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Schendler Part II: Good RECs vs. Bad RECs

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"Schendler Part II: Good RECs vs. Bad RECs"

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wind.jpgIn my second of three blogs (Part I here) in response to the Businessweek article about Aspen Skiing Company’s work (“Little Green Lies“) I’ll expand on the article’s discussion of renewable energy certificates (RECs).

While the article justifiably criticized many RECs, it failed to make the point that there are good and bad RECs. (A REC represents the environmental attributes of one megawatt-hour of renewable energy.) The contrast between the two is stark. Bad RECs don’t do anything to drive new renewable energy development. A bad REC costs about $2 (though the price has gone up) and comes from, say, a wind farm that has been already developed. Your purchase may be a nice bonus for the wind farm developer (and for the REC broker you bought it from) but it didn’t do anything to change carbon dioxide emissions in the world.

Good RECs, on the other hand, actually make new renewables development happen. For example, Aspen Skiing Company is currently developing 150kW of solar energy in Carbondale in partnership with the Colorado Rocky Mountain School. That project will sell RECs to our utility, Xcel, at roughly $170/mWh over 20 years. (!!!–that’s what it takes to incentivize new solar development in Colorado.) If you take away these REC sales, our project would collapse, because it would have a negative return on investment. So Xcel can rightly claim that their REC purchase created new emissions reduction through green power production.

This sort of REC is called a “forward REC,” and in my opinion, this is the only kind of REC that matters. Forward RECs tend to be expensive (for wind power they cost $8 and up) and they almost certainly need to be purchased through a long term contract. (That’s because the wind farm developer, for example, needs the commitment to work into its financial models.) Two organizations that sell these very legitimate forward RECs are Native Energy and Community Energy.

My uncle used to be the dean of the business school at the University of Alberta. As a good economist, he doesn’t understand why supply and demand isn’t doing what it should with ALL RECs, good or bad–driving their price up to a point where eventually, even bad RECs will drive new construction because developers want that money. The problem is twofold: first, I believe there is corporate demand ONLY for cheap RECs, which serve as a remarkable, and remarkably cheap, tool for brand positioning. For only a small fraction of a company’s utility bill, (1-2 %) a business can say it is buying 100% clean power. That has been a huge statement for businesses to make. But if you jack the price up from $2 to, say, 8-$10 (roughly the price needed to drive new wind development) suddenly buying RECs is much less of a bargain to the marketing department. This is a Catch 22–as people buy RECs, the price will go up to a point that their value will actually drive new wind development. But when the price goes up, the large scale buyers go away….

The second problem has been a huge supply and backlog of existing RECs from wind farms built in the past … meaning even huge purchases didn’t, initially, dent the supply. (Though they are now beginning to, REC brokers will tell you.) Still, more supply comes online all the time, above and beyond that created by state renewable portfolio standards, which don’t feed the voluntary REC market. Maybe as all RECs go up in price due to supply and demand, they’ll start driving new wind development. But I doubt it. By the time that happens, we’ll be under government carbon regulation anyway.

A final point: businesses that buy even the crappy RECs aren’t necessarily deceitful or disingenuous. If you want to buy green power today, RECs are really the only way to go about it. And businesses should not be expected to be experts on renewable energy, like, say, the wonks reading climateprogress.org. At the same time, due diligence on RECs is critical if you want to protect corporate reputation. (For more on that, see my article in the current/October issue of Harvard Business Review — subs. req’d) What’s a way out? We need a respected third-party gold standard for RECs, not the existing Green E standard, which is the lowest possible baseline, akin to certifying hot dogs as “all beef.”

– Auden S.

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25 Responses to Schendler Part II: Good RECs vs. Bad RECs

  1. Eric Sutherland says:

    I would like to add a third point for Mr. Schendler’s Uncle to consider in order to understand why the current REC marketplace has been ineffectual. The complete lack of transparency surrounding REC purchases makes shopping in this marketplace similar to trying to haggle in a Moroccan bazaar with a blindfold on.

    Imagine how well the NYSE would work if it had no reporting mechanisms for price and sales volumes, let alone the other disclosures required by law. Access to basic information is essential to the operation of an efficient market. Hell, people win Nobel prizes for analyzing how information differentials affect market results. Everybody involved in the REC marketplace, including the consumers who may be influenced by the PR, is operating with a distinct information disadvantage. Did Vail resorts make REC purchases for the next six months, or the next six years? Although the claims of benefits are widely publicized the details are completely off limits to the public.

    Green-e could start reforming their practices, (if it is even worth doing at this point), by creating an accessible database that REC purchasers could opt in to, at least on a voluntary basis. Such transparency might have saved my community some difficulties.

    Eric Sutherland
    Fort Collins, CO

  2. Eric Sutherland says:

    Another point that is worth analyzing; Mr. Schendler writes “more supply comes online all the time, above and beyond that created by state renewable portfolio standards, which don’t feed the voluntary REC market.” In Colorado, weaknesses in the RPS mandate that allow REC’s to substitute for energy purchases blur the lines between what is a voluntary/mandated REC purchase and water down the effect of the legislation. If the Green-e certification process is a loose board in the fence, HB 1281 and the previous PUC rules drawn up for Amend. 37 are a gate left wide open.

    The effects of this situation can be seen in Fort Collins, CO. Our current RP consists of 17% energy/83% REC’s. This policy is defended by saying that FC Utilities/PRPA* is “taking title” to “attributes” through its REC purchases – an apparent homage to the two RPS mandates that apply; 1) HB 1281 and 2) Council adopted Electric Energy Supply Policy (EESP). The latter was passed before any REC purchases were made by our utility and is about 2.5 times more aggressive than the former. Approximately half of the revenue going into the program is from voluntary contributions, the other half is from funds taken from every ratepayers bill.

    The intent of our Council mandated EESP could not have been more clear; diversify sources, supply clean energy to ratepayers, economic development and environmental benefits. Despite some prodding, FC Utilities/PRPA has not provided a reasonable explanation of how REC purchases are satisfying the objectives and intent of the EESP. It has taken some effort just to get some attention focused on justifying the environmental benefits that have been claimed. Sound confusing? It is!!

    Fortunately, FC Utilities/PRPA has shown some improvement recently by announcing a new policy which reduces the percentage of REC’s in the RP and by making some smarter REC purchases that have some additionality. How this situation is resolved may set an example on the national stage.

    Eric Sutherland
    Fort Collins, CO

  3. Eric Sutherland says:

    I do not think there are any bad REC’s, just bad REC purchasers and evil REC brokers. Mr. Schendler does not think that any businesses that bought REC’s have been deceitful, but I disagree. When a company uses phrases such as “100% emission free” to describe the electricity that is used to haul Jack Nicholson’s butt to the top of a mountain, or a brewery that uses megatherms of natural gas says that “the big winds of Wyoming are our sole source of energy”, people are being misled. Period. This has to stop.

    Every REC purchase is an indication that somebody is willing to pay more for their electricity and the additional revenue should go to clean energy sources. In this regard they are a laudable action. It is absolutely offensive to take this forward thinking concept and corrupt it, the way Renewable Choice Energy is doing, by telling customers that they are freeing themselves of fossil fuels. This type of language runs afoul of protections citizens should enjoy from truth in advertising regulations and statutes. There is no room in the movement to address climate change and resource depletion for insincerity.

    Eric Sutherland
    Fort Collins, CO

  4. Jeff Maus says:

    Hey Auden, Is it true that the Aspen Ski Company makes snow at night because snowmaking uses so much electricity that the grid cannot handle both day to day draw and the snowmaking draw simultaneously? Exactly how much juice is required to make EARLY season snow?

    Best, Jeff Maus

  5. T.Bolt Lobber says:

    Snow making is best done at night for thermodynamic reasons. Cooler nighttime temperatures assist with heat transfer from the pressurized air before it is throttled out of the snow gun as well as from the ice crystals that are formed in the stream.

    System demand is not a significant consideration in the months (October-November) when resorts are making snow. But day time temperatures above 40 make the equipment inoperable.

    However, snow making does require incredible amounts of electrical energy. In the old days, megatons of coal used to be burned to make snow for Aspen and Vail. Now they are 100% wind powered and have started using emission free electricty. All the coal fired electricty generation in Colorado is miraculously switched to Oklahoma and Texas to make up for the wind power they are sending up here. ;)

    But to be serious: Chilled compressed air is an energy storage medium with a high efficiency coefficient, as long as you are only going to blast it out the end of an expansion nozzle. If Aspen or Vail were even half serious about energy efficiency they could:
    -start using smart grid technology, compressed air reservoirs and variable speed motors on compressors to better utilize existing and new local wind resources as well as electricity from natural gas fired CHP used to heat resort buildings.
    -divert waste heat from air compressors and heat exchangers to offset natural gas in resort buildings.
    -Build small pump up/draw down reservoirs for water that feeds the snow guns that again could employ smart grid, variable speed, local wind, CHP.

    And that is just for starters, just for snowmaking. Instead, these profitable companies find it easier:
    - to pay a little bit extra for their electricity,
    - upgrade the snow making equipment when small efficiency improvements are available (and the old shit can be sold to the mom and pop operations),
    - lie about the environmental benefits
    - and smile as the media pats them on the back.

    The number of ironies here becomes complex.

    Aspen/Snowmass wants us turn our electric colthes drers into little play rooms for the kids and start hanging out our laundry to dry. But its 5 star resort guests cannot be ravaged by the uncivilised ambiance of flourescent lighting.

    An industry that burns coal by the megaton wants us to save snow.

    ASC feigns leadership on the environment by fielding its winsome, candid environmental affairs director to deconstruct the myth of Renewable Energy Credits. Hereafter, nobody will be interested in exposing the complete lack of utility and extravagance that the ski industry represents:
    -millions of square feet of residential real estate that is unoccupied 80% of the time;
    -outdoor swimming pools heated to bathtup temperatures in the dead of a mountain winter.

    I hear that the new mantra out of the Lovins camp is that it is better to have an insincere green movement than none at all.

  6. Auden says:

    Hi Jeff:

    Basically, what determines when we make snow is temperature. The colder it is, (to a point) the more efficient our snowmaking becomes, with both water and energy. It tends to be colder at night, especially at this time of year. (Although we’re seeing a trend of warmer nights, making snowmaking more difficult.) As it gets colder, you’ll see that we make snow day and night. The electricity draw for snowmaking IS huge, and so we have to monitor it closely so we don’t peak in our usage at the same time the utility peaks. If that happens, we get a huge fine. (In the tens of thousand dollar range.) But the draw isn’t so big that we can’t make snow during the day as well.

    Auden

  7. Auden says:

    T. Bolt Lobber: consider your T. Bolt Lobbed. I don’t disagree with you in general but I have a problem with the sense that we as a business shouldn’t even be around.

    It’s probably correct that some activities are hard to justify given the climate crisis. The problem is, we don’t have a God-like entity that can tell the world what’s acceptable or not. We don’t have a moral arbiter with a magic wand that can say “You can kayak but you can’t ski…” “you can ride the bus to work but you can’t ride a tour bus…” Etc. And, this argument is reductionist. Americans are 5% of the world population, and we use a
    quarter of the world’s resources. (We’re also responsible for about a third of the globe’s economic activity, for the record.) So should American society go away? Maybe. Then again, Europe and Japan, are about 60% more energy efficient than America is, but both are fairly piggish compared to, say, India. Do we ban Japan? You see the point.
    In the absence of a magic wand, we have to fix the whole economic system. We’re not going to get just “unnecessary” businesses to go away. So our job is to fix the whole enchilada, so that when you spend a dollar, that dollar doesn’t create carbon dioxide emissions, as it does today. In the world we envision, you may still fly into Aspen, and you may still ski, but you’ll do it all with a very small carbon footprint.

    Then the question becomes: how do you fix skiing? Lots of your suggestions have either been explored or implemented, but they don’t make the papers, because nobody understands them, or the press won’t report on it. Some examples include: we explored combined heat and power through gas turbines in Snowmass, but would have had to build a new natural gas line into snowmass, which was so expensive we couldn’t do it. (And other technologies, like a central heating plant with condensing boilers, made more sense.) On snowmaking, we’ve been investing heavily in storage ponds, which both precool the water and protect streams while allowing for gravity feeds. We’ve tied snowmaking infrastructure into a microhydro system to generate electricity. (This can be used as a pump-storage system, by the way, making renewables more effective, just like your compressed air idea.) We’ve smart metered most of our lifts and are moving in a direction to smart meter buildings, and ultlimately the whole resort. We were the first ski resort to show, and put into practice, the simple idea that it doen’t make sense to make snow unless it’s below freezing. (!!!) In the end, though, we’re going to use a lot of energy to make snow, especially as the climate warms. We can make that system very efficient, But we’ll end up making more and more snow, just to stay in business. So our biggest opportunity for actual reducations, (vs. slowed growth) is in tackling exising building stock, and new buildings, and looking at business strategy–like, for example, not hosting world cup on Thanksgiving, which means we have to blow a lot of inefficient, expensive, energy intensive snow.

    All of the above is frankly less important than our activism. We filed an Amicus brief with the supreme court supporting Mass. V EPA, the most important environmental lawsuit ever to go to the supreme court. That suit won, meaning the EPA has to treat CO2 as a pollutant, and two weeks ago a kanas review board rejected a new coal plant because of the implications of the carbon emissions. Mass V Epa was part of the legal basis for their rejection. That’s the most important work a ski resort can do. We’ll continue on efficiency (and use your ideas) but our greatest influence is going to be in the political realm.

    In the end, though, we’re wide open to attacks like yours, we have little defense, and all we can do in response is acknowlege the truth to what you say, and continue forward, using your ideas, which wouldn’t have come up if we hadn’t talked about our work openly. (Exxon isn’t getting called hypocritical, becuase they make no bones about what they do.) All of the above, of course, is assuming you’re not telling us we should simply shut down, and shut up.

  8. Jeff Maus says:

    Auden, I asked two, simple questions. Does the Aspen Ski Company make snow at night to keep from placing too great a draw on the grid. Yes or No?
    Second, How much energy is required to make early season snow? Pretty straight forward questions. I don’t need a physics lesson. Making snow at night, because it’s cold, are we playing masters of the obvious?

    Best, Jeff Maus

  9. Auden says:

    1. no. we do it becuase it’s cold at night.
    2. a lot. I dont have the data at my desk but it might be broken out on our sustainability report at http://www.aspensnowmass.com/environment.

  10. Anonymous says:

    Auden, I was hoping you would clarify the following statement you made in the Aspen Daily News on November 6, 2007. “The perception that it’s going to be brutally difficult and more like war than policy work is correct”

    Thank you, Jeff Maus

  11. Jeff Maus says:

    Auden, I am hoping that you would clarify the following statement that you made in the Aspen Daily News on Tues. November 6, 2007. ” The perception that it’s going to be brutally difficult and more like war than policy work is correct”

    Thanks, Jeff Maus

  12. Jeff Maus says:

    p.s. The link http://www.aspensnowmass.com/environment is broken.

    jm

  13. Auden says:

    Jeff:

    The link is live, I just accessed it. But we don’t have a breakdown of what early season snowmaking costs. I’m now trying to quantify some of that, though, since it’s a big energy saving opportunity.

    Clarifying my quote: solving climate change is going to be really, really difficult.

    Cheers,

    Auden

  14. Eric Sutherland says:

    You might have thought that T. Bolt would have learned not to use a pseudonym. Especially after what happened to the CEO of the 100% wind powered Whole Paycheck grocery chain.

    But then again he might simply have misinterpreted Mr. Schendler’s revelation about the unacceptability of fluorescent lighting in 5 star hotels. After all, it did sound like an invitation – savage me for my candor and unabashed defense of economics that allow for gratuitous energy consumption by a pampered few. T. Bolt might have been expecting a bleeding Schendler to plead “look what they make you give” just before leaping into the Roaring Fork, leading the PR department to reconsider the new spa at the patrol station on top of Ajax.

    There is a moral arbiter with a magic wand. It is your other uncle in economics, Uncle Milton, admiring the hard work of the invisible hand from the grave. Not everyone ever gets to kayak or ski. That wand can be seen across the entrance lane to Beaver Creek or dusting off the Hotel threshold just before AAA arrives.

    Within the 5% subset of Americans, the oink gradient mirrors the disparity of the global community. Auden is right, Reductionist artists paint the same picture no matter what size the canvas. If you like pyramids you are in luck, but those pyramids loose their divine proportions when non-negotiated economic pigments warp the canvas.

    If energy consumers were to pay for a percentage of the estimated externalities T. Bolt is hanging around their necks, would certain business models become unsatisfactory? (Not “unnecessary”, that is another word.) I think this is why he finds the irony here so compelling:
    The ski world IS the injured party and the beneficiary of an economic order that throws a big party in the penthouse suite and leaves it to the hoteliers to replace the broken light bulbs with their own choice.

    ASC’s adventures in the REC marketplace tell us a lot about where we can go. REC’s and Canary Tags are a way for energy consumers to voluntarily account for the non-negotiated. But we can’t leave it the volunteers. Fairness dictates that we all pay more for our energy. ASC stepped it up. That is something worth celebrating on the /environment page when we can get it to load. This should be the basis of future activism.

    How much more expensive does energy need to get before that new gas line to Snowmass makes sense. Pretend that you were really paying the price of 100% wind powered electricity instead of the discounted bargain the REC pusher offered to first time users. How does CHP look now? Figure it out and ask everybody to pay that rate along with you – on all energy purchases. Put that magic wand to work ushering in the changes you envision. Join the efforts to tax the economic activities that are contributing to the problem including your own. That is activism that will make a difference.

    (Mass V EPA appears to have given slo mo Joe a chance to dance his Schuck and Jive.)

  15. Ronald says:

    All this discussion about good REC’s and bad REC’s is a whole lot of subjective discussion and can get quite mundane. Are these the discussions that we have to look forward to in a Cap and Trade program that the world may want to implement?

    That’s why I’m for a straight carbon tax with tax trade.

  16. T. Bolt Lobber says:

    Hear, here.

    Let’s ask Auden about ASC’s cost benefit analysis for the Snowmass heating system. (A condesing boiler was installed instead of a CHP that could have been integrated into an intelligent electrical supply system.) Were the decisions based upon the market prices of energy sources, or what we really should be paying if he wants to be doing stem christies in retirement?

    This is where Amory Lovins fantasy novels fall apart. My local Wal-Mart would have to sell every CFL bulb on the shelf every 32 hours to create enough energy savings to power the enormous wall of TV sets that are left running constantly in the store. But better to have Rob Walton floating RMI in a straight cash for credibility, mututal backpatting arrangement than actually address climate change and resource depletion.

    Wal-Mart is large enough, and they use such an un-godly amount of electric power, that even if they paid the ridiculously low premium that ASC ponied up for their PR buzz, the results might have actually moved the renewable energy market. Certainly, if electricity prices covered even a portion of the non-negotiated economic fall out, then Wal-Mart might be obliged to employ some other merchanidsing technique than to run 100 piggish TV’s 24/7.

    But why bother, Walton can put in a plug for Lovins in Time magazine, take a few nominally effective measures and have green status lain at his feet by a media incapable of differentiating Schuck from Jive.

  17. Joe says:

    A mandatory cap & trade will obviate the need for RECs, which are a creation of the voluntary market.

  18. T. Bolt Lobber says:

    …and replace them with an even more burdensome, derivative, contrived and ineffective financial machination.

    A mandatory cap and trade will create a burgeoning industry of seminars fielded to educate the next generation of Enron/Arthur Anderson accountants. More fossil fuels will be oxidized to pamper the traders and cappers than any system will save. Crap and spade is a full employment measure for laywers, accountants and government beaureucrats. Not to mention policy wonks eager to parlay their intimate knowledge with impenetrable (and ineffective) regulations into invitations to headline at the above mentioned seminars.

    Cap and trade will not provide any results unless it is everybit as harsh on the wasteful, the inefficient and Sutherland’s “unsatisfactory” as a direct taxation scheme. So why are your building a new shelf for mercilessly thick regulation manuals? (Unless, of course, you are a lawyer, accountant, beareucrat or policy wonk.)

  19. Auden says:

    I wanted to respond to this:

    “Let’s ask Auden about ASC’s cost benefit analysis for the Snowmass heating system. (A condesing boiler was installed instead of a CHP that could have been integrated into an intelligent electrical supply system.) Were the decisions based upon the market prices of energy sources, or what we really should be paying if he wants to be doing stem christies in retirement?”

    We did extensive analysis on the CHP option because like T. Bolt Lobber, I knew that this was the best possible option. The cost of bringing in a new gas line was astronomical, may not have even been possible, and probably didn’t make sense environmentally, anyway. Just beause an idea is good in one application doesn’t mean that it’s universally good. Not knowing the details of our project, I’m not sure that you can say that our 4 condensing boilers and other efficiency measures (like full commissioning for the whole village in design and ops phases) were the wrong decision. Meanwhile, if your knowledge of ski technique is any reflection of your competence in CHP and smart grids, we’re in trouble. If you using a stem christie to turn your skis, you are probably retired already.

  20. Eric Sutherland says:

    Gee, Auden, if you are going to tease T. Bolt for never having learned to ski with his heel anchored, you could at least answer his question.

    Does ASC make business decisions based upon the bargain basement prices we get to pay for energy these days? Or is your planning forward thinking enough to factor in the cost of being 100% wind powered even if you do not have to pay it now?

    It’s not an academic question. You talk about a vision of a world with very little carbon emissions. This sounds kind of expensive, but OK. ASC (and Wal-Mart) are making decisions that must look into the future far enough to be affected by the new energy economy. Does the bigger price tag of figure in?

    If it does, that is worth putting on savesnow.org. If not, you are being insincere. You either bet that the world is going to come to its senses and tax most of Xcel’s aging coal roasters out of service, or you figure skiing isn’t going to matter much in 20 years.

    T.Bolt hikes for every turn and is much better going up than coming down. I think his use of an archaic skiing term was used to nostalgicly reference an era before before compressors and expansion nozzles set the agenda.

  21. Auden says:

    Eric:

    You can stem christie on alpine or tele skis, but the fact that you stem christie does not mean you hike for your turns.

    Yes, we do make decisions as if the price of energy were going to skyrocket. For example: in designing new buildings, we throw design time and money at to ensure they beat energy code substantially, by more than 30% at a minimum. Same for existing building that we retrofit. Snowmaking in particular is subject to this test, and that’s one reaons why there’s a push to develop more on mountain water storage. That’s also why we’re expanding solar photovoltiac installations, which aren’t that economical right now. One problem is that energy is a very, very small part of our annual operating expense. It’s dwarfed by labor. So it could go up substantially and still be a small part of our operating expense. This is true for most businesses, and that’s why we need the price to go up.

  22. Jeff Maus says:

    Auden,
    And exactly how are you going to get this water “on mountain”? Are you planning on collecting it, or pumping it uphill? If it is the latter, what is the source?
    Best, Jeff Maus

  23. Auden says:

    Jeff:

    Water flows into these pond from above. Snowmaking, which is below them, is then gravity fed.

    Auden

  24. pseudonym sutherix says:

    Uh oh. Eric’s starting to use pseudonyms again. Thunderbolts are falling from the throne on high. Solar powered throne by the way? Gods must have no time for coal firing their bolt lobbing. Can you elaborate on your bolts though, the last thing I read was that they were fuse driven. How are you mitigating the offgassing of said fuses? The New Year is bringing longer fuses from what I hear, and that surely means more emissions.

  25. don hennick says:

    Lets give it a name
    I say Global Carbon March
    Inter our exhaust

    I don’t see any mention on your web site of Pyrolysis or Agrichar . Do you have projects in the planning stage on the carbon sequestration front?

    The more you learn about this ancient technique of soil restoration the more you’ll see how elegant this solution can be for carbon sequestration, for us all.
    Imagine putting the carbon tax funds into the hands of millions of peasant farmers all around the world, building their soil and their net worth at the same time. Please search “AGRICHAR” “BIOCHAR” or
    “TERRA PRETA”