RISKS AND BENEFITS

Both traditional renewable energy credits (RECs) and offsets and our premium “help build” RECs and other offsets have considerable benefits.  Both have certain risks or other drawbacks.  We recognize that people, businesses and organizations have differing preferences and risk tolerances, and we’re proud to offer two purchase models to meet our customers’ various goals.  Our goal is to inform our customers fully so they can make the choice that suits them best.

Quantity Certainty vs. Incremental Project Construction

Some of our customers value certainty that every REC or offset they buy actually was or will be generated.  Through Green-e verification, our CoolWatts^sm traditional RECs provide you that certainty.  The fact is, however, that with almost all renewable energy projects, that certainty comes with the virtual certainty that each and every one of your RECs or offsets would have been generated regardless of your (or anyone else’s) purchase.  Why is that?  Some of our customers are fine with that, because they know that their purchases demonstrate market demand for these kinds of projects, which can attract more investments in more projects over time.  There’s some risk there, however.  For example, despite growing market demand, wind power development basically came to a halt when the federal production tax credit expired at the end of 2003.  The federal production tax credit is scheduled to expire again at the end of 2007.

Recognizing this, many of our customers prefer their purchases to help directly to finance construction of specific new projects now.  With our “help build” RECs and offsets, you get to be part of a team that collectively brings critical up front funding to a specific project in development, a project for which long-term secured REC revenues is critical to success, directly helping to bring a new project on line and generate RECs or offsets that almost certainly would not have been generated without that funding.  That benefit comes with what some may perceive as a cost – the quantity of RECs or offsets you help create has to be estimated, and may be more or fewer than estimated. 
Learn why.  Many of our customers feel that the value of directly bringing a new project online outweighs the modest uncertainty as to volume.  Given how conservative our estimates are, we believe that the real likelihood is that our customers’ purchases will result in more CO₂ reductions than we estimate, not less.

Delayed Delivery

Traditional RECs and offsets are generated in the calendar year of your purchase, plus or minus a little.  Our “help build” RECs and offsets are generated over the expected operating life of the project you help build.  At first glance, it seems obvious that more environmental benefits sooner is better than later.  But let’s look at it more closely.

As traditional RECs and offsets are almost certainly going to be generated regardless of your purchase, isn’t the real point in purchasing them (and it is a real point) to demonstrate market demand so that other projects that are dependent on market demand are built later?  And won’t those projects built later create their environmental benefits over their operating lives? 

Hmmm.  Sounds familiar.  The differences are that with our “help build” RECs and offsets, you can pick what projects are built in response to your demand, you know when they’re going to come on line, and you have remedies if they don’t.  Your connection to new project construction is direct, not indirect.

Project Failure

With traditional RECs and offsets, there is generally no risk of your project failing. With our premium “help build” RECs and offsets, our projects have every economic incentive to keep operating, because most of their return on investments comes from the revenues and tax benefits they receive from producing and selling the underlying “generic” power.  In addition, we require our projects to use commercially reasonable efforts to continue operating at peak potential during the term of our purchase.  Nevertheless, a tornado could come along, or something else could happen that makes it commercially unreasonable to rebuild or continue operating.  If that happens, it’s end of story.

But again, if the real point to buying traditional RECs and offsets is to demonstrate demand for more projects to be built later, aren’t those later projects subject to the same risks of failure?

Regulatory Risk

All renewable energy projects face two risks that impact their value to the voluntary market:

• Renewable portfolio standards – are laws that require utilities to include an annually growing amount of renewable energy in their mix.  Usually compliance is proved through the documented purchase of RECs.  If a project is selling its RECs into the voluntary market, and after a few years a federal RPS is enacted and the project starts selling its RECs to the local utility, that project has lost arguably its environmental value – if it had continued selling into the voluntary market, the utility would have to build another project to meet its RPS requirements, but now it does not have to.

 

• Improperly constructed CO₂ Cap and Trade Systems – a properly constructed cap-and-trade system would recognize that renewable energy projects reduce CO₂ pollution, and award them allowances commensurate with the reductions they cause.  The projects could then sell these allowances into the voluntary market along with their RECs – every allowance retired by the voluntary market would mean one fewer tons of CO₂ in the air.  How’s that?  But if the cap-and-trade system is poorly constructed and doesn’t award renewable projects with allowances, the utilities whose fossil generation is reduced by the renewable project simply end up with excess allowances, which they can sell or use instead of reducing their own pollution, eliminating the project’s CO₂ benefits.  The good news is that the
  first cap-and-trade system being implemented has made provision for awarding allowances to renewable projects, and so is starting things off on the right foot.

Traditional RECs are not subject to these risks.  If a project is selling into an RPS, it cannot also sell into the voluntary market.  Also, there is no CO₂ cap-and-trade program in place yet, so “this year’s” RECs cannot be affected.

Our “help build” RECs are not subject to the RPS risk, because our customers have already purchased, and donated to Clean Air-Cool Planet, all the RECs the project will generate over its expected operating life.  During the term of our customers’ purchases, the project has nothing to sell to the RPS, and the utilities will have to build other projects to meet their requirements.

Our “help build” RECs are subject to a poorly constructed cap-and-trade system taking away their CO₂ value.  No question.  But does that mean we shouldn’t help build them?  We think not, especially because things seem to be going in the right direction on the cap-and-trade front.

And again, if the real point to buying traditional RECs is to demonstrate demand for more projects to be built later, aren’t those later projects subject to the RPS and cap-and-trade risks?