Renewable Energy Certificates and Carbon Offsets Strategies to Negotiate Offsets and Structure REC Transactions

Transcription

1 presents Renewable Energy Certificates 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 Thursday, July 8, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 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 ed to registrations.

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4 Strategies for Negotiating Offset Purchase Agreements Strafford Publications CLE July 8, 2010 Claybourne Fox Clarke, JD, LLM 4

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6 Overview Offset Basics Why offsets? What Projects are Eligible? Technical and Legal Considerations Due Diligence ERPA Key Terms Price Delivery 6

7 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

8 Offset Basics What projects are eligible? *eligible project types vary between programs renewable energy, energy efficiency, forestry, land use, landfill methane, coal mine methane, ag methane, industrial gases, SF6 from electricity transmission, efficiency in buildings 8

9 Offset Basics Project eligibility (cont d) Project reduces emissions below a baseline reductions quantified in 1 ton CO2e units Emission i 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 9

10 Technical and Legal Considerations Offset Due Diligence Provides Buyer (and Seller) with 3 rd Party Evaluation More than verification Technical (project + emission i reduction) Financial Legal Provides Evaluation of Project Risks Pricing strategy Mitigation strategy 10

11 Technical and Legal Considerations Offset Due Diligence PROJECT CONSIDERATIONS Status and Planning Design and Technology Feasibility and Justification Financing Env/Social Impacts and Reputation Issues OFFSET CREDIT ISSUES Evaluation under applicable methodology Registration and Approvals Emission Reduction Estimate Monitoring 11

12 Technical and Legal Considerations Offset Due Diligence (cont d) COUNTERPARTY CONSIDERATIONS Financial Standing Experience and Capacity Reputation LEGAL CONSIDERATIONS Structure Offset Credit Ownership Status t of Key Contracts t Permits and Approvals 12

13 Technical and Legal Considerations Emission Reduction Purchase Agreement (ERPA) KEY TERMS Conditions of Effectiveness (conditions precedent) Price (inc. upfront payments?) Volume and Delivery Listing as Project Participant and dcommunication with ithcdmeb Damages/Default Monitoring and Verification Governing Law, Costs, Force Majeure 13

14 Technical and Legal Considerations Price Negotiation FACTORS THAT AFFECT STARTING PRICE Project Type Demand Offset mkt prices, EUA price, scer price Policy developments Timing of payments and delivery Delivery guarantees / remedies for under delivery Risks 14

15 Technical and Legal Considerations Price Negotiation Market Price Simple Indexed Price Fixed Price Indexed d Price with Floor & Ceiling 15

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

17 Thank you Questions, Comments? Claybourne Fox Clarke (202)

18 Renewable Energy Credits in California GENEVA HOUSTON KANSAS CITY LONDON MIAMI ORANGE COUNTY SAN FRANCISCO TAMPA WASHINGTON, D.C. July 8, 2010 Keith M. Casto Shook Hardy & Bacon, LLP 18

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

20 Glossary 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

21 Goals Of A TREC Market Encourage investment, production, and use of renewable energy though a 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 infrastructure 21

22 Legislative & Regulatory History Senate Bill 107 (2006) by December 2010, requires that at least 20% of electricity i 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 (2008) Gov. Schwarzenegger increased RPS target to 33% by 2020 business community complained li dthtl that legislative ilti enactment tis needed dd 22

23 Legislative & Regulatory History (cont.) 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

24 Legislative & Regulatory History (cont.) 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 d 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 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

25 CPUC S Decision on Tradable RECs Issued March 11, 2010 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 25

26 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 pursuant tto CECdelivery rules TREC was considered d bundled Post-CPUC Decision = Bundled TREC only if underlying energy 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 few complaints as elsewhere in the country, prices have exceeded $600/MWh 26

27 CPUC Stays Its TREC Decision (cont.) May 6, 2010 CPUC stays its March 11 TREC decision. 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 Sacramento to overturn a decision they didn t like. will remain in effect until CPUC acts on requests for rehearing/modification New decision was supposed to be rendered June 24, 2010 nothing has been issued/decided as of yet 27

28 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 clearly outline limits on RPS-qualifying TRECs balance required use of in-state renewable energy against out-of- state renewable energy imports and unbundled REC 28

29 Takeaways A robust market for offsets/trecs has been created worldwide in the absence of federal legislation in United States 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 market into disarray 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 29

30 Contact Information Keith M. Casto Partner Shook, Hardy & Bacon LLP 333 Bush Street Suite 600, San Francisco, CA (415) EXT Direct: (415) Cell: (408) Fax: (415)