bought from projects under developmentor from projects that are already in operation. “Purchasing RECs from projects under development:In some situations, customers can sign long term contracts to buy RECs from a renewable power generation projectwhile it is still in the planning phase. Most renewableenergy generation projects require revenue streams from both the facility™s electricity and its RECs in order to be financially viable. Therefore, the revenue commitment ofthe contracted REC purchase helps underpin the ability of the project to obtain financing and to be built.1Purchasing RECs from facilities already in opera-tion: Many of the RECs that customers can buy originatefrom renewable power facilities that are already in operation.2 Purchasing these RECs can stimulate market development and construction of additional green power generation facilities in at least two ways. First, some REC providers reinvest the profits from REC sales into renewable generation facilities that are under develop-ment.3 Second, purchases of RECs from existing facilities improve overall investor confidence in the renewable energy sector as the financial strength of projects isimproved and the market opportunities for future projects become more apparent.Notes1.In order for the project to be built, developers typically must also have a long term power purchase agreement for the electricity that will be generated.2.Buyers of RECs from facilities already in operation can request certificates that are generated by recently built or ﬁnewﬂ facilities. For a frequently referenced definition of ﬁnewﬂ vs. ﬁoldﬂ renewable facilities, see http://www.green-e.org/pdf/trc_standard.pdf. 3.For examples, visit http://www.b-e-f.org/accomplishments/index.shtm. Box 4
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9CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEglobal, buying local RECs may be less relevant for companies whose business case for buying certifi-cates is to reduce corporate GHG emissions. In fact, in some cases these firms may prefer non-local RECs. The amount of CO2 emissions per MWh that a renewable power plant avoids varies between re-gional power generation pools given their different fuel mixes. Purchasing RECs from regions where the avoided CO2 emissions are higher provides greater climate benefits.Type of renewable resource: Some firms may have a preference for the types of renewable resource they wish to support. Some may specifically choose windor solar RECs since these resources have zeroemissions20 and may provide more marketing value to buyers given the favorable perceptions the generalpublic has of these two renewables.21 Other firms seek RECs from renewable resources that are affiliated with their core business. For instance, a lifesciences firm or a natural resources-based companymay prefer RECs from biomass power facilities. Other companies purchase RECs from a mix ofresourcesŠfor example, 50 percent wind, 25 percent biomass, and 25 percent landfill gasŠin order to support a variety of renewable technologies.Volume: Companies use various approaches for determining the number of RECs to purchaseannually. Some firms purchase RECs based on a percentage of electricity consumption for a given set of facilities or to offset a percentage of its GHGemissions. Other firms may purchase a fixed numberof RECs based on a set amount of budgeted funds available. As with other goods and services, supplierstypically provide a discount for larger volumes andlonger terms.Vintage: Companies that want to use RECs as an emissions offset and record them in their corporateGHG emissions inventory may find it important to request RECs that are generated in specific years.Contract duration: Companies can sign contracts forRECs that range from one to five or more years.Shorter-term contracts also are available for firms that want to buy RECs to reduce the environmental impact of specific corporate events such as conferences.Price: Each of the factors outlined above will be evaluated against price, and trade-offs may have to be made. For instance, a corporation that sets out topurchase locally sourced RECs may have to decide whether or not a wind REC that is generated locallyis worth a $10/MWh (1.0 cent/kWh) premium over one that is generated in another state or region.Certification: One important issue that companies often raise when considering RECs is ﬁHow can one be certain that the certificates a company purchasesactually have been generated and that they have not been sold to another buyer?ﬂ This is a legitimate riskin the nascent REC market and one that everyprospective REC buyer can mitigate.One counter-measure is to purchase RECs that have been certified by auditing programs such as Green-e ®(administered by the Center for Resource Solutions) or the EcoPowerSM certification program (adminis- tered by the Environmental Resources Trust). For example, suppliers of Green-e® certified RECs (called ﬁTradable Renewable Certificatesﬂ or ﬁTRCsﬂ) are required to undergo an annual indepen-dent audit to verify that the power and its associated RECs were produced by the purported renewable generation facility, delivered in the amount specified, and not ﬁdouble soldﬂ or claimed by more than oneparty. 22 Buying certified RECs not only can help ensure product integrity but also can provide market-ing benefits that companies such as Interface have captured (Box 5).It is important to explicitly consider most of these factors when approaching providers in order to ensure they prepare offers that are tailored to the company™s needs and that are readily comparable. Conducting REC transactionsAs with other purchased goods and services, corporate customers should ensure that standard contract provi- sions are provided. For instance, firms should requestsuppliers to clearly define the terms and schedule fordelivery and payment, since these can impact net prices. For example, paying in the third quarter of eachyear for RECs produced in the fourth quarter of the previous year should command a discount. Specific
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10CORPORATE GUIDE TO GREEN POWER MARKETS WORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTEWORLD RESOURCES INSTITUTElanguage should address how an event of non-perfor- mance by one or both parties would be handled. Inaddition, it is important for customers to ensure that the contract with the REC provider includes explicitprovisions regarding the transfer of ownership of theunderlying environmental attributes.Companies that purchase RECs separately from elec- tricity receive two different invoices, one from the retail electricity provider for electricity and one from theREC provider for the certificates. Buyers shouldrequest that at least once a year the REC provider deliver a certificate that identifies the location (at leastthe regional power pool) of the renewable power facilitythat generated the RECs, the number of RECs pro- vided, the period of generation, and the renewable fuelsource. This is automatically done for Green-e® certi- fied RECs.Funding REC purchasesCompanies use a variety of strategies for funding REC purchases. Some firms use a portion of the savings achieved from energy efficiency initiatives to pay forRECs. In competitive electricity markets, some compa- nies have chosen to use savings realized when switching retail electricity providers or when other regulatedcharges have been eliminated or reduced. Stranded costor transition recovery fees are a prime example of a regulatory fee paid by nearly all customers for a periodof time in states where electricity is deregulated. Insome cases, these fees can exceed $20/MWh (2 cents/ kWh) and once removed provide an excellent source offunds to help purchase RECs.The department or budget within a company or businessunit that pays for RECs can vary. The facilities or energy procurement budget is the most common option.By Shannon Cox, Environmental Specialist, Interface Fabrics GroupInterface Fabrics Group: Using Certified RECs for Product Differentiationfrom competitors. However, the company could not find an attractiveretail green power product for its Maine and Massachusetts production facilities.To overcome this obstacle, IFG turned to RECs.In March of 2003, IFG announced that it would annually purchase 2,500 wind- generated RECs for five years. This number of certificates is equivalent tothe amount of electricity used to manufacture one million yards ofTerratex ® annually. To maximize its ability to leverage the RECs for product differentiation, IFG ensured that thecertificates were certified by theGreen-e® program. 1 This program guarantees that RECs meet strictenvironmental standards and theprogram conducts annual audits to ensure that providers have not double-sold certificates. One advantage ofbuying this type of REC is the ability forInterface Fabrics Group (IFG), adivision of Interface, Inc., manufacturespanel and upholstery fabrics for commercial interiors. Several years ago, the company launched Terratex ®, a newline of environmentally conscious commercial fabrics that meet thefollowing criteria:Made from 100 percent renewable or recycled material (e.g., soda bottles) Manufactured using increasinglysustainable processesMade to meet or exceed industry standards for quality and performanceDesigned to be recycled or compostedat the end of its useful life.Last year the company began investigat-ing ways to manufacture the fabric using green power. IFG was determined to strengthen the product line™s environ- mental image and further differentiate itBox 5the purchaser to use the Green-e® logo. IFG therefore can market Terratex ® with the statement:ﬁOne hundred percent of the electricityused to make select patterns of Terratex ®is matched with RECs.ﬂEarly indications are that this strategy ishaving success. Terratex ® fabric carrying the Green-e® logo has generated bothnew business and significant interest among IFG™s key customers. 1. Green-e® is the nation™s first voluntary certification and verification program for renewable electricity products. Since 1997, Green-e® has been a nationally recognized certification program to help consumers identify green power and RECs that meet strict environmental and consumer protection standards. Green-e® is a program of the Center for Resource Solutions (http://www.resource- solutions.org), a national nonprofit organization that encourages sustainable growth and promotes the use of clean energy.
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