World Energy breaks into credit market
Kermit the Frog famously sang that it's not easy being green. Tell that to members of Worcester-based World Energy Solutions Inc.'s "green team."
The green team is in charge of overseeing the company's World Green Exchange, an online initiative started last year by the company to help bring structure to the still nebulous world of trading in emissions and renewable energy credits.
While credits are already being traded between companies and nations on a domestic and international scale, the system can be inconsistent from deal-to-deal and it lacks transparency.
But World Energy hopes its green exchange – based on existing company technology – will help fix some of those problems by providing a regulated forum for online trading of energy credits, with a commission from each transaction going to the company's bottom line.
"(The World Green Exchange) brings efficiency and efficient price discovery to what to date have been very illiquid, inefficient markets," said Rick Adcock, World Energy's senior vice president for environmental markets.
Adcock is in charge of building a team, the so-called "green team," within World Energy in both its Boulder, Colo., and Worcester offices to help bring the World Green Exchange up to speed. The exchange completed its first trade of forward-looking solar energy credits in March.
Supply and demand
The green exchange deals in three kinds of energy credits, Adcock said. The first are international carbon and greenhouse gas emissions credits traded outside the United States by nations that adhere to the 1998 Kyoto Protocol, an international treaty which regulates the amount of greenhouse gas emissions industrialized and developing nations may produce.
The second are domestically traded U.S. greenhouse gas emissions credits and the third are renewable energy credits, or RECs.
The first two greenhouse gas emissions credits are similar, Adcock explained. On an international level, there are countries and companies that need credits, and countries and companies with credits to spare. Selling spare credits to those that need them creates a simple supply and demand marketplace, Adcock said.
Countries that adhere to the Kyoto Protocol are classified as either industrialized nations or developing nations. Industrialized nations are assigned a specific number of emissions credits that they in turn dole out to greenhouse gas emitters such as utilities and large industrial centers. Each emitter is assigned a certain number of tons of carbon dioxide they can produce per year in order to comply with Kyoto standards. One emissions credit is equivalent to one ton of carbon dioxide emitted per year, Adcock said.
The buying and selling process works in two ways, explained Adcock. If a large European utility is given 100 credits, for example, but only uses 90, it in turn can sell its 10 surplus credits to another utility that may have exceeded its allotted emissions numbers.
Developing nations, such as China and India, are not restricted by the Kyoto Protocol in terms of total allowable emissions like Western European nations are, said Adcock. But they too, can get into the credits trading game by generating project-based emissions credits. If a factory in China, for example, decides to replace its older, dirtier coal-fired furnaces with cleaner, more efficient units, and in turn reduces its emissions by 50 percent, it can then sell 50 credits on the world market.
State-by-state
The domestic market is a little more complex, Adcock said, because the U.S. does not adhere to the Kyoto Protocol. Nevertheless, many states now have their own emissions regulations, and are creating caps and credits similar to the Kyoto model. Trading in domestic emissions credits works much the same way as internationally, but with an added layer of complexity due to the varying nature of state-by-state regulations.
Trading in RECs, the longest-standing form of alternative energy trading, Adcock said, works by allowing alternative energy providers such as solar and wind farms to sell their excess credits to utilities and energy companies that must generate a certain amount of green energy to meet state and federal energy portfolio standards.
Until now, deals between countries and utilities were highly structured, one-buyer and one-seller affairs that varied widely in prices and terms, said Adcock. Because the exact value of energy credits is still largely unknown, unlike the price of, say, gold or pork bellies, it has been difficult to bring consistency and efficiency to the market, Adcock said. The World Green Exchange hopes to change that.
"World Energy has developed a unique online platform that is very efficient for transacting commodities in traditional energy industries, such as electricity and natural gas, and we are adapting that to bring efficiency and transparency to the marketplace for environmental commodities," Adcock said.
"I know that this is the right thing at the right time for these markets," Adcock said. As the Kyoto guidelines begin to take effect in 2008 and more and more states create guidelines of their own, Adcock said he sees the potential for a very large green energy marketplace.
"We see significant growth going forward."
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