In this presenation given at CanWEA 2011, John Goetz discusses the following topics regarding Alberta’s De‐regulated Electricity Regime, Alberta’s Emission Reduction and Trading Program, California’s Renewable Energy Portfolio Standard and The Economic Impact of Offsets and REC trading.

1. The Impact of Offsets and REC’s on the
Economics of Wind Projects in Alberta
2011 Canadian Wind Energy Association (CanWEA) Annual Conference
Vancouver, British Columbia
October 6, 2011
Presented by: John Goetz
Research Assistance by: Keith Bishop
Courtney MacQuarrie
1

2. Overview
• Alberta’s De‐regulated Electricity Regime
• Alberta’s Emission Reduction and Trading Program
• California’s Renewable Energy Portfolio Standard
• The Economic Impact of Offsets and REC trading
2

3. Alberta Wind Farms
3

4. Alberta Power Pool
• Alberta does not have a central power purchaser like most
other provinces (Ontario Power Authority, BC Hydro,
SaskPower)
• Alberta adopted a de‐regulated system for the purpose of
increasing competition to provide the lowest possible energy
prices to its consumers
• All electric energy bought and sold in Alberta must be
exchanged through the Power Pool of Alberta* – created by
the Electric Utilities Act
* Power Purchase Arrangements/contracts for differences are often entered into independently
4

5. Alberta Power Pool
How Does the Power Pool Work?
• Power Pool functions as a spot market, matching
demand and supply to establish an hourly pool price
• Generators/importers submit their offer to supply
energy through the Pool for each one‐hour period
during the next seven days
• Offers are structured in MWh volume blocks
5

6. Alberta Power Pool
How Does the Power Pool Work?
• System Controller keeps supply and demand in balance by instructing
power suppliers and purchasers about the amount of energy to be
supplied to or taken out of the system
• System Controller develops a “merit order” of the offers and bids ‐ an
hourly operation schedule to meet forecast pool demand by ranking
offers and bids from the least expensive to the most expensive ‐ takes
into consideration constraint factors
• Scheduling is done a day in advance and the System Controller dispatches
the required generation and import offers to service the actual system
demand and exports in real time
6

7. Alberta Power Pool
How Is the Price Determined?
• Pool Price is determined by taking the weighted average of the system
price over 60 minutes. All power producers receive the hourly Pool
Price for power generated and all purchasers pay the Pool Price for
power received
• Bid functions to remove (buy) energy from the Power Pool and
involves distributors, exporters, retailers and direct access customers
• Offer functions to supply (sell) energy to the Power Pool and involves
Power Purchase Arrangement buyers, generators, and importers
• System Price reflects the up‐to‐date change in demand and price of
energy during each hour
7

8. Emission Offsets in Alberta
Alberta’s Emission Regulation and Trading System
• Alberta 1st jurisdiction in North America to regulate GHG
emissions
• Require large emitters to reduce emissions intensity by 12%
annually from established baseline
• Developed flexible compliance and emission trading system
• Designed to achieve emission reductions at the lowest cost
8

9. Emission Offsets in Alberta
Alberta’s Emission Regulation and Trading System
• Emission reduction compliance mechanisms:
1. Reduce emissions intensity at the source – often difficult ‐
prohibitively expensive
2. Buy Tech Fund Credits from Alberta Government (one
credit for each tonne of GHG emission reduction required =
$15.00 per tonne/credit
3. Buy emission offsets or emission performance credits
(EPC’s) ($12.00 ‐ $14.00 per offset or EPC)
Or any combination of the above
9

10. Emission Offsets in Alberta
Alberta’s Emission Regulation and Trading System
• Each offset/EPC = 1 tonne of GHG emission intensity reduction
• Offsets are generated by unregulated entities/projects that
generate emission reductions, such as wind power projects
• EPC’s are generated by regulated entities exceeding their
targets
10

11. Emission Offsets in Alberta
Alberta’s Emission Regulation and Trading System
• Alberta’s major electricity sources are coal and natural gas
fired generating plants (very little hydro)
• Alberta has a grid emission intensity factor of 0.65 tonnes of
GHG emitted per MWh of electricity produced
• Equals 0.65 offsets for each MWh wind energy produced
11

12. Emission Offsets in Alberta
Offsets not automatically owned by
purchaser
• In Alberta, a wind power producer does
not have to assign the “environmental
attributes” to the purchaser like other
jurisdictions
• Offsets can be sold separately from the
electricity
• Offsets in Alberta have a significant value
(approximately $14.00 each)
12

13. Emission Offsets in Alberta
Value of Emission Offsets in Alberta
• At .65 offsets per MWh generated, based on an offset price of
$14.00, offsets add $9.00 to the price per MWh (.65 x $14 = $9)
• 30 day Rolling hourly average pool price as of September 28th,
2011 was $136.10 /MWh
• Year to date average pool price as of September 28th ‐ $76.43
• Adding offset value would bring this to $85.43
13

14. Emission Offsets in Alberta
Impact of Offsets on Economics
• 3 Year Average Pool Price is around $60.00/MWh
Avg. Pool With
Period Price/MWh Offsets
Aug 2010 -
Sept 2011 $ 63.43 $ 72.43
Aug 2009 -
Sept 2010 $ 54.17 $ 63.17
Aug 2008 -
Sept 2009 $ 61.78 $ 70.78
3 Year
Average $ 59.79 $ 68.79
14

15. California Renewable Portfolio Standard (RPS)
California Increasing RPS
• Senate Bill X1‐2 (SBX1‐2), signed in April 2011, increased California’s
legislated RPS from 20% of retail sales by December 31, 2013 to 25%
of retails sales by December 31, 2016 and 33% by 2020
• California RPS incorporates the use of Renewable Energy Credits for
compliance
• RECs are a certificate of proof that one MWh of electricity was
generated by a Renewable Portfolio Standard (“RPS”) eligible energy
resource and are issued through the Western Renewable Energy
Generation Information System (“WREGIS”)
*Refer to the current Energy Commission Renewables Portfolio Standard Eligibility Guidebook at
www.energy.ca.gov/renewables/documents/index.html#rps for information on eligible renewable energy
resources and fuels
15

16. California RECs in Alberta
California Renewable Energy Credits (RECs) Available to Alberta
Power Producers
• WREGIS tracks renewable energy generation and creates WREGIS certificates
for every renewable energy credit (REC) generated, which are used to
demonstrate compliance with state RPS policies
• One REC represents one megawatt‐hour (MWh) of electricity generated from
a renewable resource
• RECs originally had to be bundled with electricity delivered for consumption
in California but the CPUC have ruled that Tradable RECs (TRECs) can now be
traded separately from the associated electricity – BUT, there are limitations
16

17. California RECs in Alberta
California Renewable Energy Credits (RECs) Available to Alberta
Power Producers
• Since Alberta wind generators can retain their environmental
attributes when they sell their electricity ‐ they can convert emission
reductions into offsets, RECs or other compliance units – whichever
has highest value $$$
• RECs are ostensibly available to Wind Power producers in Alberta, but
there are some challenges
17

18. Generating RECs in Alberta
California Renewable Energy Credits (RECs) Available to Alberta Power
Producers
• TREC prices have reportedly ranged between $12.00 ‐ $40.00 * with a price
cap of $50/REC for REC‐only contracts (due to expire December 2013 unless
extended) – However, California utilities indicate $15 ‐ $20 is more realistic
for the time being
• At these prices, RECS offer an attractive alternative to Alberta offsets for
Alberta Wind Power producers/developers, BUT…RECs may not be readily
available, especially if Wind Producer not actually delivering the power to
California through WECC transmission system
• Some Alberta Wind Project owners have reportedly received a cool response
from California utilities lately ‐ citing that it is difficult to get CPUC approval to
use RECs for RPS compliance if the RECS are from out of state and worse, out
of country ‐ also concerns about public perception
*Bloomberg January 28, 2011
18

19. Generating RECs in Alberta
The Greengate – PG&E Contract
• Groundbreaking deal let Greengate sell its energy and RECs to
PG&E and allowed PG&E to receive credit toward its RPS
requirement in California even though it will not be selling the
renewable energy in the state
• This was the first transaction since California lifted a ban on buying
and selling credits separately from the renewable energy that
produces them
• Greengate‐PG&E deal demonstrates that a market for Alberta
generated RECs is possible and could be a valuable component of
financing
19

20. Generating RECs in Alberta
The Greengate – PG&E Contract
• The Greengate ‐ PG&E transaction involved buying “green
attributes” only, not power*
• Under the contract with Greengate, PG&E will purchase energy,
capacity and green attributes from the Alberta wind farms and
then immediately and continuously resell the energy and
capacity back to Greengate, while keeping the RECs for their
own use*
* CPUC Resolution E‐4390 January 27, 2011
20

21. Generating RECs in Alberta
25% Cap on TREC Use
• Currently a 25% cap on the use of TRECs by utilities for meeting their
RPS
• This was due to be lifted in 2013 – but SBX1‐2 seems to have changed
this ‐ use of TRECs will be reduced from current 25% cap at end of
2013 to 10% by 2017 (but 10% of 33%)
• Cap has slow demand for TRECs ‐ utilities reportedly near limit for
tradable RECs
• This could limit the opportunity for REC only contracts
21

22. Economic Impact of Trading RECs
• RECs could add $10.00 ‐ $50.00 (depending on price) to price per MWh
• This could have a significant impact on the economics of a Wind Project in
Alberta
• Consider the potential impact RECs would have had over last three years
Avg. Pool + $14.00 + $10 + $20 + $30 + $50
Period $/MWh Offsets RECs RECs RECs RECs
Aug 2010 - $
Sept 2011 $ 63.43 $ 72.43 $ 73.43 $ 83.43 $ 93.43 113.43
Aug 2009 - $
Sept 2010 $ 54.17 $ 63.17 $ 64.17 $ 64.17 $ 84.17 104.17
Aug 2008 - $
Sept 2009 $ 61.78 $ 70.78 $ 71.78 $ 81.78 $ 91.78 101.78
3 Year $
Average $ 59.79 $ 68.79 $ 69.79 $ 79.79 $ 89.79 109.79
22

23. Alberta’s Wind Energy Resource
• Alberta has one of
the best on‐land
wind energy
resources in Canada
• Average annual wind
speeds of 6‐8 m/s
(22 – 25km/hr) are
abundant in south
half of province,
where major
population is
concentrated
23

24. Alberta’s Wind Energy Resource
Consider the following combined factors:
• Above average on‐land wind resource
• Sea of flat, open land ‐ cooperative owners/farmers
• Simpler/faster permit process w/ less resistance
• Growing Economy ‐ growing electricity demands
• Looming Closure of “Old” Coal‐Fire Generating Plants
• Availability of offsets and RECs to bolster economics
• No local content rules
24

25. Challenges
Main Challenges to Wind Development in Alberta
• Lack of Long Term PPA’s
• No guaranteed price w/o long term PPA
• Some risk involved in Power Pool Pricing
• Difficulty obtaining debt financing without Long Term PPA
25

26. Challenges
Main Challenges to Wind Development in Alberta
• Short‐term limitations to Grid Tie‐ins ‐ South region transmission
infrastructure requires substantial improvements including:
– new transmission lines and substations
– upgrading of existing facilities to connect wind power and move it to
large load centres like Calgary.
– In September 2009, the Alberta Utilities Commission (AUC) approved a
project to reinforce transmission in southern Alberta and connect
2,700 MW of wind to the grid. This project will be built in stages over
next 10 years
– In April 2010, AUC approved a project to reinforce the transmission
system in the East Central Alberta area to accommodate anticipated
growth in demand and connect about 700 MW of wind power
26

27. Opportunities
• Alberta currently has 770
MWs of wind connected to its
grid
• As of April 2011, AESO has >
7,500 MW of applications for
new wind generation in cue
• AESO anticipates approx
1,028 MW of wind power
connected to grid by the end
2011
Suncor’s 30 MW Chin Chute Wind Farm near Taber, Alberta
Sean LeBlanc Photography
27

28. Opportunities
Opportunities for Wind Developments in Alberta
• Just under 50 Projects (7100 MWs) in pre‐construction/construction phase with
either PPA, under construction or Construction Plan in place
• Several of these projects looking for partners/financing ‐ opportunity for
accelerated development – not limited to undeveloped “Greenfield” opportunities
• Project Costs may be lower due to flat landscape, amenable landowners and
approval process and access to international turbine/equipment suppliers
• Improving Grid should provide more opportunity for more development in strong
but stranded wind resource areas
• Opportunity to enter into “contracts for differences” to reduce price risk
• Opportunity for increased upside if price of carbon/RECs increase
28

29. Summary
• Alberta is significantly different than other Canadian wind
markets
• Presents unique opportunities and unique challenges
• Lack of long term PPAs requires creative financing approaches
• Not limited or assisted by power authority RFPs
• Potential for significant returns and accelerated payouts, but
not without some risk and challenges
29

30. Questions
30

31. For Further Information
Contact:
John C. Goetz
(403) 268‐7167
John.Goetz@fmc‐law.com

32. John Goetz is a partner in the Energy Group at Fraser Milner Casgrain LLP. John has extensive experience
advising clients in the energy sector, including in‐house experience at a major oil company. John co‐leads
the Cleantech and Emissions Trading Group and brings his energy and cleantech experience and insights to
this emerging area of practice.
John works closely with energy clients on their corporate commercial matters and has significant experience
with large infrastructure projects, cleantech projects and commercialization, mergers and acquisitions
and operational matters. John also advises energy and cleantech clients on climate change strategy,
emissions trading and renewable energy projects.
For more information on John’s practice, go to www.fmc‐law.com/People/GoetzJohn.aspx

33. The preceding presentation contains examples of the kinds
of issues companies dealing with wind projects could face. If
you are faced with one of these issues, please retain
professional assistance as each situation is unique.