Energy Credits Prove Inflated With Green Claims Seen as Hot Air

Along the steel-gray Quinebaug River in eastern Connecticut, Duncan Broatch is tinkering with machinery that will keep one of his two hydroelectric plants cranking out clean energy. The U.S. needs Broatch’s Summit Hydropower Inc. and other green power providers to make a dent in the 35 percent of the country’s global-warming pollution that comes from burning fossil fuels to make electricity.

Broatch was hoping to build more hydro plants. He planned to get the money partly from selling renewable energy credits, widely used tools championed by businesses, conservationists and the U.S. Environmental Protection Agency.

RECs allow renewable-energy developers to sell something beyond their electricity: the right to claim that power’s environmental benefits. Corporations buy the RECs, and some then say that the credits reduce their environmental footprint; green power producers gain enough revenue to expand -- at least in theory, Bloomberg Markets magazine reports in its January issue.

Trouble is, some of the RECs Broatch sells fetch $1 to $2 apiece, he says, which is a fraction of the $40 or more he receives for the corresponding electricity and nowhere near what he needs to build more hydro plants.

Photographer: Shawn Henry/Bloomberg Markets

Duncan Broatch, owner of Summit Hydropower Inc., stands on Wyre Wynd hydro project on the Quinebaug River in Connecticut. Close

Duncan Broatch, owner of Summit Hydropower Inc., stands on Wyre Wynd hydro project on... Read More

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Photographer: Shawn Henry/Bloomberg Markets

Duncan Broatch, owner of Summit Hydropower Inc., stands on Wyre Wynd hydro project on the Quinebaug River in Connecticut.

“I get a check in the mail; it’s barely worth the paper it’s written on,” says Broatch, 55, who has spent the past 27 years revamping hydropower plants along Connecticut’s rivers.

Twenty other renewable-energy developers interviewed by Bloomberg News say their RECs aren’t adding green energy to the power grid either.

‘Spreadsheet Mumbo Jumbo’

“Nobody is going to make a decision to build more renewable energy based on selling voluntary credits,” says Mark Isaacson, vice president of Miller Hydro Group in Lisbon Falls, Maine.

“RECs have not worked out like we thought they would,” Isaacson says. “It has been a big disappointment.”

Companies buying RECs like those Broatch sells are a lot happier. Cisco Systems Inc., Dell Inc., Intel Corp., Whole Foods Market Inc. and more than 57,000 other firms, towns and agencies are using RECs to burnish their environmental halos. Some brag they’ve trimmed or even eliminated their carbon footprints altogether -- thanks in part to RECs.

“It’s spreadsheet mumbo jumbo,” says Kim Sheehan, a University of Oregon advertising professor and a founder of Greenwashing Index, which rates environmental claims. “Companies show their emissions are reduced, but overall emissions to the environment aren’t changed.”

Becoming Carbon Neutral

Intel, the world’s biggest maker of computer chips, heralds itself as the largest U.S. purchaser of green energy. The company says it cut global-warming emissions by more than 45 percent, or 1.9 million metric tons, from the end of fiscal 2007 in December through fiscal 2009 with the help of RECs.

Take RECs out of the equation and Santa Clara, California- based Intel reduced carbon emissions by a more modest 13 percent, according to its filings with London-based Carbon Disclosure Project, which tracks corporate emissions.

Cisco, the top maker of networking gear, announced in its 2009 corporate responsibility report that it had cut its global- warming emissions by 40 percent from the end of fiscal 2007 in July through fiscal 2009, surpassing its goal of a 25 percent reduction by 2012 three years ahead of time.

Without factoring in RECs, emissions climbed 3 percent during those years, according to data in the San Jose, California, company’s report.

‘PR Credit’

Computer maker Dell says it became carbon neutral in 2008 with the help of RECs; not counting them, emissions per volume of sales increased 4 percent since 2008 at the Round Rock, Texas, company. Spokeswoman Michelle Mosmeyer says the rise is because of Dell’s 2009 acquisition of Perot Systems Corp. and that the company will continue to focus on cutting energy use.

“It isn’t reasonable to say that purchasing a REC is equivalent to not polluting,” says Joseph Romm, a senior fellow at the Center for American Progress in Washington and author of the Climate Progress blog, which covers climate-change science and politics.

“Some companies are just trying to get a certain amount of PR credit while not transforming their company.”

At least one large REC buyer is scaling back because it’s concerned the claims may not be credible. Nike Inc., the world’s largest sporting goods supplier, was the 24th-biggest corporate purchaser of RECs in 2008, the EPA says. Nike trimmed purchases by 68 percent in 2009.

“There is a lot of scrutiny about RECs and whether they’re helping to launch projects,” says Sarah Severn, director of corporate responsibility at Beaverton, Oregon-based Nike. “It might not be something we’d want to be associated with.” (Bloomberg LP, the parent of Bloomberg News, says it purchased 155,000 RECs for 2010.)

Green-Power Quotas

The idea of splitting renewable energy into two products -- electricity and environmental benefits -- emerged in the 1990s. Environmentalists hoped the credits would help reverse a dire trend.

Nonpolluting sources of electricity have been shrinking as a percentage of the U.S. power supply. In 2008, 11 percent of non-nuclear power came from renewable supplies, down from 15 percent in 1990 and 20 percent in 1960, the Department of Energy says. Sixty-nine percent of U.S. electricity is made by burning fossil fuels, mostly coal and natural gas.

RECs have proven successful in programs in the District of Columbia and 29 states with green-power quotas.

Utilities that can’t generate enough renewable electrons can make up the difference by buying credits. States set rules about how much green energy is required, where it must be made and the types of generators that can sell RECs. In New Jersey, a mandate that some power be from the sun drove the value of solar RECs to $640 to $660 apiece in November, according to Bloomberg New Energy Finance, more than 10 times the electricity’s value.

No Binding Regulations

World Resources Institute, a Washington-based environmental advocate, teamed up with Alcoa Inc., DuPont Co. and seven other big companies in 2003 to promote voluntary RECs. As in state markets, this type of REC represents the environmental benefits associated with 1 megawatt-hour -- enough to power about 700 houses for 60 minutes.

Unlike state programs, there are no binding regulations. About 62 percent of the voluntary market chooses to be certified by the Center for Resource Solutions, a San Francisco-based organization that ensures credits aren’t sold more than once and that the corresponding electricity was actually produced. Voluntary purchases of RECs soared 253 percent from 2005 through 2009, according to the National Renewable Energy Laboratory in Golden, Colorado.

Midddlemen

“Developers are trying to pull together every possible source of revenue to get these projects to work,” says Alex Perera, a co-director of business engagement at World Resources Institute.

Perera says it’s impossible to gauge how much green power REC-related efforts have generated. He declined to comment on whether the program is sparking new projects, saying that voluntary RECs have provided some financial support.

If there are winners in the REC world besides companies that claim environmental virtue, they’re the middlemen who buy and sell the credits. These intermediaries often wind up with more money than green-power developers, according to 35 contracts obtained through public­record requests.

Sterling Planet

Sterling Planet Inc. in Norcross, Georgia, has built a profitable business dealing in RECs. The privately held company estimated revenue of $25 million in 2010, with $2 million in net profit, according to a projection submitted to the Connecticut Department of Public Utility Control in March.

Sterling Planet orchestrated a REC transaction 6 miles (10 kilometers) from Broatch’s plant along the banks of the Quinebaug. Here, the Shetucket River travels a valley where maples, ashes and sycamores are mostly bare limbed on a November day. Near Occum, the river enters a dam and runs through turbines, shooting out about 10 feet (3 meters) below.

Inside a red-brick building, the power is corralled and sent to Norwich, a city of 38,000. Power from this and two other hydro projects accounts for 5 percent of Norwich’s electricity.

The Occum plant and two similar operations owned by Norwich generate about 12,000 RECs per year. The Connecticut Municipal Electric Energy Cooperative sold these credits to Sterling Planet. Sterling paid $1.25 apiece in 2009 and $1.20 in 2010, according to contracts obtained by Bloomberg. Sterling sold 6,139 credits -- 2,352 from Occum -- for $12.90 apiece in 2009, a more than 10-fold markup.

‘Needed Revenue’

Bette Trevillion, Sterling Planet’s director of marketing and communications, says it’s misleading to focus on what the company pays one source. The hydro credits are blended and sold along with other, more expensive ones, and prices vary based on the type of renewable energy, the age of the power plant and other factors, Trevillion says.

“Our contracts with renewable generators bring them needed revenue,” she says. “Sterling Planet’s existing REC contracts with suppliers will ultimately have delivered tens of millions of dollars to them when they are fulfilled.”

The REC money hasn’t led to any hydro projects being built or expanded in Norwich, says Jeff Brining, energy services manager at Norwich Public Utilities.

Instead, REC sales provide about 10 percent of the budget for a fund that pays for small, renewable-energy pilot projects in the Norwich area. For 2011, the fund is buying solar panels for a local middle school. The amount of power the panels will generate is less than 1 percent of what the hydro plants put out.

200,000 Cars

“You cannot really claim that because you buy voluntary RECs, more renewable energy is or will be produced,” says Anja Kollmuss, a scientist at the Somerville, Massachusetts, office of the Stockholm Environment Institute, which researches sustainable development.

Even so, the federal government is promoting RECs. The EPA provides a handy online Green Power Equivalency Calculator that helps companies convert RECs into environmental boasting rights. Intel cited the EPA’s calculations in a January 2010 press release that said the chipmaker’s market-leading purchase of 1.4 million credits had the same impact as taking almost 200,000 cars off the road or not powering 134,000 homes for a year.

Government agencies themselves are buying RECs to reduce carbon emissions and meet a 2005 law that required them to get 5 percent of their electricity from renewable sources in 2010. NASA, the Air Force and the departments of Agriculture and the Interior purchased RECs supplied by the Rocky Reach hydroelectric project near Wenatchee in central Washington.

Not Significant

At the plant, the waters of the Columbia River power turbines that have been making electricity since 1961. Chelan County, home to 72,000 people, fixed up the plant in 2006 to produce 2 percent more power. On Dec. 18, 2008, the county sold 66,000 RECs to Sterling Planet for $1 each, contracts show.

That same day, Sterling Planet began a sale of more than 65,000 of the credits to the four government agencies for $3.23 apiece -- a 223 percent markup.

The $1 per megawatt-hour that went to Chelan County paled in comparison to the $59 per megawatt-hour that the plant fetched for electricity. Even though it was a small sum, Rocky Reach didn’t turn down the money.

“RECs aren’t factored into the economics of our decision making,” says Melissa Lyons, power resource analyst at the Chelan County Public Utility District. “It isn’t significant compared to our multi-million-dollar power deals.”

‘Clear Signal’

Companies that buy RECs say the credits fit into their wide-ranging environmental strategies.

“It sends a clear signal to the market that we want cleaner energy,” says Andy Smith, Cisco’s global sustainability manager.

At Intel, Marty Sedler, director of global utilities and infrastructure, says RECs are more valuable than critics make them out to be.

“It’s a positive thing,” he says. “Any RECs you buy absolutely help get more generation built. How much? It’s very hard to determine.”

Intel first bought credits in 2008 and since then has purchased a total of 4 million. Sedler won’t disclose how much Intel paid or which green producers sold the RECs. Sterling Planet handled the transactions.

RECs are just part of Intel’s environmental commitment, Sedler says. The company has spent $35 million since 2001 on cleaner-burning lighting for its chip plants and other eco- improvements. In January 2010, Intel announced it was putting solar panels on eight buildings.

Big Accolades

All the same, Intel is getting big accolades for buying its 1.4 million RECs in 2010. The company says it’s now cutting 1 million tons of carbon emissions from its environmental- footprint calculations. In October, Newsweek magazine named Intel one of the five greenest U.S. businesses. The same month, the EPA awarded Intel a third consecutive Green Power Leadership Award, which recognizes “exceptional achievement” in supporting renewable energy. The EPA gave 10 organizations awards for purchasing green power in 2010.

“We could put in 1 megawatt of solar, but it wouldn’t be a game changer,” Sedler says. For roughly the same price, Intel can say 1.4 million RECs cut about 1 million tons of carbon emissions compared with about 1,000 tons for solar.

The EPA says companies buying RECs are making a difference.

“This added revenue helps developers recover costs, pay off debt and help reduce project risk,” says Allison Dennis, communications manager for the EPA’s Green Power Partnership, which hands out the awards.

Sedler says Intel’s main goal is to spark more companies to follow its lead in promoting renewable energy; making a sizable cut in its own emissions calculations is a fringe benefit.

“The last thing we want to do is try to do something good and end up harming our reputation,” he says.

To contact the reporter on this story: Ben Elgin in San Francisco at belgin@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net Or Michael Serrill at mserrill@bloomberg.net

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