California’s recently revived market for tradable renewable energy credits has helped two wind farms in Alberta, Canada, qualify for financing.
Under a deal approved yesterday by the California Public Utilities Commission, San Francisco-based utility Pacific Gas & Electric Co. is buying renewable energy credits associated with two projects that Greengate Power Corp. will build in the Canadian province.
The sale lets PG&E receive credit in California for using renewable energy that it will not sell in the state, or even in the country.
This is the first such transaction since the state lifted this month a ban on buying and selling credits separately from the renewable energy that produces them, and demonstrates that a market for these so-called RECs is a valuable component of financing arrangements.
Dan Balaban, chief executive officer of Calgary-based Greengate, said the 20-year contract provides a long-term source of revenue. “That has opened up the project finance markets,” he said in an interview. “The agreement with PG&E is an important element to support the economics of these projects.”
The RECs are associated with closely held Greengate’s 150- megawatt Halkirk I project and its 300-megawatt Blackspring Ridge wind farm.
PG&E will use the RECs to meet its obligations under California’s renewable portfolio standard, or RPS, which requires investor-owned utilities to derive a third of their energy from renewable resources by 2020.
California utilities can satisfy this requirement by purchasing power from wind farms, solar plants and other renewable sources. Electricity from such plants comes with accompanying RECs, and companies can also satisfy the RPS by buying only these credits.
Lifting a Ban
The CPUC reversed this month a ban imposed in May on trading RECs separately from the associated electricity, though utilities can use the credits only to fulfill a quarter of their renewable energy requirements. That cap will be lifted at the end of 2013.
“This deal is essentially what the tradable renewable energy credit decision was about, formalizing these types of transactions but also placing a limit on them,” Michel Di Capua, an analyst with Bloomberg New Energy Finance, said in an interview.
PG&E is buying “green attributes” only, not power, according to a filing from the CPUC. It “will purchase energy, capacity and green attributes” from the Alberta wind farms and “immediately and continuously resell the energy and capacity back to Greengate.”
The utility will retain “the green attributes, including the RECs, for its own use,” the commission said, and Greengate will sell the electricity in Alberta. Terms weren’t disclosed.
“The REC price paid is confidential, but there is enormous interest in understanding what that price point is,” Di Capua said. Bloomberg New Energy Finance has heard estimates that unbundled California RECs are worth about $12 a megawatt-hour to $40 a megawatt-hour.
For this sale, the actual price is likely an amount that is “just enough to make these projects viable,” Di Capua said.
The 25-percent cap will likely slow demand for RECs until it expires, Di Capua said. “We estimate these utilities are near their limit for tradable RECs, we anticipate there will be limited opportunity for such contracts.”
Greengate is still finalizing the budget for the two wind projects, Balaban said. Halkirk will be the developer’s first operational project. It is a joint venture with Capital Power Corp., which last month agreed to buy a 50 percent stake.
The mandated lead arrangers for Halkirk’s project financing are Bayerische Landesbanke, Rabobank Nederland NV, and KFW Ipex- Bank GmbH, Balaban said. Greengate is developing nine projects with total capacity of 1,500 megawatts on private lands in Alberta.
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