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Renewable Energy and Associated Markets 41 1. Renewable/ green power generated. 2. The electricity is fed to the power grid and treated as non-renewable. 3. The renewable attributes of the green power is sold separately in the form of a REC. 4. The electricity consumer purchases non- renewable electricity from its electricity supplier. 5. The consumer purchases RECs in order to claim that the power they are consuming is renewable/green. Figure 7. Consuming renewable electricity. 5.2 REC Markets Both mandatory and voluntary markets for RECs exist. Potential purchasers include entities that wish to act as good environmental stewards or to improve their branding by claiming that the electricity they consume is sourced from a renewable energy resource. Other purchasers might be suppliers of electricity, who are required by law to source a certain percentage of their total electricity load from renewable energy resources. For these REC purchasers, obtaining RECs through third party renewable generators may be a lower cost option compared to building and generating their own renewable electricity. Renewable energy developers benefit from this type of program, as RECs represent an additional revenue stream that may be critical in securing financing necessary to build a new project. RECs, like carbon offset credits, can represent a GHG reduction. For instance, one MWh of electricity generated from a renewable source likely has lower emissions associated with it than that of coal-fired generation. Renewable generation can take the place of higher emitting electric sources and help to reduce overall GHG emissions. However, United Statesbased offset proto- cols at this time do not recognize renewable energy projects as carbon reduction projects for the purposes of issuing carbon offset credits. Therefore, in the United States, renewable energy proj- ects are not usually considered carbon offset projects and there is virtually no market for carbon offset credits from renewable energy. Almost universally, RECs are the tradable certificates used in the United States to represent the environmental attributes of renewable electricity. As with offset credits, opportunities to transact RECs exist in both voluntary and compliance markets. Tradable REC programs are often established as part of Renewable Portfolio Standards (RPSs) or Renewable Electricity Standards (RES). No comprehensive national RPS/RES exists in the United States at this time, although activity in Congress suggests that some support exists for such an initiative. Even without a federal standard in place, 30 states and the District of Colum- bia have enacted mandatory state-level RPS requirements as shown in Figure 8; numerous state goals and city and regional level RPS programs also exist.

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42 The Carbon Market: A Primer for Airports Source: DOE. U.S. Department of Energy - Energy Efficiency & Renewable Energy. (accessed May 15, 2011). Figure 8. Summary of state-level RPS programs in the United States. Each of the state-level RPSs dictates different targets, eligible renewable technologies, compli- ance dates, geographic restrictions of supply, and bundling requirements among other provi- sions. The variation in state requirements results in a patchwork of compliance requirements and cost levels for compliance. Along with the mandatory REC market created by state-level RPS programs, there is a volun- tary market for RECs in the United States. The voluntary market is characterized by similar ele- ments as the voluntary offset market and is largely driven by entities wishing to act as good environmental stewards by making renewable claims to their energy. Many retail chains tout that their stores consume renewable electricity, for example some major retailers proclaim that their stores are "100% wind-powered." In these instances, it is unlikely that all of the electrons being consumed by the store were actually generated from a wind farm. The electricity grid is a com- bination of electrons from all electricity sources feeding it, determining or directing certain elec- trons to go to one consumer and not another is a physical impossibility. By purchasing RECs, the store is buying the renewable attributes of generation and the right to claim that they are con- suming power from wind or another renewable source. REC tracking systems have been established as a means for issuing, tracking, and trading RECs. At this time, tracking systems are largely regional. Many state RPSs utilize these tracking systems and often require transactions to take place through these systems. The tracking systems can overlap in some states, but states with RPSs generally use one of the eight REC tracking systems shown in Table 9. Tracking systems vary in the fees that they charge renewable generators. Depend- ing on the tracking system, an airport might be required to pay fees for initial registration, annual subscription, and REC issuance. Often the fees within a tracking system will vary based on the size of the renewable system being registered.

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Renewable Energy and Associated Markets 43 Table 9. REC tracking systems. REC Tracking Commonly Used U.S. States covered Fees for Renewable System Acronym Generators Electric Reliability ERCOT TX Annual: NA Council of Texas Registration: NA Issuance: NA Midwest Renewable MRETS MT, ND, SD, MN, WI, Annual: $500/yr Energy Tracking IA, IL, OH Registration: NA System Issuance: $0.005 North American NAR MO (NAR allows Annual: $50$2,000/yr Renewables Registry generators anywhere Registration: in North America to $50$1,000 register projects. Issuance: $0.05/REC Designed in part to serve states not covered by other tracking systems) Michigan Renewable MIRECS MI Annual: $100$1,500/yr Energy Certification Registration: $50$750 System Issuance: NA New England Power NEPOOL-GIS ME, VT, NH, MA, CT, RI Annual: NA Pool Generation Registration: NA Information System Issuance: NA North Carolina NC-RETS NC Annual: NA Renewable Tracking Registration: NA System Issuance: NA Pennsylvania, Jersey, PJM-GATS PA, NJ, DE, MD, VA, Annual: $1,000/yr Maryland Power Pool WV, OH, IN, IL Registration: NA Generation Attribute Issuance: NA Tracking System Western Renewable WREGIS CA, OR, WA, ID, NV, Annual: $200$1,500/yr Energy Generation AZ, UT, MT, WY, CO, Registration: NA Information System NM, SD Issuance: $0.005/REC By nature, REC markets are typically confined to those in the energy business. For this reason, airport sponsors have played a minimal role in selling RECs, which are outside of the core busi- ness of airport management. In most historical examples of on-site airport renewables, the air- port sponsor relies on a "power-purchase agreement" (PPA)--a legal arrangement in which a specialized company owns and operates the renewable power system and the system is dedicated to generating electricity for the airport sponsor to purchase. Typically, the specialized company (often called a "solar services provider" receives the rights to the RECs as part of the PPA. Thus their only demand for RECs would be in the voluntary market. Airports are starting to install renewable energy facilities on site. Some are supplying REC markets and others are retaining the RECs to claim the environmental benefits from renewable generation for the airport itself. Airports must consider a number of factors when deciding whether or not to install a renew- able energy project on-site. Table 10 presents potential renewable technologies for airports, a general description of the technology, and some important factors that airports should consider.

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44 The Carbon Market: A Primer for Airports Table 10. Renewable technologies and airport applications. Technology General Considerations Airport Considerations Solar Derived from the sun through the form of PV represents the most likely solar solar radiation. technology for airport roofs and/or Different technologies convert solar lands. power differently On a $/unit of energy basis it is often - Photovoltaics (PV) generate more expensive than other forms of electric power by converting renewable energy; however, it is also solar radiation into direct current one of the most applicable current electricity using semiconductors. technologies for airports. - Other solar technologies Represents currently the most popular capture the thermal energy form of renewable projects for airports. (heat) from the sun to generate "Technical Guidance for Evaluating electricity or provide heat. Selected Solar Technologies on Geographic location and other climate Airports" was published by the FAA in factors impact the amount of power a November 2010. This document given solar project can generate. provides detailed siting, operational, In some jurisdictions, the value of a and financial considerations for airport solar REC is substantially higher than operators evaluating PV at their that of other renewable technologies. airport. Installation of PV at airports may improve air quality and is eligible for FAA VALE funding in air quality non- attainment areas if the applicable air agency allows the issuance of AERCs. This funding can result in a significantly reduced payback (in some cases as little as five years). Wind Converts wind energy into electricity Traditional horizontal axis wind using wind turbines. turbines represent a challenge for Geographic location and physical airports as impediments to air space. features of site impact the amount of Vertical axis wind turbines on terminals power a given project can generate. and other structures may present a more viable wind option, but are often less efficient. Geothermal Utilizes the geothermal energy Distributed geothermal or geothermal contained in the earth's core to generate heat pumps used for building heating electricity. and cooling and for hot water heating. Geothermal reservoirs are often deep underground, not accessible everywhere. Ground sourced heating and cooling does not require geothermal reservoirs. Hydropower One of the oldest and most widely used Requires access to a flowing source of forms of renewable power. water to produce electricity. Uses the gravitational force behind falling or flowing water to generate electricity. New technologies are gaining some prominence, including pumped-storage and tidal power. Biomass Generally involves combusting biomass Sufficient biomass feedstock can be a material from living or recently living challenge depending on where airports organisms such as wood, waste, and are located. Biomass sources alcohol fuels. generally need to be located in close Definitions of what constitutes biomass proximity to the end user. can vary widely

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Renewable Energy and Associated Markets 45 Case Study 3 examines the solar project hosted at the Meadows Field Airport in Bakersfield, CA. The County of Kern, which owns and operates the airport, is eligible to retain the RECs associated with the project as part of the contract with the solar system provider. The case study examines the potential revenue opportunities for the County, should they elect to sell the RECs associated with the project. Case Study 3: Meadows Field Airport, Bakersfield, CA The County of Kern, California, owns and operates Meadows Field Airport, a non- hub airport situated in the County's largest city, Bakersfield. In 2008, the County entered into a Power Purchase Agreement (PPA) with a solar services provider, Regen- esis Solar Power. The PPA enabled Regenesis to install a 744 kW, on-airport solar PV system designed to provide about 75% of the power required by Meadows Field Air- port's main facility, the William M. Thomas Terminal. In general, the County's PPA is similar to most airport PPAs nationwide. The primary provisions of the PPA are that (1) the County agrees to purchase power from the PV system for 20 years begin- ning at $0.125/kWh, with a 2.9% annual multiplier (i.e., increasing to $0.221/kWh in year 20) and (2) Regenesis agrees to operate and maintain the PV system. In other respects, the County's PPA is unique when compared to historical practices at other airports. Specifically, the County retains the rights to half of the "green" power attributes and, therefore, also to half of any RECs generated by the facility. By retaining the rights to green power attributes, the County has the option to: (1) pursue REC certification and sell the RECs in a suitable market or (2) avoid the cost of REC certification and retain the "green claims" associated with the solar generation. If the County so wishes, they can publicize the achievement of green- house gas reductions and sustainable energy sourcing as a result of airport invest- ments. This would not require a certification or retirement process for the RECs. According to Regenesis, the solar PV system reduces greenhouse gas emissions by 2,000 tonnes per year versus what the airport would otherwise consume from grid power--equivalent to removing about 175 automobiles from the road. The State of California has a Renewable Portfolio Standard (RPS), and historically the RPS regulations (California Energy Commission, January 2008) have not permit- ted "distributed generation" systems like the Meadows Field solar PV system (and virtually all airport PV systems installed nationwide) to qualify for RPS require- ments. As a result, RECs generated by a typical California airport's solar PV system would only have been suitable for sale on the voluntary national REC markets. Vol- untary markets currently yield an estimated $1.00 per megawatt-hour for RECs, which translates to around $1,600 per year in the Meadows Field example. It is pos- sible that a buyer on the voluntary market of solar RECs (as opposed to a generic renewable mix) would pay a premium for the Meadows Field solar RECs. Recently, California amended their RPS rules, allowing for more flexibility in the way RECs (referred to as TRECs for tradable renewable energy credits) can be applied for compliance. One potential change being considered by the California Energy Com- mission (CEC) is allowing distributed generation solar systems, like the Bakersfield system, to qualify for RPS compliance. If such a decision is made, the RECs from the Bakersfield project would have substantially more value. In such a scenario, at pricing (continued on next page)