For renewable energy
markets to really blossom, advocates are in virtually unanimous
agreement that the output of wind, biomass and other projects have to
be treated like a commodity, as is any output is from traditional
electric generation sources.
And as the state renewable portfolio
standard has become the de facto dominant market driver, means have to
be developed to encourage trading of the commodity that both parties to
the transaction fully understand.
This is the consensus of industry
participants who are striving in one initiative to clarify one hurdle
in the development of a liquid market - creating a definition of a
national renewable energy certificates (REC) contracts. And parties to
those contracts in different jurisdictions have to fully agree upon
what they are buying or selling for REC contracts to be used to boost
"RECs have been established at the state
level, but each state has a different way of dealing with where the
best locations of the projects that produce them are," says Mike
Eckhart, president of the American Council on Renewable Energy (ACORE),
which is spearheading the effort. "For each New England state to have
to have its own large wind farm doesn't make any sense."
Practical considerations like siting,
available land and wind resources, let alone the political environment
of each state, are some of the obvious problems.
ACORE has established a REC Trading
Committee, which is working on a venture with the American Bar
Association (ABA) and the Emissions Marketing Association to solidify a
legal definition of a REC trading contract.
This effort has avoided the major
controversy over ownership of the environmental attributes that has
divided some segments of the renewable energy industry. Obviously, it's
beyond the reach of this initiative to unify REC definitions that could
conceivably differ in dozens of ways - one for each state and Canadian
province that might engage in cross-border trading.
But the benefits of a liquid REC market are
well-known throughout the renewable energy industry.
The ultimate goal of the effort is a way to
further monetize the project, so that project developers can more fully
tap into the inherent value of a renewable energy site when arranging
financing over the long term.
"What we've set out to do is to create a
contract with minimal tailoring," says Roger Feldman of Washington,
D.C., law firm Bingham McCutcheon LLP, who is part of the ABA
representation. The goal is to create transactions that could more
easily move the environmental attributes across state lines, he adds.
Feldman says the attempt to commoditize the renewable energy is needed
to create a fungible market in what are inherently complex deals.
Essentially, the effort is meant to create
a series of "check boxes" for the parties that would define, for
example, sourcing of the energy.
"The ideal is that you're creating this big
tent, so that everybody knows what they're buying, everybody knows
who's being represented, and even has provisions if the governmental
laws change or some other regulatory changes tend to move the market,"
There are other benefits to standard REC
contracts that would impact market development. Project off-takers and
developers alike would be able to locate projects where they would have
the most benefit.
"If a state RPS is passed, and in the event
that a project there is not economic, the opportunity exists to have
renewable energy production where it is more cost-effective," says
David South, who is a REC committee member and vice president and
executive director of Pace Global Energy LLC in Fairfax, Va.
"Interstate commerce would arise, and this could be a means to create a
national renewable portfolio standard without actually [legislating]
So far, the voluntary market - the green
power market popularized in large part by retail sales to individuals
who want to promote cleaner electricity, and increasingly corporations
and institutions with similar goals - has provided much of the impetus
for early-stage renewable energy development. But this market is too
small to carry large-scale project development very far.
The pro bono effort among the lawyers has
been ongoing for about a year and will continue for the next few
months. Drafts will be circulated over the next couple months.
There are several other areas in which REC
liquidity needs to be addressed. These include nationally recognized
trading standards, ownership of the environmental attributes, and
tracking mechanisms and monitoring. Creation of standardized contracts
will also have implications for the nascent movement toward a
carbon-trading regimen that would further encourage renewable energy
When these issues come closer to
resolution, renewable energy advocates believe the market can flourish
over the coming years.