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CHAPTER 5 Renewable Energy and Associated Markets Table 8 presents some of the instruments presented in this chapter. 5.1 Renewable Energy Certificates Key Takeaways for Airports The tradable certificate associated with renewable energy is a Renewable Energy Certificate (REC). RECs present more opportunities to airports than offset credits at this time. To date, solar is the most commonly used renewable technology at airports. To avoid the administrative challenges of REC certification and of transacting a REC sale, airport sponsors may prefer to avoid retaining REC-rights as part of a power-purchase agreement. Promoting renewable electricity generation is often cited as a critical part of reducing the con- centration of GHGs in the atmosphere, as renewable electricity generation is considered a car- bon emission free source of electricity. Renewable electricity refers to generation from a renew- able resource. The definition of renewable can vary, particularly when being defined by policy makers. However, at a minimum, the definition usually includes solar, wind, biomass, landfill gas, hydroelectric, and geothermal sources. Most of the world's electricity still comes from com- busting fossil fuels. According to the U.S. Energy Information Administration, over two-thirds of the world's electricity supply in 2007 was sourced from fossil fuels as shown in Figure 6. Some airport sponsors have installed renewable energy sources to generate electricity to power airport operations and limit the amount of power they purchase from their local utility or other power provider. To date, solar has been the most common renewable technology installed at airports. A number of financial support mechanisms have been designed to promote renewable electric- ity. Government subsidies, tax breaks, and loan guarantees are often implemented by governmen- tal bodies to promote renewable energy development within their borders. The "green value" of re- newable electricity is also bought and sold in a marketplace. The popular market-based system uses tradable certificates in order to facilitate transactions between renewable electricity generators and interested consumers who cannot economically generate the renewables themselves. Often referred to as RECs, these tradable commodities represent proof that one unit of electricity (usually a mega- watt hour "MWh" or kilowatt hour "kWh") was generated from a recognized renewable source. 39

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40 The Carbon Market: A Primer for Airports Table 8. Instruments referred to in Chapter 5. Instrument Description Renewable Energy Tradable instruments that represent proof that one unit of electricity Credits (RECs) was generated from a renewable energy resource. Units are usually in MWhs or kWhs. Energy Efficiency An instrument that represents proof that one unit of electricity was Credits (EECs) / White saved. Tags Demand Side Programs where large energy users agree to curtail their energy Management (DSM) consumption during times of peak energy demand, usually in exchange for some form of compensation or lower rates from their electric utilities. Airport Emission Credits issued to airports for reducing criteria air pollutants. Reduction Credits (AERCs) The need for RECs stems directly from the nature of electricity grids. Specifically, it is virtu- ally impossible to ensure that an electron generated from one source, transmitted through the electricity grid, can be delivered to a specific end-user. The challenge in tracking electricity is analogous to pouring a bucket of water in a swimming pool and then draw a bucket of water out the other end--there is no easy way to know whether the water in the second bucket contained water molecules from the first. RECs create a means to track renewable energy ownership on a contractual basis, allowing the owner of the REC to claim the renewable attributes of that power. Sometimes end users will con- tract for power and RECs in what is known as a bundled transaction. Other times, the end-user may not need to purchase additional power, but would like the power that it is currently con- suming to be considered renewable. In these instances, the end-user may simply purchase the RECs. Figure 7 is a schematic of renewable generation and REC creation. Liquids 5% Nuclear Coal 14% 42% Renewables 18% Natural gas 21% Note: This edition of the International Energy Outlook presents historical data through 2007. Source: USEIA. International Energy Outlook 2010. Washington, D.C., U.S. Energy Information Administration, 2010. Figure 6. World electricity supply by source.