The Need for Carbon Offsets Mike Saer June 9, 2010 Reliable, - - PowerPoint PPT Presentation

The Need for Carbon Offsets

Mike Saer June 9, 2010

Reliable, low-cost electricity

• 28 member cooperatives
• 900 employees (MN and ND)
• 2,800+ MW of owned generation
• 4,500+ miles of transmission lines
• $788 million 2009 operating revenue
• $3.1 billion total assets

Coal, 68.13% Natural Gas, 1.14% Oil, 0.03% Hydro, 4.45% Net Wind, 6.49% RDF, 0.76% Other Renewables, 0.32% Market Purchases, 18.66%

2009 GRE Energy Sources (MWh)

Generating plants

• Baseload Plants

– Coal Creek 1,129 net MW – Stanton 188 net MW – Genoa #3 166 net MW

• Biomass

– Elk River Station 33 MW

• Peaking Plants

– 114 MW Oil-Only (4 plants) – 1,259 MW Gas-Fired (4 plants)

• Renewables

– 345 MW wind – 10 MW of landfill/anaerobic

“Carbon constrained” planning at GRE

• Established a corporate Carbon Team in 2008
• Strategy and communications are aligned with

NRECA and MREA advocacy support

• Created and maintaining a carbon cost model

– Objective analysis of current legislation – Informs our advocacy positions and strategic planning – Communication with members

Kerry-Lieberman legislation

• Introduced on May 12 – still a discussion draft
• Emissions targets

– 17% below 2005 levels by 2020 – 83% below 2005 levels by 2050

• Covered sectors include:

– Electricity generation – Industrial operations – Natural gas distribution – Petroleum refineries

Reduce emissions internally Purchase allowances

• n market

Purchase

• r develop
• ffsets

How can electric utilities show compliance under cap-and-trade?

Offsets as part of legislation

• Offsets will be part of cap-and-trade legislation
• Benefits of offset usage

– Reduced compliance costs for covered entities – Increased time for technological innovation – Added revenue for offset providers

• Offsets will be part of a standardized program

– Acceptance based on uniformly applicable criteria – Project-based approach requires case-by-case examination

Offsets in Kerry-Lieberman

• Oversight:

– USDA: domestic agriculture and forestry offsets – EPA: all other offsets

• Amount of offsets each covered entity can use is

based on its share of emissions from prior year

1.5 billion domestic 500 million international 2 billion total

Offsets in Kerry-Lieberman, cont’d

• Offset projects under consideration:

– Coal mine and landfill methane collection – Anaerobic digestion – Agricultural, grassland, and rangeland sequestration – Afforestation and reforestation

• Voluntary and state programs that may qualify for

inclusion into early offset program:

– Climate Action Reserve – Voluntary Carbon Standard – American Carbon Registry – Chicago Climate Exchange – RGGI

Many unanswered questions

Will there be legislation? Federal, regional, or state? What offsets will qualify? How many

• ffsets can be

used for compliance? What voluntary programs will carry over? Who will develop needed

• ffsets?

How will utilities procure needed

• ffsets?

Purchase offsets

• r develop offset

projects? How to manage international

• ffsets?

Carbon Management Roadmap

• Trying to pick the absolutely correct carbon

mitigation activities is like trying to hit a moving target

• GRE implementing “no regrets” initiatives that create

value whether or not carbon has a future cost

Carbon Management Roadmap

• Use of offsets is a strategy in GRE’s Carbon

Management Roadmap

• Other strategies include:

– Asset optimization – Compliance with MN Renewable Energy Standard – Investment in R&D

GRE is not currently committing capital to either allowances or offsets but we expect to employ both options if carbon legislation is enacted. Offsets may be a cost effective, yet partial solution.

Potential GRE compliance options

$- $20 $40 $60 $80 $100 $120 $140 Allowance Price ($/metric ton)

Great River Energy Carbon Reduction Options

$60 +

1) Carbon capture/storage 2) Partner to build nuclear generation 3) Reduce output of high-emitting generation 2030 - 2039

$0 - 30

1) Purchase allowances 2) Develop offset projects 3) Legacy asset solutions 4) Increased use of natural gas 5) Renewables development 6) Energy efficiency 2012 - 2019

$30 - 60

1) Biomass co-firing 2) Energy storage 2020 - 2029

Projected compliance gap

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Emissions (metric tons CO2)

Potential Great River Energy Compliance Gap under Kerry-Lieberman

GRE projected CO2 emissions Projected allocated allowances (FREE)

GRE’s interest in offsets

• Compliance motive, not profit motive
• GRE will seek offsets to fill compliance gap and

mitigate rate impacts

– Invest in assets that create offsets – Long-term offset purchase agreements

• GRE’s preference  MN and ND offset providers

– Offset purchases part of GRE’s total revenue requirement – Greater use of offsets vs. allowances will reduce rate impact

Mike Saer Business Development 763 445-5303 www.GreatRiverEnergy.com