Photo courtesy Solar Power, Inc.

Solara sought to bring solar power to all of its tenants and was forced in install separate arrays of panels for each and every unit.  This meant taking a dozen panels at a time, wiring them to individual solar inverters (to convert energy from DC to AC), and running separate cabling from each cluster of solar panels directly into each tenant’s separate electricity meter.  Clearly, this was not the most efficient way to deliver power in an MTU property.

A Better Way?

In 2008, the California Public Utilities Commission (CPUC) created a program called “Virtual Net Metering”, or “VNM” specifically for Multifamily Affordable Solar Housing (MASH) projects like Solara.  (CPUC decision 08-10-036.)  

Using VNM, a property could install solar panels and feed all of the energy into a single meter with a single inverter, and virtually divide the credit for energy production across a series of meter numbers provided to the utility.  With VNM, each individual unit would not require its own inverter and separate wiring, making it an elegant and efficient solution that significantly reduces solar installation costs.  Unfortunately, under the 2008 decision, VNM was only available for MASH projects.  Until now.

CPUC Expands VNM

In July 2011, the CPUC approved decision 10-05-004 to expand VNM beyond the “MASH only” restriction and make it available to all multi-tenant and multi-meter customers in residential, commercial and industrial properties.

This means that property owners can now install solar PV on their apartment buildings or commercial multi-tenant properties and virtually distribute those benefits across various tenants, even if those tenants are not physically connected to the PV array.

The decision also elucidates the fact that properties can utilize VNM regardless of their participation in the California Solar Initiative (CSI) rebate program.  Therefore, even if the state incentive programs become fully subscribed, a property could still use VNM to distribute solar benefits to its tenants. 

Building owners in California can now offer cost-effective renewable energy solutions to tenants, allowing them to enjoy lower energy costs and hedge against future escalations in utility rates.  Don’t be surprised if you begin to see apartment buildings and commercial office buildings advertising the availability of low cost solar energy bundled into the cost of rent, or included with the building as an amenity.

Next Steps for VNM?

One of the most promising applications of VNM would be an expansion to allow the trading of energy credits beyond contiguous parcels under common ownership.  VNM is an excellent option for tenants of buildings that cannot or will not go solar.  For example, the complex may have shading that prevents solar installation. Conversely, it may receive plenty of sunshine, but lack the necessary roof space to accommodate all tenants.

Residential apartment/home renters have no real options since they technically don’t own the roof over their heads.  However, many could benefit from the advantages of renewable energy.  So, what if there was a way to “rent” a solar panel inside a solar farm located in an unused plot of land, instead of on the roof that they don’t control?

Taking the CPUC 10-05-004 decision a step further, what if VNM could be used to allocate credits across town and not just on the premises of a particular MTU project?  Could that two-acre vacant plot be used for a “solar garden” which could sell “shares” of generation to individuals throughout the utility service area?  This concept of solar gardens (sometimes called “off-site solar”) is currently prohibited by the CPUC, but a bill introduced in February 2011 in the California state assembly (SB 843) aims to allow these gardens to grow and flourish.  You can learn more about SB 843, also known as the Community-Based Renewable Energy Self-Generation Program, at this website: http://www.e2.org/jsp/controller?docName=campaignDisplay&activityName=SB843.

Investment Grade Solar Projects

Solar gardens, as an extension of VNM, provide a very elegant solution to the collateralization problem faced in traditional equipment financing and solar leases: default risk. 

For example, if Joe Homeowner leases a car and stops making payments, the car can be repossessed and sold in a secondary market.  This is possible because the loan can be secured by the collateral of the underlying leased asset (the car). 

Unfortunately, solar assets on a rooftop are a little more difficult to repossess and the secondary market for panels is almost non-existent.  As a result, interest rates for solar leases are often in the high teens, as the investment community views them as unsecured consumer debt, much like a credit card.

With a solar garden, however, the assets are placed in a central facility, off-site from the consumer and similar to a traditional community garden (sometimes called “Community Supported Agriculture”, or CSA). 

Under a CSA model, people pool their capital, plant a garden and grow a basket of crops.  Every week, when the fruits and vegetables are harvested, each person receives their “share” of crops based on their individual ownership participation. 

The default risk is mitigated because when Joe Homeowner stops paying his CSA bill, his share of tomatoes is simply given to somebody else and the CSA subscription can be resold to another participant.  In the event of a default, no physical assets need to be repossessed from Joe Homeowner’s property.

In a solar garden, when a subscriber defaults, there are no panels that must be removed from their roof.  Rather, the solar garden can sell the subscription to somebody else and allocate the power “virtually” to a different meter.  This makes it easier for institutional investment to support community solar projects and allow more solar gardens to grow.

Feed-in Tariffs and VNM

A model where power is generated and fed into the grid may sound similar to a Feed-in Tariff.  However, a Feed-in Tariff (a policy mechanism implemented very successfully in Germany and other European countries) pays the project owner a fixed, agreed-upon rate for their generation.  While Feed-in Tariffs are themselves a very elegant solution, they have created some controversy in California around the pricing mechanism and the specific rate at which the utility should be required to purchase energy.

Solar gardens, on the other hand, don’t require the utility to determine a price at all.  Instead of paying a dollar amount, they “pay” a certain number of kilowatt hours (kWh) by virtually re-assigning the energy credit to a different meter.  For example, if a solar garden produces 50,000 kWh in a given month and is divided equally among 100 subscribers, each person would receive a credit on their bill for 500 kWh.  If a particular customer consumed 700 kWh that month, their utility bill would reflect a 500 kWh credit and they would only be charged for 200 kWh.

Next Steps?

Virtual Net Metering (VNM) has proven to be an effective solution for MASH properties and has now been approved for other multi-tenant applications such as apartment buildings and commercial offices.  As a result of this decision, scores of MTU properties will likely expand their renewable energy footprint beyond common areas and into the spaces occupied by individual tenants. 

The decision to expand VNM will enable a proliferation of distributed generation.  However, to take this program to the next level, the geographical boundary restrictions must be lifted.  The Community-Based Renewable Energy Self-Generation Program (SB 843) would expand the allowable VNM footprint beyond MTU buildings and allow individual renters (residential or commercial) to enjoy the benefits of renewable energy even if it is not physically installed at their location. 

This expansion would create a fertile environment for institutional investment which has largely shied away from renewable energy because of the lack of collateralization and negligible salvage value of the underlying asset.  VNM and solar gardens solve this problem and will open the door to significant renewable energy development.

Lee Barken, CPA, LEED-AP is the Energy and Cleantech practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and as Vice-Chair of the WREGIS Stakeholder Advisory Committee.  Lee writes and speaks on the topics of renewable energy project finance, green building, IT audit compliance and wireless LAN technology.  You can reach him at 858-350-4215 or lbarken@hwcpa.com.

   Blink twice in Seoul, South Korea, and you might think you’re in any big city in the United States.  Cars whiz by, tall buildings sprawl out in familiar, dense, urban patterns, and of course, there’s the occasional Starbucks dotting the landscape.  My visit to this country came at the invitation of the SWEET Renewable Energy and Cleantech Conference.  Given that this was to be my first trip to Korea, I accepted the speaking invitation with the eagerness and anticipation of a young wizard on his first train ride to Hogwarts.  Frankly, I had no idea what to expect, but I was excited to be on board.  What I discovered was striking.  Korea is a country with vast differences and abundant similarities to western culture.  “How is that possible?” you might be wondering.  Let me explain.
   After spending a week in Korea, one might make the observation that westerners are in familiar territory.  This is a place where the people are friendly, the cars drive on the same side of the road, and one can survive on English alone.  In short, it feels safe and navigable.  (OK, so all the measurements are in metric units, but you get the point.)  However, once you start engaging strangers in conversation and exploring off the beaten path, the richness and complexity of Korea become evident.

In my travels, I learned a number of anecdotal lessons.  In this article, I’ll share three:

1.  Respect Your Elders

   While wandering lost through the streets of Seoul in search of a lesser known tourist destination, I stepped inside a small market to get help with directions.  The elderly woman behind the counter did not speak a word of English.  Despite my best attempts at pantomime and charades, I was unable to establish communication.  I attempted to express gratitude with a smile and slight bow and then proceeded to leave the shop.  Within seconds, the aged woman rushed outside and shouted at two well-dressed businessmen who were passing by.  They immediately bowed to her and proceeded to provide us with navigational assistance.
   Later, in conversation with a docent at the National Folk Museum of Korea, I learned that respect in Korea is measured in years, and my experience with the shopkeeper may have been a reflection of this cultural norm.  Korean culture reveres elders.  The age of sixty is particularly important.  Why sixty?  The Zodiac calendar is comprised of 12 different animals, each representing one year.  For example, 2011 is the year of the Rabbit.  At the end of twelve years, the cycle repeats.  Traveling five times around the Zodiac calendar (i.e. 60 years) is considered a laudable accomplishment and is celebrated with great enthusiasm.

2.  Hierarchy is Respected and Titles are Important

   Are you an assistant manager or a regional vice president?  The title you carry on your business card speaks volumes about your corporate role and social status.  My first glimpse into the focus on titles came at the conference when I noticed that speaker titles appeared prominently ahead of names in conference literature, signage and even some business cards. 
   Unlike the U.S. where you might expect to see a person’s name, then title, the Korean version was quite the opposite, listing first a title, then the name.  Over dinner with an executive at a multinational solar company, I learned that Korean society respects titles in much the same way military organizations respect rank.  Everyone wants to know your title before addressing you, and corporate organizations function with a clear hierarchical structure.  Interestingly, PhD. is one of the most respected titles in both business and social circles.

3.  Patriotic Pride is a Powerful Force

   Korea is a country on the move.  In just my ride from the airport to the city center, I must have seen a half-dozen large bridges or freeways under construction.  High speed rail projects are crosscrossing the country.  In the southern province of Jeollanam-do, aggressive plans are under way to develop large clusters of cleantech companies.  Conferences like SWEET are aimed squarely at attracting investment and promoting manufacturing ecosystems. 
   In conversations with Korean attendees at the tradeshow, I was very curious about attitudes towards “going green.”  Environmental concerns were certainly of interest; however, a more noteworthy thread seemed to be the overwhelming spirit of nationalistic competition.
   While Americans are still regarded in high esteem, (I even had one complete stranger thank me for the sacrifices of American Veterans during the Korean War), the majority of this competitive spirit seemed to be directed at Japan and China.  In short, cleantech aspirations are viewed through the lens of patriotic pride. 

Trading in Green

   Korea is a country graced by natural beauty and resources.  Its cleantech cluster plans are ambitious and exciting.  The people I met were committed, hard-working and resourceful.  This unique combination of places, plans and people aligns Korea on a trajectory of significant growth.  The desire to develop cleantech industries is good for the planet, good for Korea and also good for forward thinking trading partners.  For companies who can navigate the formidable cultural differences, the partnership opportunities are vast and lucrative.

Lee Barken, CPA, LEED-AP is the Energy and Cleantech practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and as Vice-Chair of the WREGIS Stakeholder Advisory Committee.  He just returned from South Korea for a presentation on Solar Project Finance Models at the SWEET conference.  Lee writes and speaks on the topics of renewable energy project finance, green building, IT audit compliance and wireless LAN technology.  You can reach him at 858-350-4215 or lbarken@hwcpa.com.

Tom Steyer has a vision for a national dialogue about energy production and consumption.  At the 2011 gathering of the Cleantech Investor Summit in Palm Springs, California, Steyer shared his perspective on the defeat of Proposition 23, along with how that outcome can inform the national conversation on clean energy issues.

Steyer is an unlikely spokesperson in the clean energy movement.  As the founder and co-managing partner of Farallon Capital Management, he has built a career around institutional investing for schools, foundations and high-net-wealth individuals.

“I have been a professional investor for the last 30 years, not having to do with clean energy,” said Steyer.  “When Prop 23 was proposed, I assumed that I would do absolutely nothing.  When everyone else took the exact same tact as I took, which was to do absolutely nothing, eventually I got so upset and angry that I decided that I would spend my time and put up some money to try and change the dynamic about how this proposition was going to work.”

The Spark of Proposition 23

As Texas oil companies mobilized a campaign to pass Prop 23, Steyer observed that the general lack of an organized coalition against Prop 23 was leading to a tragedy of the commons.  “I don’t think I was doing anything smart.  I don’t think I was doing anything calculated.  I think I just lost my temper and said I’m damned if this is going to happen in our face,” said Steyer.

It was at that moment he decided to take a stand and encourage others to do the same.  For Steyer, there was a deep seeded sense of conviction and confidence in his message.

“Do not be disinclined to engage the other side or be intimidated by their brains or their money, because my experience from this and from previous campaigns is we have the brains and we can find the money,” said Steyer.

Coalition Building

With a keen and masterful sense of the importance of stakeholder engagement, Steyer served as co-chair of the “No on 23” campaign together with a staunch political polar opposite, former Secretary of State George Shultz.  The coalition itself was a demonstration of co-mingled ideologies and strange bedfellows.

“To get a coalition, you need visible leaders so that you can go to the people who are part of their constituency and make your pitch and not be thrown out of the room without a hearing,” said Steyer.

The new clean energy coalition, according to Steyer, needs to be comprised of four essential groups: Business People, Republicans, People of Faith and National Security Professionals (such as the military and Department of Defense).

“I think our goal has to be to build the coalition,” said Steyer.  “In order to win this national argument, we have to be able to reach out to the people who aren’t our natural allies and convince them not just that we’re right, but that it’s really important that they be on our side.  If we had these four groups, we’d have the passion and we could go anywhere in the United States and make this argument.”

The National Stage

Rather than blaming Washington, DC, Steyer takes the position that the capital will respond to the engagement of the American people at a grassroots level.  “Things happen in DC after the country decides what it wants,” said Steyer.  “DC is not going to lead.  DC is going to be the validation of the conversation that goes on across the country.”

On the national stage, Steyer sees the lack of federal energy policy as a reflection of the public’s lack of engagement in the discussion.  “One of the reasons I felt so strongly that we’d never get a major energy bill in 2010 is [that] I can’t believe it’s going to happen without a huge conversation at the national level,” said Steyer.

“If you think about the health care bill, if you think about civil rights, if you think about when we’ve changed massively, there has been a huge conversation with everybody participating, with people airing all their views with a close examination of what’s going on… and there hasn’t been that kind of conversation [around energy].”

Of course, the difference with health care and civil rights is the direct connection that Americans feel with those issues.  For most people, on the other hand, energy is an abstraction.  We understand that energy turns the lights on and keeps the beer cold, but how it’s made and where it comes from is beyond the familiar patterns of our daily conversations.  The key to engagement seems to be in how we make energy issues more approachable.

Winning Hearts, Minds and Solar Panels

“So when we think about this conversation, salience is really important,” said Steyer.  “People have to understand, ‘Oh my gosh, this is totally relevant for me.  This is an important thing.  This is going to change my vote.  This is going to change my life.’”

“Until that happens, I do not believe that we will be able to get [changes made].  This is not a minor change.  Energy runs through every part of our day and every part of our economy.  To change this is going to take a massive change of attitude.”

If ever there was a person capable of inspiring that massive change of attitude, it might just be Tom Steyer.  The roadmap he presented at the Cleantech Investor Summit was credible, well-constructed and achievable.  Is he up for the challenge?  Despite his attempts at self-deprecation, Steyer clearly has a knack for community building and a deep intuitive talent for understanding the dynamics of personal engagement.  In California, he was been battle tested with Proposition 23 and came out victorious.  What’s next for Tom Steyer?  Hopefully more of the same.

A web archive of Mr. Steyer’s presentation is available here.

Lee Barken, CPA, LEED-AP is the Energy and Cleantech practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and as Vice-Chair of the WREGIS Stakeholder Advisory Committee. Lee writes and speaks on the topics of renewable energy project finance, green building, IT audit compliance and wireless LAN technology.  You can reach him at 858-350-4215 or lbarken@hwcpa.com.

Nearly a year ago, I wrote about the unanimous decision of the California Public Utilities Commission (CPUC) to allow Tradable Renewable Energy Credits (T-RECs) in California.  If you’re not familiar with a T-REC, it is, quite simply, an environmental commodity representing the environmental attributes associated with one MegaWatt hour of renewable energy generation.

According to the CPUC, under the new rules, T-RECs “can be purchased by a utility and traded separately from the underlying energy produced by a renewable generating facility.  These energy credits can then be applied, by the utility, toward their renewable energy compliance goals.”

Within days of last year’s March 11 decision, a flurry of controversy erupted.  A joint petition to modify the decision was filed by San Diego Gas and Electric, Southern California Edison and Pacific Gas and Electric, the three Investor Owned Utilities (IOUs) most affected by the T-REC ruling.  Additional modifications were requested in a petition by the Independent Energy Producers Association. 

Increasing pressure was felt throughout Sacramento from the Governor’s desk to the State Legislature.  A stay of the T-RECs decision was issued on May 6, 2010.  For more than eight months, the short lived T-REC program remained in a frozen, fossil-like condition.

Back From Extinction

“I think most of you are painfully aware that this commission has gone round and round on the issue of the role of Tradable Renewable Energy Credits in the RPS program,” said CPUC Commissioner Michael Peevey in his opening remarks at the January 13, 2011 CPUC meeting to consider a new decision for the T-REC program.

The CPUC’s January 13, 2011 decision reverses the stay from May 6, 2010 and reaffirms the original March 11, 2010 ruling with some minor modifications. 

“In largely rejecting the petitions to modify that were filed by the utilities and the IEPs, this decision effectively restores the decision that this commission voted [on] in March of last year.  It was, I think, a sensible and reasonable decision.  I supported it at the time, and I support today’s decision,” said Commissioner Nancy Ryan.

 In short, the rules going forward allow the use of Tradable RECs, including out-of-state generation, to meet compliance requirements under California’s Renewable Portfolio Standard (RPS), with the following notable exceptions:

 - T-RECs can only be used to meet 25 percent of an entity’s compliance obligation.

- Transactions are capped at $50 per T-REC.

- The 25 percent and $50 per T-REC limitations are temporary and remain in effect only until December 31, 2013.

“The basic approach of the March decision and today’s decision is to wade gradually into the emerging market for Tradable Renewable Energy Credits and I think that’s a prudent thing to do,” said Commissioner Ryan.

Since the limitations expire at the end of 2013, it provides an opportunity to revisit and make adjustments, as necessary.

“This training-wheels approach to market development will give the Commission an opportunity to more closely monitor dynamics to the end of 2013, at which time this commission will evaluate the need for these particular regulatory mechanisms,” said Commissioner Timothy Alan Simon, adding this hint about the possible sun-setting on the restrictions, “I look forward to a more robust and less restrained T-RECs market in the near term to enable cost effective RPS compliance for our rate payers.”

This sentiment was echoed by Commissioner Ryan, who said, “I think it’s appropriate that we have some role for RECs at the present and I hope to see a more open market in the future.”

Do more T-RECs mean lower costs for rate payers?  Will the broader adoption of out-of-state T-RECs translate into a better deal for California consumers?

Renewable Generation Civil War

Among the most contentious and controversial issues surfacing in the T-REC battle was the question of allocating in-state versus out-of-state production.  Under a T-REC program, a compliance obligation in California could be met by a T-REC generated in any of 14 states participating in the Western Electricity Coordinating Council (WECC).

“For many, the issue of Tradable RECs has become a proxy dispute over the role of in-state versus out-of-state facilities in meeting that state’s renewable objectives,” said Commissioner Peevey.

The core of this issue seems to be that T-RECs, which allow out-of-state generation, will stimulate green jobs outside of the state subsidizing that generation.  On the other hand, if California utilities are forced to purchase “Made in California” T-RECs exclusively, it will increase the cost of compliance, which is a price ultimately borne by the rate payer.

In short, multiple objectives are in conflict.  This begs the question:  Is the goal to stimulate jobs in California, or is the goal to stimulate renewable energy generation?  Is California trying to have its cake and eat it too?

“T-RECs is a very controversial issue, and I think the reason that it’s so controversial is that it casts in very high relief some of the internal conflicts about the RPS program and the concept of a renewable portfolio standard in California,” said Commissioner Ryan.

Among the goals mentioned by Commissioner Ryan are the reduction of GHG emissions, improvements in local air quality, local economic development, saving consumers money and promoting the development of new technologies.

“That’s just a few of the items on the list,” said Ryan.  “We can’t have all of those things at once.”

A Balanced Approach

In striking its compromise, the Commission appears to be supporting the general principle of T-RECs as a mechanism to lower costs, but with safeguards (albeit temporary) to experiment with and demonstrate the viability of the program.

“This will give us ample experience with the emerging T-REC market, as well as provide sufficient time to develop appropriate methods to assess the value of different contracts to ratepayers,” said Commissioner Peevey.

“It is, has always been and remains my opinion that having a role for Tradable RECs in the RPS program is a consumer protection measure,” said Commissioner Ryan.  “It provides necessary competition to bundled projects to contain their costs and bring the best value to consumers.”

New Life for T-RECs

It’s taken several years and one false start, but it now appears that the T-REC market in California is ready for its first trial run.

In closing the T-REC discussion, Commissioner Peevey added some comments in his characteristic light-hearted and humorous style.  “I think we finally resolved something.  Maybe it took a November election to do so, but it’s resolved for the moment.  I know not everybody is happy with this, but that’s how it is and we’re going forward.”

With that, Commissioner Peevey moved the item for a vote and it was adopted.  Welcome to California, mighty T-RECs.

Lee Barken, CPA, LEED-AP is the Energy and Cleantech Practice Leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and as Vice-Chair of the WREGIS Stakeholder Advisory Committee.  Lee writes and speaks on the topics of renewable energy finance, green building, IT audit compliance, wireless LAN technology.  You can reach him at 858-350-4215 or lbarken@hwcpa.com.

Among the critical topics presented by industry luminaries at this year’s American Renewable Energy Day (AREDAY) summit in Aspen, Colorado, the theme of financing emerged as a significant roadblock to renewable energy development.  One of the policy mechanisms, the Feed-in Tariff (FIT), was comprehensively analyzed by Craig Lewis, founder of the FIT Coalition.

“The FIT coalition is focused on identifying best policy practices from around the world for scaling cost-effective renewable energy in a timely fashion and bringing those policy mechanisms to the U.S.,” said Lewis.

A Feed-in Tariff is a contract that guarantees three critical elements for project developers:  1. A fixed price payment (typically a prescribed cents per kilowatt hour rate).  2. An interconnect agreement to provide access to the grid.  3.  A long term contract length (typically 20 years). 

Global Interest

In other words, a Feed-in Tariff is like a pre-approved, pre-defined Power Purchase Agreement (PPA) with a utility company.  The mechanism has been wildly popular around the world and has driven much of the growth in Germany, Spain and other leading solar markets.

“86 percent of solar PV that was deployed in the world in 2009 was driven by a Feed-in Tariff,” said Lewis.  “We would not have a solar industry if we did not have a Feed-in Tariff.”

Price Considerations

The success of any Feed-in Tariff is based on setting an appropriate price and making adjustments to the program over time.  “We have to set the price at a level where you actually attract development.  Otherwise, you’re not going to have any projects,” said Lewis.  “You also have to make sure that a FIT is fair to the utility, or purchasing side of the energy contract.”

According to Lewis, that fairness is provided by bundling the environmental attributes (also known as Renewable Energy Credits, or RECs) into the FIT transaction.  By incorporating the RECs, the utilities can use energy produced under a FIT agreement to meet their Renewable Portfolio Standard (RPS) compliance obligation.

Financing Opportunities

Perhaps most importantly, a contractually obligated energy offtaker provides a defined revenue stream that project developers can leverage to obtain financing.  This happens because, from an investor’s perspective, project risk is reduced by any policy mechanism that guarantees a long-term purchase contract.  Ultimately, the creation of a robust investment vehicle for these projects is the key to unleashing massive scale renewable energy growth.

“If you care about the solar industry, you must care about the Feed-in Tariff,” said Lewis.

Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of renewable energy finance, green building, IT audit compliance, wireless LAN technology and volunteers for the FIT Coalition. You can reach him at 858-350-4215 or lbarken@hwcpa.com

Peter Fusaro knows environmental finance markets.  As Chairman of Global Change Associates, Fusaro is an energetic and tenacious green markets cheerleader with over 34 years of government policy and industry experience.  When he took the stage at his 9th annual Wall Street Green Trading Summit last week in New York City, audience members perked up and paid attention. 

From carbon markets to green energy loans and Property Assessed Clean Energy (PACE) programs, more than 225 professionals gathered at this conference to learn about a variety of innovative financing mechanisms.  “This conference has always been the practitioners’ conference,” said Fusaro.  “This is about people doing things: innovative things, risky things, pushing the envelope and moving forward.”

 Restarting the Green Engine

 If the path to economic development is paved with green technology, some suggest that the car is in neutral.  Unfortunately, for the past few months, the political machine of Washington has been consumed by partisan wrangling over medical insurance.  Now, with the healthcare debate behind us, there seemed to be a renewed sense of optimism among conference participants.

 “The lack of interest in carbon is appalling, but you have to look long term.  Long term, the United States will be re-engaged in this issue of green house gas reductions,” said Fusaro. 

 New Jobs

 This re-engagement provides both environmental and economic benefits.  “This will create long term job opportunities,” said Fusaro, adding “We need engineering and technology professionals along with financial services professionals.  We also need analysts for clean technology and renewables such as biofuels, solar and wind.”

 “The sector is a lot bigger then most people realize.  We’re talking about a $6 trillion dollar business called energy.  It needs more knowledge capital.  We need education at all levels,” said Fusaro.

 Looking Back to Go Forward

 We can learn a great deal from examining the past and what we discover is that our road to energy consumption was paved with the best of intentions.  According to Fusaro, “The reality is the United States economy was built on cheap energy.  It wasn’t madness of engineers.  We had abundant natural resources.  It was just how we did things.”

 Changing our attitudes about energy is a slow process, but one that reveals an extraordinary opportunity to re-engineer the status quo. 

 Said Fusaro, “What is really endemic and needed is a behavioral change.  This has to be part of our DNA.  We have to think differently.  The United States cannot consume 21 percent of the world’s oil anymore.”

 Peter Fusaro’s comments resonated with other market focused sentiments expressed throughout the conference.  We find ourselves in an era of global growth, resource constraints and an ecosystem in peril.  With New York as a backdrop for the Wall Street Green Trading Summit, it’s clear that capital markets will play a central role in driving positive environmental change.

 Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology.  He was a delegate at the December 2009 COP15 climate conference in Copenhagen.  You can reach him at 858-350-4215 or lbarken@hwcpa.com.

By GUEST AUTHOR Lee Barken, IT practice leader at Haskell & White, LLP

To meet their renewable standards, California utilities are now able to look outside the state. What happens next should be interesting.

California’s Renewable Portfolio Standard (RPS) mandates minimum renewable energy thresholds in a utility company’s electricity mix. In California, that minimum is 20% by the end of 2010. Utilities can obtain a three-year extension, and most will ask for that, but 2010 is still the official deadline.

Why an RPS?

According to the Public Utilities Code, Section 399.11, an increase in renewable resources “may promote stable electricity prices, protect public health, improve environmental quality, stimulate sustainable economic development, create new employment opportunities, and reduce reliance on imported fuels.”

However, these lofty goals overlooked one important element: execution.  Drafting a law mandating a 20% renewable mix doesn’t create an overnight solar farm. In fact, by the end of 2009, the investor-owned utilities were woefully behind schedule. According to the California Public Utilities Commission (CPUC), the renewable score card looked like this:

Southern California Edison: 16.8%

Pacific Gas & Electric: 14.4%

San Diego Gas & Electric: 10.5%

New Rules to the Rescue

To help utilities reach their 20% goal, the CPUC announced this week that the utilities can now purchase tradable Renewable Energy Credits (RECs) to meet their RPS mandates. This represents a significant departure from the previous CPUC position, which required utilities to purchase the electrons and the RECs together. 

In other words, the utility was required to buy “green power” from large solar and wind farms, and purchase both the electricity and the green attributes of that energy generation simultaneously.  The new ruling effectively allows for the “unbundling” of this transaction.  It separates the “green” and the “power,” such that utilities can purchase the green attributes of renewable generation, even if the actual electrons being generated are consumed elsewhere.

Benefits of Unbundling

The primary benefit of allowing tradable RECs is the flexibility it provides to the utility. By allowing generation outside of California (but within the boundaries of the Western Electric Coordinating Council), this ruling will likely lower the cost and ease the burden of RPS compliance.

According to the CPUC ruling, “REC-only transactions in which the RPS-eligible energy does not serve California load provides to California consumers the general benefits of increased use of renewable energy, such as reduction in the emission of greenhouse gases and downward pressure on natural gas prices.” 

In addition, the ruling mentions the “potential additional revenue streams to developers of renewable generation projects” made available through the use of T-RECs.

A New T-REC Marketplace

The CPUC ruling lays the groundwork for a robust T-REC marketplace. “Although the tradable REC market may be modest in the next two or three years, the market rules put in place in this decision will both allow this new market to develop and provide robust rules as the tradable REC market matures,” said CPUC President Michael Peevey.

Given that most of the utility-scale renewable energy project pipeline in California is already contracted to utilities to meet the RPS requirements, this ruling creates some interesting opportunities to monetize the green attributes of renewable energy projects in ways not previously considered. In particular, rooftop and distributed generation systems could qualify if they registered with the Western Renewable Energy Generation Information System (WREGIS).

T-RECs for Homeowners

Rooftop solar projects deployed under the California Solar Initiative (CSI), the Self Generation Incentive Program (SGIP) and the New Solar Homes Partnership (NSHP) may be granted RPS-eligible status. It is conceivable that RECs could be granted to home owners, commercial property owners or perhaps aggregated under a larger co-op model in order to provide a revenue stream to the owners of distributed generation assets.

In theory, fuel cell devices from companies such as ClearEdge Power or Bloom Energy may qualify for REC generation if their fuel supply comes from biogas or other renewable sources.

Arizona, which has talked about exporting power to the U.S. will love this. Some companies have even talked about bringing power from Mexico. Obviously, this doesn’t help the “green jobs” element of California’s energy program, but it will help the state meet its goals.

Baby Steps

The CPUC ruling does include several safeguards to protect ratepayers. First, the ruling establishes a cap of $50 per REC. In addition, RECs can only be used to meet 25% of a utility’s RPS obligation. Both of these mechanisms, however, expire at the end of 2011.

The ruling “directs Energy Division staff to collect information about the TREC market and the use of TRECs for RPS compliance, and to provide a report with recommendations to the Commission within 16 months of the date of this decision.”  Based on these recommendations, the safeguards may be extended, modified, or allowed to sunset.

Welcome News

Word of the ruling travelled fast and was quickly embraced by several industry and advocacy groups, including the Center for Resource Solutions (CRS), a non-profit that promotes policies and consumer-protection mechanisms for renewable energy, greenhouse gas reduction and energy efficiency programs. 

“This has been a long and contentious issue,” said Arthur O’Donnell, the Executive Director for CRS.  “But it’s been clear for some time that California was unable to meet its short-term 20% [RPS] goals without employing T-RECs.”

While the debate over energy policy rages on in Congress, California has taken a leading position in the clean energy race. With a T-REC pathway in place, utility companies will now have more options to meet RPS requirements.  In addition, demand for T-RECs is expected to increase and provide a stimulus for the emerging REC marketplace.

 Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. You can reach him at 858-350-4215 or lbarken@hwcpa.com.

With southern California in the midst of thunderstorms and tornado warnings, attendees at the 6th Annual Clean-tech Investor Summit listened intently to conference chair Ira Ehrenpreis remind the audience that “we choose Palm Springs as the conference location for the past 6 years because of the wonderful weather here.” 

Despite the cancellation of 3 speakers due to weather related travel problems, the January 19-21 summit convened over 400 industry professionals to reflect on 2009, opine on 2010 and network with piers.

Networking, as it turns out, was a major attraction for attendees.  As one Private Equity managing partner said to me: “I’m here to meet up with colleagues and see old friends.”  Another popular theme, as shared by one clean tech company exec I met: “We’re here to look for funding.”

Flipping through the conference attendee list (provided to all participants) reveals an eclectic mix with concentrations in two communities: Capital Providers (Venture Capital, Private Equity) and Entrepreneurs.  The other notable presence: attorneys.  Lots of attorneys.  Now, imagine adding cocktails, a few hors d’oeuvres and then swirling them all together in one big room.  It’s party time.

In addition to networking, a major attraction of the summit is to provide a forum for presentations by industry luminaries and thought leaders.  Let’s just call them the “rock stars”.  From senators to CEOs, numerous presenters took the microphone and shared their vision and expertise with the audience.  Two particularly notable presentations provided unique insights:  Ray Andersen, Chairman, Interface Corporation and Amory Lovins, Chairman, Rocky Mountain Institute.

The Most Interesting Person in the Room

Ray Andersen is the author of “Confessions of a Radical Industrialist” and Chairman of Interface, Inc., the worlds largest manufacturer of modular carpet.  Carpet manufacturing is one of the most petro-chemical and resource intensive industries out there, yet Andersen – who introduced a sweeping sustainability vision in August 1994 – is committed to a company goal of zero environmental impact by the year 2020.

Andersen speaks with a calm and dry southern accent as he describes his own personal journey reconciling environmental and business issues through an ethical lens.  At times, the presentation drifts from instructive to poetic, as Andersen breaks into prose with the intelligence and artistry of a spoken word poet.

“The earth is finite,” Andersen said.  You can see it from space.  That’s all there is.”  He adds, “Nature is the goose that lays the golden eggs.  We must not squeeze the golden goose to death.”

What’s striking about Andersen is that he delivers his presentation without any of the granola persona or smugness that you might expect to be attached to his message.  Andersen cares about the environment.  He also cares about business.  Interface Global has revenues exceeding a Billion dollars and Andersen is the first to remind the audience that “I am every bit as competitive as any corporate executive you will meet.” 

To Andersen, sustainability is a war on waste.  As such, he views sustainability as a competitive advantage, not a burden or a diversionary marketing exercise.  Said Andersen, “This turns out to be a better business model.  We make a better profit.”

The Smartest Person in the Room

 Amory Lovins is the cofounder, Chairman, and Chief Scientist at the Rocky Mountain Institute (RMI), a self described independent and entrepreneurial non-profit “think and do tank” with a staff of 90 and annual budget of $15 million.

Lovins’ intellect is matched only by his humble and down to earth demeanor.  Following a lengthy and elaborate speaker introduction, Lovins begins his presentation with a smile and an unassuming quip: “With an introduction like that, I can’t wait to hear what I have to say.” 

After some laughter, he engaged the audience with a simple multiple choice question:  “Do you prefer to die of:  A. Climate Change, B. Oil Wars, or C. Nuclear Holocaust.”  The answer, he suggests, is: “D. None of the Above.” 

For Lovins, environmental change is all about reengineering energy generation and consumption, or as he puts it, “Reinventing fire”.  When done properly, he suggests, this concept of freeing the world from our dependence on fossil fuels comes with significant financial benefits.  “Problems go away, not at a cost, but at a profit,” says Lovins.

In a series of engineering vignettes, from redesigning how water flows through pipes to data center optimizations, Lovins demonstrates how thoughtful engineering and asking the right design questions can produce spectacular efficiency results.  In fact, Lovins has a website dedicated to this topic, called the Factor 10 Engineering project.  (www.10xe.org)

According to Lovins, “The notion that climate protection is costly is simply false.”  He adds, “Saving energy is cheaper then buying it, so smart firms are rapidly investing in energy efficiency—whether they worry about climate issues or not.”

Singing in the Rain

Amidst the torrential downpour in Palm Springs, the Clean-tech Investor Summit proves that the clean tech movement is producing both environmental benefits and economic profits. 

Leaders like Ray Andersen and Amory Lovins are shining examples of how to make this model work.  The economic recovery, much like my trip home to San Diego after the conference, is demonstrating that eventually the rains stop and the clouds fade away.  The year ahead holds great promise.  Are you ready for some sunshine?

Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. You can reach him at 858-350-4215 or lbarken@hwcpa.com.

While President Obama drew 48 million viewers for his State of the Union address, another noteworthy – albeit quieter – presentation was being made across town at the Securities and Exchange Commission (SEC).  The SEC, not particularly known for its marketing prowess, used the same day that Obama took the podium to announce that the SEC commissioners had voted to approve the release of interpretive guidance on financial disclosures related to climate change.  

In what might be characterized as the pin drop heard around the world, the SEC highlighted four areas where climate related disclosures may be required:

• Impact of Legislation and Regulation
• Impact of International Accords
• Indirect Consequences of Regulation or Business Trends
• Physical Impacts of Climate Change 

Science and Environment Commission?

 SEC Chair Mary Shapiro was quick to point out that the interpretive guidance is not an official position on climate change.  “We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics,” said Schapiro.

 In addition, it was noted that a guidance document does not create new laws or requirements, but rather provides direction on how existing laws should be interpreted in light of an emerging issue.  Guidance documents, similar to the one issued in 1998 related to Y2K disclosures, are intended to promote consistency between company reports and provide decision useful information to investors related to company risks.

Serious Pressure 

According to CERES (pronounced “Series”), a coalition of over 80 institutional investors with over $8 trillion under management, “The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies.”  CERES had been petitioning the SEC to promote climate disclosures since 2007. 

 One CERES member, the California Public Employees Retirement System (CalPERS) publicly praised the move.  “We’re glad the SEC is stepping up to the plate to protect investors,” said Anne Stausboll, CEO of CalPERS. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

 A Partisan Divide

 Support for releasing the guidance was far from unanimous.  The 3-2 vote fell squarely along party lines, with 3 democratic commissioners voting in favor and 2 republican commissioners opposed.  According to Commissioner Kathleen Casey, “I do not believe that interpretive guidance relating to disclosure of the effects of legal requirements and reputational pressures on registrants in the context of climate change is necessary or appropriate.”

 Another concern, expressed by Commission Troy Paredes, was the potential for confusion.  Said Paredes, “What triggers a ‘reputational damage’ or ‘physical effects’ disclosure is far from certain, as is the scope of any such disclosure if and when required.”

 Climate Disclosure Standards Board

 For most companies, climate change disclosures are not a new phenomenon.  For years, shareholders have been putting pressure on companies to provide more transparency regarding Corporate Social Responsibility (CSR).  A number of resources exist to provide assistance to companies trying to address these issues. 

 Most notably, a consortium of business, environmental and accounting groups have come together to form the Climate Disclosure Standards Board (CDSB).  In 2009, the CDSB published an extensive guide to help companies develop climate change disclosures.  The “CDSB Reporting Framework” report, along with accompanying Reporting Templates, focuses on how to make disclosures that provide investors with decision useful information related to climate change.

 Let the Sun Shine In

 There’s an old saying that sunshine is the best disinfectant.  By encouraging companies to provide greater transparency, the SEC ruling will result in better disclosures.  These disclosures, in turn, will help investors make better capital allocation decisions.  As companies adjust to the new guidelines, efforts such as the CDSB can help ease the transition.

 Reporting climate change disclosures will provide incentives for companies to monitor and manage their sustainability efforts.  It also provides an opportunity for companies to publicly highlight their ongoing activities and leadership positions.  While this may be one small step for the SEC, the move is one giant leap forward in recognizing that business and environmental issues are deeply interconnected.

 Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. You can reach him at 858-350-4215 or lbarken@hwcpa.com.

It’s a balmy 67 degrees in San Diego and I’m back home at my local coffee shop, sipping Chai Tea Latte.  A short 24 hours ago, I was in the snow and bitter cold of Copenhagen, Denmark, attending the 15th meeting of the Conference of Parties (COP15) climate summit.

For two brief weeks, people from around the world had been gathered to discuss how carbon emissions are affecting our environment.  Despite a failure to sign a major agreement, the victory of the conference has been its ability to focus world attention on climate change issues.  COP-15 has captured the public’s interest, raised awareness and energized ordinary citizens into action.

Acknowledging the gravity of climate change is a difficult task to consider as I sip a tasty beverage in the comfort of my shorts and t-shirt.  Perhaps the single largest challenge for reducing carbon emissions is to convey a sense of urgency to those who are the least affected.  Has our own comfortable condition lulled us into a sense of complacency?

What, Me Worry?

As Americans, we have enjoyed a cultural bias towards short term gratification.  This attitude is demonstrated by our invention of the credit card and its widespread use.  It can also be found in our cultural icons, such as the famous Popeye comic strip character Wimpy, who proclaimed “I would gladly pay you Tuesday for a hamburger today.”

Americans have also demonstrated that they are among the most generous in the world to respond to international relief efforts following natural disasters such as tsunamis, earthquakes and floods.  Unfortunately, we wait until after the disaster occurs to spring into action.

Climate Refugees?

At the COP-15 climate summit this week in Copenhagen, I took particular note of a group of seven countries that made desperate pleas to save their tiny island nations.  Most countries at these international treaty negotiations have established 2 degrees as the maximum allowable increase in global temperature that the planet can sustain, before catastrophic effects are felt.  However, countries such as Tuvalu and Maldives are now insisting that any increases greater then 1.5 degrees would mean the complete destruction of their countries and require entire populations to relocate to higher ground.

The speeches from these countries were passionate and thought provoking.  Can you imagine being sent to Copenhagen as your country’s representative with the task of saving your homeland?  A few years ago we sent my hometown San Diego Chargers to the playoffs.  When they failed their task and come home empty handed, we still gave them a parade downtown.  I hope the other countries are as generous to their delegations.

“The entire population of Tuvalu lives below two meters above sea level,” said Ian Fry, a delegate from Tuvalu.  In a plenary session in front of hundreds of dignitaries, he ended his presentation by saying “I woke this morning, and I was crying, and that’s not easy for a grown man to admit. The fate of my country rests in your hands.”  You can watch the entire presentation here: http://www.youtube.com/watch?v=oUyZOgcHn-Q

I’d Like to Teach the World to Sing…

If you’ve ever seen the famous 1971 TV commercial, you might think that the solution to world happiness is just giving everybody a Coke and teaching them to sing together.  The problem with this approach, of course, is the consequences of proliferating emissions associated with carbon intensive lifestyles.

If the United States represents 5% of the world population, but is responsible for 25% of its emissions, what happens when every person in China or India decides that they’d like to live the good life, too?  What happens to the environment when everybody in the world wants to drive a Hummer, live in a McMansion and enjoy a standard of living like the one experienced in the US?

It’s not that developing countries want a Starbucks on every corner. Many just want running water and electricity that actually works 24 hours a day.  One tool, putting a price on carbon through cap and trade, creates incentives for companies to reduce emissions.  This stimulates innovation, creates a marketplace around low carbon solutions and provides a pathway for developing countries to grow in a way that minimizes environmental harm.

In other words, the goal is to “de-couple” economic development and environmental damage.  Leveraging the innovation from industrial countries would allow developing nations to enjoy modern conveniences and build out their energy, transportation and construction sectors in a cleaner way than developed countries have historically achieved.

Home Sweet Home

Having returned home to San Diego, it’s easy to sink back into the daily routines of going to work, running errands and living life.  San Diego may not be currently feeling the affects of climate change, however, the indulgence of inaction is no longer affordable.  If there’s anything I’ve learned from my experience at COP15, it’s that the world is interconnected on many levels and our actions (or inactions) can have global consequences.

Interacting with delegates from nearly 200 countries from around the world has highlighted the importance of recognizing common goals.  However, achieving these goals will require a delicate balance of policy and fiscal responsibility in the months and years ahead.  The challenges are great, but we’re a great nation.  With sensible, business-focused objectives, we can protect the planet and the pocketbook.

Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the U.S. Green Building Council – San Diego chapter. Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. He was recently in Copenhagen attending the COP15 conference. You can reach him at 858-350-4215 or lbarken@hwcpa.com.