Social Responsibility and Green Electricity
Kyoto Protocol countries have carbon-credits, and the US has RECs: Renewable Energy Credits. Since the US has not imposed emissions requirements for its industries as of yet, the purchase of RECs does two things:
- They help finance the development of more renewable energy projects in the form of solar, wind, geothermal, hydro (low impact), biomass, biodiesel, and fuel cells.
- Give the purchasing entity bragging rights about their reduction in emissions/carbon impact
When I first read about these, I asked myself why a company in the US would purchase these if they were not required to. Well it appears some companies are more kind than I thought:
- iKarma
- Whole Foods Market
- Sprint
- Johnson & Johnson
This is a great form of social responsibility. We definitely need more of this. The more companies invest, the more “green” electricity projects can be funded. One of my colleagues is currently developing REC specific projects with hydropower. These hydro plants are designated “low-impact” because they have minimal impact on the local environment. One tiny plant is currently producing 2.2 MW annually, and new plants will be added-on, increasing total REC “OK” power to 15MW. Discussing the future potential of RECs, he told me something alarming (to energy brokers that is), he is interested in selling directly to corporations!
Alternative Strategy To Purchase Cheaper RECs
What the REC market has not seen yet is the direct purchase of RECs from the producer. They usually overpay for RECs because they have to go through a broker or other type of “middle-man” to gain access to the RECs. Currently companies pay over $30 per REC. They should start purchasing RECs from the source as both sides benefit tremendously. Producers are willing, and very interested to charge less than the current market-rate for RECs to avoid any of the “brokerage” fees. Imagine if RECs could be purchased for $15, companies could double their REC footprint, or just save on costs…
Future of the REC Market
I think RECs might provide a type of “convertible” security in the future if the US chooses to sign the Kyoto Protocol, or limit emissions in certain industries. How can the US government say “no” to a potentially huge revenue stream from companies that will exceed their mandated emissions output? Everyone else is doing it why can’t we?
July 18, 2007 at 10:45 pm |
Hi Francesco,
How does your colleague plan on selling the REC’s directly to corporations? Who are the brokers anyway?
July 19, 2007 at 6:11 am |
These are direct sales to corporations interested in off-setting their pollution. It is a basic underpricing play allowed by not having to go through a broker. If you search the companies listed above, you should be able to find the companies they are using for their RECs.
Cheers,
Francesco
July 19, 2007 at 9:00 am |
With all due respect, this scenario is an age old problem observed among many commodities throughout time and across the planet. “If we could just get rid of the broker” is always a dream, but its not practical. Brokers serve a very important role. They provide the service of finding like buyers and sellers. While very large commisions paid to brokers are inherent in inefficient markets, over time, the commissions become very reasonable. The market over time will reduce the commissions to a tolerable level. This is not to say that non-brokered trades are not prudent or worth trying. But on a large scale system, some sort of centralized forum helps to improve the efficiency of the underlying commodity. This could be true of a on-line based system. Even if a web based system became successful, the architect of the system would still want to be paid to do so. Even if the government managed it, we would still indirectly be paying for it. I am not a broker, but have happily paid brokers my whole career as a trader.
July 19, 2007 at 3:25 pm |
Very true. While it is difficult to have the network in place to sell RECs on your own, some, like the colleague mentioned above, have found it much more lucrative and beneficial on both sides to go direct. I think with smaller players its easier to go direct since you would most likely be going to just one source…similar to a private placement.
If you were producing vast amounts of RECs, you would either need the broker or your own internal sales team. I cant stress the importance of your network…if you don’t have one, then YES the broker is necessary.
July 20, 2007 at 12:40 pm |
Francesco and Scott,
You two seem to know a whole lot more about the REC phenomenon than I do.
I stumbled upon it while doing research on a different but related business idea (becoming an installer/retailer of residential and commercial solar panels). The idea of REC’s prompted me to immediately conceive the idea that a mass, centralized online trading system could be developed to facilitate large and even small (individuals and small businesses) transactions. For example, there is an initiative in Southern California by municipalites to encourage installation of solar panels by 30% cash back incentives. In addition, these individuals or small businesses can also be issued REC’s that they can in turn sell on this central platform to earn MORE money.
After doing more research on this, i realized that there are already brokers in place who do this line of work. But i still say that the central online platform would be a great way to do this. ofcourse the architect would like to get paid, but the commissions would be far less i think than to traditional brokers. besides, for small individuals and small businesses, it might be the ONLY way to do it as i’m sure brokers won’t want to be bothered over 3-10 kWh that the average household consumes in US.
If one of you won’t mind, i would like to speak to you, either on phone or via email about maybe the possibility of developing such as system. my email is vishik@sbcglobal.net, phone is 818-523-9723. Thanks.
November 30, 2007 at 10:19 am |
Gents,
I am also curious about the structures in place that facilitate the trading and management of RECs.
I am currently a ship broker who does significant business with both biodiesel producers and traders who are not educated in the systems in place.
Is there any way to secure more information on the companies and systems working now that help the transactions take place?
May 3, 2008 at 8:54 am |
Do you have any knowledge of how to sell carbon reduction credits (CER/VER) generated from India?
December 28, 2008 at 7:36 pm |
I am trying to learn more about REC’s. Can anyone point me to a website or source for more information, brokers, etc. Thanks, Mike