The murkiness of voluntary RECs

Colorado's Ridgway Dam, between Montrose and Ouray, was completed in 1987 but without hydroelectric turbines.

Colorado’s Ridgway Dam, between Montrose and Ouray, was completed in 1987 but without hydroelectric turbines. Telluride, the municipality, is paying :$16,250 a year to purchase renewable energy credits, in theory blotting out the municipality’s carbon footprint.

Will buying RECs allow towns to blot out their carbon shadows?

A case study in the murkiness of renewable energy credits

 by Allen Best

One spring day in 2009, as fields at the entry to Telluride flushed bright yellow with blooming dandelions and the sunlight glinted off Ingram Falls in the background, Mayor Stu Fraser vowed to dramatically reduce the community’s responsibility for carbon emissions. The plan, which was later adopted by the town council, set goals for 2020 and, even more dramatically, for 2050.

Since then, Telluride’s town government has pushed hard to achieve those goals. It has tackled the easier, less showy challenge of reducing demand: swapping out light bulbs, adjusting the thermostat, adding insulation.

Telluride’s town council has also invested heavily in renewable energy. Council members authorized photovoltaic solar panels next to the wastewater treatment plant, purchased more PV panels in a solar farm 80 miles west in the Paradox Valley, and harnessed the power of falling water in its new water-treatment plant.

Telluride has installed solar panels at its sewage plant as well as purchased panels 80 miles west in the sunny Paradox Valley.

Telluride has installed solar panels at its sewage plant as well as purchased panels 80 miles west in the sunny Paradox Valley.

By any simple accounting, Telluride has done a lot. But has it truly managed to achieve the carbon-reduction goals to which Fraser and his council committed?

Town officials say yes—certainly so for the town government itself, which is responsible for 3 to 4 percent of total community energy use, and probably for the community more broadly. Telluride has achieved this, they say, six years ahead of the deadline.

Financial device called RECs

These assertions are premised largely in the perceived value of a controversial financial device called renewable energy certificates, or RECs. Telluride in May 2014 agreed to a three-year contract to buy RECs associated with electricity produced at Ridgway Dam, located just over the mountain but an hour away by highway. The cost is $16,250 per year.

If true, this offers a pathway for other communities to make good on their carbon-reduction goals. But not everybody agrees about the legitimacy of RECs.

RECs were created in the 1990s as a way to push more money toward renewable energy. A study by the National Renewable Energy Laboratory credits a Massachusetts-based firm, AllEnergy Marketing Co., with offering the first batch of RECs in 1998. Texas followed in 1999 after state legislators adopted a renewable portfolio standard.

Regulators subsequently created RECs as a financial instrument with the intention of expanding renewable energy in the “most efficient and economical manner.” The idea is that you don’t have to build a wind farm yourself. Instead, you can buy RECs. They’re supposed to represent the environmental attributes of that energy.

Soon, brokers went into business to negotiate sales of RECs, sometimes called green tags, between willing sellers and buyers. And non-profit groups such as San Francisco-based Green-e Energy were created to track sale of RECs. If certified, the environmental attributes of a wind farm, for example, can be sold only once.

However, no standardization of RECs has occurred as federal agencies have done for pharmaceuticals, financial markets, or food claims.

Nobody disputes that RECs can help create new renewables. For example, if a state government mandates utilities meet renewable portfolio standards, the utilities can buy RECs to help them meet that obligation. They will pay to do so, however. Such RECs don’t necessarily come cheap.

The voluntary market for RECs—such as the case with Telluride’s purchases at Ridgway Dam—is different. The going price for RECs tends to be dramatically less. The lower price reflects a squishiness in the market.

The crucial question is whether these low-cost RECs actually produce additional clean energy—or just ride the coattails of new production of renewables. If the latter is the case, say critics, then purchasers in the voluntary REC market should not claim deep reductions in carbon emissions.

Telluride sparks in the freshness of late May sunshine.

Telluride sparks in the freshness of late May sunshine.

That disagreement was evident in Telluride in 2014 when the council approved the three-year $48,000 contract. Thom Carnevale, the lone dissenter on the Telluride council, dismissed the RECs as green-washing. “I think they are artificial,” he told Mountain Town News in a later interview. “They are based on flawed assumptions, and they are very misleading when they are marketed.”

Carnevale has since resigned from the council, although there was no evidence it was related to this disagreement.

Major corporations buy RECs

Telluride has plenty of company with its purchase of RECs. Wal-Mart, Office Depot, Whole Foods, and a fleet of other national companies have purchased them.

So did Vail Resorts. At a well-orchestrated press conference in Denver held in 2007, the company announced purchase of RECs from wind energy. The purchase was purported at the time to be second only to Whole Foods in total volume. The cost to Vail Resorts was never publicly disclosed, however. Nonetheless, the announcement snared front-page stories in both of Denver’s daily newspapers then in existence and even the prime spot on the national page of the New York Times.

Altogether 50 ski areas purchased RECs at about the same time as part of an industry-orchestrated effort. Those ski industry purchases, however, were controversial.

“There was a lot of debate,” says Geraldine Link, director of public policy for the National Ski Areas Association. “That debate still goes on.”

Renewable energy credits were probably involved in financing of this wind energy farm on the Pawnee National Grasslands in northeastern Colorado.  Photo/Allen Best

Renewable energy credits were probably involved in financing of this wind energy farm on the Pawnee National Grasslands in northeastern Colorado. Photo/Allen Best

Link says that RECs can have value “with really rigorous accounting.” Just the same, NSAA downplays their purchase in its recommended tier of climate-change actions, called Sustainable Slopes. “A lot of ski areas are looking to more direct on-site production of energy,” she says. The number of ski areas buying RECs has declined.

Powdr Corp., however, continues to buy RECs for its ski areas at Copper Mountain, Bachelor, Killington, Las Vegas, and other holdings. As of mid-January, the Environmental Protection Agency ranked Powdr as No. 66 in its program called Green Power Partnership, as the company was buying 108 percent of its annual 80,000 kilowatt-hours of electrical use. The source is wind energy using a third-party contractor, Renewable Choice Energy, a broker based in Boulder, Colo., that also engineered Vail’s purchase in 2007. Powdr’s director of sustainability did not return phone calls requesting comment.

Intel Corp., the computer chip manufacturer, now heads the EPA’s list of REC purchasers, followed by Microsoft Corp., Kohl’s Department Store, and Google. The municipal governments of Houston, Austin, and Dallas are in the top 20, as is the District of Columbia.

 Getting byzantine

But do these RECs actually accomplish anything other than burnish green credentials of these businesses, municipalities and universities? Answering that question involves pursuing often confusing money trails.

“You can get very byzantine fairly quickly,” says Kevin Rackstraw, vice president of CustomerFirst Renewables, a company based in metropolitan Washington D.C. Rackstraw has been active in the REC markets since their emergence.

In its infancy, the REC market was “pretty loose,” he says. “You never knew whether the premium you were paying was going to renewables.”

Tracking systems now guard against double-counting. Yet RECs are not quite like dollar bills. They do not have a universal value. Every REC has a slightly different attribute, although most have to do with reduction of greenhouse gases. Value can also depend upon site of production, with a REC from wind production in Maryland, where wind farms are scarce, far more valuable than a REC in windy West Texas with its sea of turbines. In other words, the market is heavily splintered.

Rackstraw describes RECs as being like frequent-flier miles. Earned miles can be spun off from travel itself and become tickets for goods, such as a sweater. “It is derivative in the sense that it is spun off from another product and then traded,” he explains.

The most confusing—and controversial—part of the REC market lies in voluntary offsets.

The EPA says that all RECs, including those purchased on the voluntary market, “are used to demonstrate renewable energy delivery and allow the ultimate recipient to state that they are using renewable electricity and make the appropriate environmental claims,” says Mollie Lemon, a spokeswoman for the EPA’s Green Power Program, in an e-mail response to questions. The EPA defines a voluntary REC as reflects only the environmental attribute of the electricity, not a claim of producing new clean energy.

The spark for the Ridgway retrofit

At Ridgway, production of clean energy would have occurred without Telluride’s purchase of RECs. The 331-foot-tall earthen dam plugs the Uncompahgre River to hold water for farmers in the Montrose-Delta area. Even when construction was completed in 1987, engineers understood the potential for hydroelectric production. The nation’s giant turbines, such as those at Hoover Dam, and some smaller ones, too, such as in the Aspinall Unit dams west of Gunnison, Colo., quietly produce more than half of all renewable energy in the United States. Competing with low-priced coal, however, the cost of turbines at Ridgway couldn’t then be justified.

Aspen provided the spark for this retrofit. An anomaly among mountain towns, which are primarily serviced by electrical co-operatives, Aspen has its own municipal electrical utility that has allowed it to chart an independent path. In the 1980s, worried about the ill effects of coal-fired electrical generation, the city council paid for the retrofitting of Ruedi Dam, a nearby federal dam. Financially onerous at the time, this and other investments in renewable energy have paid off handsomely.

The CAMU Industrial Survey of July 2014 found that Aspen Electric—which serves about half the town—has the 8th lowest rates among 58 municipal, co-operative, and investor-owned utilities in Colorado.

In 2002, an Aspen delegation visited the Ridgway Dam to explore the feasibility of hydro installation. Those present credit the late Randy Udall as the key driver. Aspen agreed to foot the initial $50,000 feasibility study and then committed to higher costs for electricity in early years of delivery. Construction on the $18 million retrofit started a decade later and was completed in May 2014, about the time Telluride approved the purchase of RECs.

At maximum release of water, the dam can now generate enough electricity to meet the demand of up to 2,500 homes. In terms of carbon reduction, that’s equivalent to taking 4,400 cars off the road each year.

The electricity itself has two buyers. Aspen’s city utility buys the production during winter and shoulder months, about 40 percent. Tri-State Generation buys the electrical production during summer irrigating season. That’s 60 percent of annual production.

What difference does Telluride’s annual $16,250 purchase of RECs make? It’s 2 to 4 percent of the $800,000 that it costs to operate the hydroelectric plant and pay down debt, says Mike Berry, the general manager of Tri-County Water Conservancy District, the agency that manages the dam.

“It’s not a make-or-break deal,” he says. Hydroelectric projects generally have good payback, and by far the most crucial commitment to making the project happen was Aspen’s willingness to buy power at a higher front-end rate, he says. Yet the extra money from Telluride does help at the margins.

In an interview conducted last June, Berry admitted the concept of RECs remains fuzzy.

“When you go to a Wal-Mart to buy a loaf of bread, you are looking for something to eat,” he says. “But a REC is nothing more than a claim that you have it. When I need to use my computer, it won’t do much good. You need that electron. To me it’s a mystery—and probably always will be.”

Was Carnevale right that Telluride gets nothing more than a very expensive green badge? The Aspen Skiing Co.’s Auden Schendler has not written specifically about the Ridgway Dam, but in his book, Getting Green Done, he denounced the feel-good purchase of RECs.

Shaking an accusatory finger

In a February 2014 posting on Grist, the environmental website, Schendler further called RECs “sketchy pieces of paper that are surrogates for clean energy but which, most of the time, don’t do anything to reduce carbon dioxide emissions.”

RECs on the voluntary market are mostly cheap, he explained, and the reason they’re cheap is they accomplish little.

“Because the project (let’s say it’s a wind farm) is already built and the developers don’t need more money, and because there are a lot of operating wind farms, the price of the REC is almost nothing—between $1 and $2 per megawatt hour. And because something that costs almost nothing has little value, it is no surprise that it doesn’t do anything to change the CO2 emissions,” he wrote.

“What does happen,” he added, “is that the middlemen make money.”

Schendler wagged an accusatory finger at the EPA: “Because corporations think they are actually reducing emissions, they may not take further action like energy efficiency or new clean energy projects. Because the consumer is being told by no less an authority than the EPA that this business is green, they may hold off on further prodding of the company through shareholder actions or other forms of public pressure.”

The Grist posting, “Green Sleaze,”  spurred sharp and sometimes hotly worded exchanges for weeks among critics, Schendler, and his defenders.

Schendler’s core argument is that RECs, to mean anything, must help create new generation of electricity from renewable sources. This is sometimes called additionality. In other words, what good is a REC if it doesn’t somehow create new clean energy-generating capacity?

The EPA, in a written response to a request for clarification, disagrees. “While additionality is a criterion for carbon offset projects, it is not a criterion/requirement for RECs,” wrote Lemon, the EPA spokeswoman.

But on the other hand, says the EPA, there is additionality. “Voluntary markets help develop nationwide renewable energy capacity that exceeds what compliance markets contribute alone.”

Confused? You’re not alone.

Aspen’s experience

Aspen utility officials have studied the REC market in depth and remain leery. They want a direct rope, if you will, to the renewable energy production. Purchasing electricity during winter months from Ridgway is a short and direct rope. A somewhat longer rope is to Nebraska. The city utility’s primary wholesale provider is the Municipal Energy Association of Nebraska, or MEAN. Several years ago Aspen committed to buy wind power from a new turbine north of Kimball, in the Nebraska panhandle, but also the RECs.

A portion of Aspen Electric's power comes form a small wind farm just off Interstate  80, near Kimball, Neb.

A portion of Aspen Electric’s power comes form a small wind farm just off Interstate 80, near Kimball, Neb.

“It was the first wind turbine in that part of Nebraska and it wouldn’t have gone up if we hadn’t agreed to buy the energy and the RECs at a premium price,” says Phil Overeynder, the city’s utilities engineer/special projects planner.

Yet Aspen does plan to buy RECs on the voluntary market as a way of getting to 100 percent renewables. Today, Aspen Electric has a portfolio of around 85 percent non-carbon sources that managers expect will hit 100 percent by August, one of just a few in the country. Of this power, 50 percent will come from hydro, 49 percent from wind, and 1 percent landfill gas.

The plan prepared by William Dolan, Aspen’s renewable energy manager, calls for Aspen to increased its purchases from three additional wind farms in Nebraska and one in South Dakota. These are straight-forward purchases. MEAN, Aspen’s wholesale supplier, “guaranteed to meet our demands with wind from these facilities, but how those electrons get mingled on the grid (with electrons produced by fossil fuels) isn’t defined,” Dolan says.

But Aspen also needs something at its margins, which is where the RECs come in. Dolan has recommended that the city council purchase RECs associated with the production of electricity by burning methane emitted from a landfill in Iowa. The electricity itself is being sold into the regional electrical market in the Midwest. Dolan says the purchase of RECs will be necessary to fill in the gaps of the city’s intermittent energy resources, primarily wind.

“Without this buffer, guaranteeing monthly 100 percent renewable demand satisfaction would not be technically feasible,” he says.

On the face of it, that sounds like Telluride’s purchase of RECs from Ridgway. Dolan, however, sees what he describes as a subtle difference. In buying the landfill RECs, Aspen is paying an extra 3 cents per kWh. That agreement to pay a premium pushed MEAN, the wholesale provider, to develop the landfill gas. On the front end, Aspen loses money but gains environmental credentials. If the price of natural gas goes up, however, so will the general price for electricity. In that case, Aspen will have below-cost price for electricity.

Others are less skeptical of RECs. One Colorado developer of renewable energy, who declined to be quoted for attribution, calls them an “economically efficient market mechanism” that, when aggregated with other REC purchases, send a market signal.

The National Renewable Energy Laboratory, in a 2011 report, came to few hard conclusions but had a tone that was not nearly as skeptical as Schendler. The report, “The Role of Renewable Energy Certificates in Developing New Renewable Energy Projects,” agreed that RECs in the compliance market are “more firm” and “can drive project development,” unlike RECs in the voluntary market. But, added the report, whether voluntary RECs drive new project development “depends on the nature of the market and whether a contract is in place.”

NREL chartA 2013 report from NREL, “Status and Trends in the U.S. Voluntary Green Power Market (2013 Data),” spoke broadly, saying: “The  voluntary market continues to play a large role in the overall renewable energy market.”  Chart above is from that report.

 

However, there have been various calls for the Federal Trade Commission to step in to regulate claims that can be made.

Legitimacy of Telluride’s claims

But can Telluride claim to have blotted out its carbon footprint? The vast majority of the claim rests on the $16,250 annual purchase of RECs from Ridgway, a project that had happened without Telluride’s purchase. If you don’t believe in the legitimacy of the RECs, says special projects director Karen Guglielmone, then of course you probably don’t believe that Telluride has achieved its goals yet.

But Guglielmone also notes that, in a general way, the important point is direction, not attainment of singular goals.

“A lot of these communities are moving in the right direction, and we weren’t doing that previously,” she says. “Once you set a goal, you want to get there.”

My own take is that it’s a real stretch for Telluride to claim any significant carbon reduction from its purchase of RECs at Ridgway. Was there any harm? Not really—except if others think that carbon-reduction can be achieved so painlessly.

The real work of carbon reduction is so much more difficult than tossing a few bucks into the tip jar.

But it’s also important to give Telluride (and other communities) credit. They’ve done stuff locally, and they’ve put their voice out there, as in the recent call to close a financial loophole that, in effect, allows coal-generated electricity to be cheaper than it really is.

“If they’re going to continue to burn coal, it has to be cleaner,” Fraser told the Denver Post. “This needs to happen sooner rather than later. It’s very important that we have less pollution going into the environment.”

Regardless of whether Telluride’s REC’s blotted out the town and community’s carbon footprint, clearly Telluride is doing a lot.

Additional reading:

“Carbon Offsets” Debra A Miller, Book Editor, Greenhaven Press: 2009.

Federal Trade Commission webpage: https://www.ftc.gov/tips-advice/business-center/guidance/environmental-claims-summary-green-guides

This is from the June 15 issue of Mountain Town News, an e-zine delivered electronically to subscribers. 

 

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About Allen Best

Allen Best is a Colorado-based journalist. He publishes a subscription-based e-zine called Mountain Town News, portions of which are published on the website of the same name, and also writes for a variety of newspapers and magazines.
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One Response to The murkiness of voluntary RECs

  1. paul says:

    murky, murky,murky

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