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Published in Autumn 2002
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Empowering investments
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Renewable energy certificates start to pay dividends
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By Susan Hansen
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Jan Hamrin can tick off a long list of potential projects for clean, renewable energy in Mexico. There are wind power plants on the drawing board for the state of Oaxaca that could generate enough electricity to supply 3.5 million households a year. There are proposals to use sugar cane waste pulp to power another half-million households in the Gulf region. Along the US border, geothermal plants could provide still more electricity. And given Mexico's ample supply of sun--almost three-quarters of the country is arid or semi-arid--there is a huge untapped potential for generating solar power.
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Jack Wallace, Energy Unlimited Inc.
Tradable energy certificates are providing a welcome jolt for wind, solar, and other renewable projects.
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Indeed, Hamrin, founder of the nonprofit Center for Resource Solutions in San Francisco, returned from a renewable energy conference in Mexico City last February fired up by all the possibilities. Not only could renewables help reduce Mexico's heavy dependence on coal-fired electricity and ease air pollution problems, she says, but building renewable energy plants would create jobs, stimulate the economy, and help bring electricity to areas of the country that are far off the main power grid.
Yet the Oaxaca project and others like it are currently in limbo, stalled by a lack of capital. "We feel like there are all kinds of opportunities we ought to jump on," says Hamrin. "The problem is, they can't absorb all the costs. The issue keeps being financing."
As one of the leading promoters of renewable energy in the United States, the Center for Resource Solutions is not unfamiliar with the money problem. But for US-based projects, groups seeking to expand wind and solar capacity have come up with a creative means of fundraising: so-called tradable renewable energy certificates (TRCs), through which government agencies, private companies, and individuals can contribute to renewable power projects. The main driver for the TRC market has been state energy policies, in places like Texas and Massachusetts, which are mandating that specific percentages of power supply come from renewables. Utilities that don't have enough renewable capacity in their area can still meet state requirements by buying TRCs for an equivalent amount of, say, wind-generated megawatts in a neighboring state. But TRCs are also gaining popularity simply as a means of promoting renewable power. Major buyers include the Environmental Protection Agency and other government agencies, universities, and private corporations, as well as green-minded individuals.
Hamrin believes that TRCs could prove to be an important financing tool across North America. So with a new US$25,000 grant from the CEC, the Center is now exploring whether they might help ease the capital crunch for Mexico's renewable energy projects. "It's a way for people to make sure their dollars are directly invested in renewable energy," says Rob Harmon, vice president of the Bonneville Environmental Foundation, an NGO based in Portland, Oregon, that is helping to lead the campaign for energy certificates.
Of course, TRCs are still a relatively new commodity in the US. Sales of the certificates only got seriously underway in late 2000. Before they can help bankroll renewable power projects in Mexico, Hamrin notes, there are many questions still to be answered. For instance, it's unclear whether TRCs that buy power from Mexico could be counted toward state-mandated renewable energy requirements in the US. Yet Hamrin strongly believes that an integrated North American market for TRCs makes sense, given that air and water pollution is clearly a cross-border problem. Over the next several months, the Center for Resource Solutions will be talking with renewable developers, investors, and regulators on both sides of the US-Mexico border to identify potential legal and technical hurdles, and to try to map out a blueprint for selling Mexican TRCs in the US.
The hope is that the US, Canada, and other Western countries will eventually begin purchasing Mexican TRCs as an alternative form of foreign aid--with potential for a big payoff. With sufficient financing, suggests Hamrin, the wind power projects in Oaxaca alone could supply almost 15 percent of Mexico's current electricity needs.
It's the kind of thing that can kickstart the whole industry," she says. "It would be a very big thing."
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Environmental Challenges and Opportunities of the Evolving North American Electricity Market