June 6, 2007
Colorado
Colorado
This year Fort Collins Wind Power Program will hand over more than $1 million to Platte River Power Authority to help the city reach its goal of having 15 percent of its energy come from renewable sources by 2017.
Of that money, some $366,000 will be used to purchase what are called renewable energy credits (RECs) from out-of-state projects that cannot–or will not–detail how the money is being used to help reach that goal.
Without such accountability, it is unclear how Fort Collins’ wind power dollars are helping to create new renewable energy, which is the ultimate goal of these credits.
Although PRPA owns one of the area’s best wind farms, about a third of the money that Fort Collins and other Northern Colorado towns spend on wind power eventually goes to wind farms in Wyoming, Kansas and Oklahoma, as well as a landfill methane-to-energy project in Idaho that has nothing to do with wind power. These out-of-state energy producers are already selling their alternative energy into the grid at market prices. So what these companies do with Fort Collins’ money–and how that money is being used to help develop renewable energy–is largely unknown by the city or PRPA.
“We don’t know how the other party uses that money,” says John Bleem, division manager of PRPA.
Currently, more than 80 percent of what Fort Collins claims as renewable energy is coming from RECs. The purchase of such credits allows the city to claim to be wind powered by buying that claim from renewable energy projects in other states. RECs are similar to stocks in that they were created to add monetary value to the environmental and social benefits of renewable energy. In theory, they give the companies that generate renewable energy an incentive to continue to develop wind and solar farms, and biomass- and hydro-power projects.
In a time when renewable energy has become a global hot topic and environmental do-goodism has become a marketing tool for businesses, cities and organizations, the REC industry is thriving. But critics wonder if the credits are truly growing renewable energy, or if they are simply allowing organizations and municipalities to claim environmental bragging rights by merely writing a check.
“It’s the easy way to do the right thing,” says Randy Udall, an energy analyst and director of the Aspen-based Community Office for Resource Efficiency. “And often, easy means ineffectual.”
While buying RECs allows entities like Fort Collins to claim clean energy without having to build their own turbines or cut emissions, Udall says they often lack transparency and regulation and often do not help to develop renewable energy at all. The question for critics is this: Does the trade in RECs actually result in the production of new renewable energy, or is the money simply additional profit for the companies that sell them?
In Fort Collins’ case, no one knows the answer: the money trail winds from subscribers’ pocketbooks to the city to Fort Collins’ wholesale power supplier, PRPA. PRPA pools the city’s contribution with funds from Loveland, Estes Park and Longmont, and spends it on several projects, including PRPA’s own Medicine Bow Wind Farm in Wyoming and RECs.
Once PRPA purchases the RECs, the trail ends there. The money paid to companies selling RECs can be spent on anything the company likes, whether it relates to generating more wind power or not.
Theoretically, the renewable energy projects Fort Collins wind power subscribers are financing in Wyoming, Kansas, Oklahoma and Idaho would use the money to continue to develop more green power. Currently, PRPA purchases RECs that meet state standards and are certified by an organization called Green-e, but that certification only ensures that renewable-energy generators don’t sell the same credits multiple times and that projects were built after 1997. Neither Green-e nor the state requires the projects selling RECs to show how they’ve spent the money. Therefore neither the city nor PRPA can tell wind subscribers specifically what their money has, or is, paying for.
“We don’t go into the accounting. It may be going into capital, into maintenance, into operations,” Bleem says.
City officials say they trust that PRPA is investing their renewable energy dollars wisely.
“Platte River is very responsible and knows what needs to be done,” says Mayor Doug Hutchinson.
RECs “make development of new facilities more attractive to build because (generators) see there is another revenue stream,” according to Alex Pennock, Green-e’s western region representative. But like PRPA and the city, Pennock is unaware of specifically how those dollars are spent at the facilities or even if more renewable energy is being developed because of that money.
“We don’t go into the finances,” he says.
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According to Bleem, of the money Fort Collins’ utilities customers contribute to PRPA for wind–which is estimated to total about $1.1 million this year–two-thirds goes to costs at Medicine Bow Wind Farm, which PRPA owns.
The rest, about $366,000, will be spent on RECs. Adding in contributions from the three other cities which co-own PRPA, the total is closer to a half million dollars.
According to PRPA, an estimated $154,000 of PRPA’s 2007 wind power funds–which includes money from Fort Collins, Loveland, Estes Park and Longmont–will go to the Oklahoma Wind Power Center, which is owned by FPL Energy and has been running since 2003. An estimated $157,000 will go to the Elk River Wind Power Project in Kansas, owned by Oregon-based PPM Energy and dedicated just more than a year ago. An estimated $75,000 will go to Wyoming’s River Rock Wind Farm, which is owned by Shell Wind Energy and has been online about six years.
And an estimated $98,000 will be given to the Hidden Hollow Landfill gas-to-energy project in Ada County outside of Boise, Idaho, a project that has nothing to do with wind power at all.
According to officials at Hidden Hollow, half the money that comes from RECs goes to Ada County, which owns the landfill, and the other half goes to G2 Energy, which built and operates a generator that turns landfill methane emissions into electricity. G2 representatives say the money from RECs has helped it develop more gas-to-energy projects.
“Without tax incentives and green credits, many of these jobs wouldn’t happen,” says Nick King of G2 Energy.
The county adds its portion of the money it earns from RECs to the coffers of the Solid Waste Management Department as extra revenue, along with the money that G2 gives it for the energy the company pulls from the landfill.
No specific accounting of where the money goes is available from Ada County because “renewable energy credits are nebulous and therefore difficult to track,” according to Selena O’Neal of the Solid Waste Management Department. In other words, Fort Collins wind dollars are simply going into the general fund of some other county’s Waste Management Department. Spokespeople from the other projects maintain that money goes into paying off the costs of construction of infrastructure and for maintenance, but they weren’t able to produce an accounting of how Fort Collins money was specifically spent. Since these projects are already online and generating electricity, these costs would presumably be paid from revenues generated by existing electricity sales if REC money were not available.
Representatives from Shell’s River Rock Wind Farm could not be reached for comment.
No matter what the money from RECs is spent on, PRPA claims the right to tout the environmental benefits of adding that green energy onto the grid and displacing coal power. Bleem maintains that PRPA purchases renewable energy for the cities of Northern Colorado, and those credits allow the cities to take title of those “renewable benefits” no matter what the companies are doing with the money they receive by selling RECs to Fort Collins.
“All the environmental attributes are ours. That is our fundamental value,” he says.
Not everyone finds them to be a smart investment.
“I think it’s essentially renting renewable energy,” says Dan Bihn, a member of the city’s electric board. “It’s like you move into town and you don’t have the money to buy a place so you just rent. But you don’t get the benefits of buying. When we purchase RECs today, we cannot reap the rewards of that investment. “¦ It is not so bad and not so good.”
Critics go so far as to say RECs are fairly useless as a way of benefiting the environment.
“The REC suppliers say that it is helping to send a signal to the renewable energy market, but I would say it’s sending a signal to Pluto,” Udall says. “There is no reason to believe that this money is going to new renewable energy. “¦ RECs are valueless, they are a charade.”
***
Trying to describe, track and analyze renewable energy credits is often like making sense of an M.C. Escher painting.
In the eyes of REC proponents, one REC represents one kilowatt-hour of renewable energy, which displaces one kilowatt-hour of electricity generated from coal-fired power plants from the power grid. While renewable energy generators are paid for the energy they add to the grid, RECs were created to help supplement renewable projects. Putting a price tag on the pollution that is not emitted from coal-fired power plants, in theory, encourages the development of more renewable energy.
In practice, RECs help those who purchase them to claim they’ve achieved their renewable-energy goals without having to create their own renewable-energy projects. Buying RECs is far cheaper than building a wind farm, allowing entities to claim that they have met green goals that have been mandated by the state or self-made objectives–like Fort Collins’ goal of being 15 percent wind powered by 2017.
When the city set that goal in 2003 within the Electric Energy Supply Policy, PRPA was putting the wind money directly into Medicine Bow Wind Farm.
At the time of implementation, the Fort Collins Wind Power Program was only the second in the country, and those initial subscribers are called “wind pioneers.” In partnership with PRPA, Fort Collins began growing Medicine Bow, starting with two turbines and growing to seven. As the other cities added wind programs, Medicine Bow grew to 10 turbines.
Fort Collins’ new policy sets renewable energy targets that outpace what Medicine Bow can generate, according to Patty Bigner, Fort Collins Utilities Customer Connections Manager.
“All of that experience of running Medicine Bow, PRPA learned that that was not their core competency,” Bigner says. “There were a lot of problems “¦ and they were spending a lot of time, energy and money actually on the plant. They didn’t want to run Medicine Bow at a larger scale, that was the sense I got.”
The high cost of transmitting the energy to the grid also made growth at Medicine Bow less attractive than the cheaper and easier REC alternative that lets the city claim wind power.
Fort Collins therefore allowed PRPA to purchase RECs in addition to funding Medicine Bow; and as Fort Collins’ needs for renewable energy grew, so did PRPA’s purchase of RECs.
In 2004, 54 percent of Fort Collins’ claims of wind power were coming from paying other people for already existing wind farms through the purchases of RECs. Because it’s cheaper to buy the credits than invest in the hard costs of Medicine Bow, subscriber charges decreased from an extra 2.5 cents per kilowatt-hour to 1 cent at that time.
Now 83 percent of Fort Collins’ claims of wind power come from RECs. Bleem says that there are several factors as to why PRPA has reached such a large percentage. He says it allows for greater diversity in investments and it is more cost-effective.
“What we are trying to do is have a balance in our portfolio that minimizes the costs and the risks,” Bleem says. “Every customer pays a premium, and we are trying to minimize that premium.”
But more than just providing an affordable option, Bigner and Mike Smith, director of Fort Collins Utilities, say that RECs help in the collective effort to grow sustainable energy.
Others argue differently.
Udall, one of the foremost critics of RECs, says the credits amount to little more than consumers paying to ease their conscience.
“(PRPA) owns not just one of best wind sites in the country, but in the world. It’s been very disappointing to see it turn its back from Medicine Bow in favor of buying RECs,” Udall says. “I’ve always been admiring of Fort Collins, especially with an amazing asset like the site in Wyoming. So it’s a great mystery why the city would change.”
And though the city and PRPA stand by their REC purchases, there has been talk of putting more money back into wind power generation at Medicine Bow or elsewhere.
“Personally, I would like to see PRPA get back into wind energy projects. And I think our customers would prefer that,” Smith says. “We would love to be 100 percent direct wind energy but we have to also be able to provide renewable energy to those who pay bills.
“I don’t think there is anything wrong with RECs, but if you are going to have a long-term policy, you are better off having direct energy than RECs. RECs are a volatile market.”
Udall advises that “putting more hardware in the ground” would be more beneficial than purchasing RECs.
“I think we are at a time now where every dollar needs to go to something real and not something that seems to be vapor-ware,” Udall says. “We need to be planting turbines like they were trees.”
By Andra Coberly
URL to article: https://www.wind-watch.org/news/2007/06/06/where-does-out-wind-power-money-go/