While writing about medium wind in Alaska, I ran into information that led me to believe there were some questionable offsets involved with the project. More extensive research, including interviews with Brent Petrie of AVEC and Tom Stoddard of Native Energy, have revealed a more complicated situation, one that still doesn't look good to me.
Here is what the situation looks like at first glance: AVEC has installed wind turbines that produce electricity for around 15 cents per kWh, according to the interview on which the first post was based. That 15 cents per kWh wind is displacing 45 cents per kWh electricity -- of which 13-25 cents per kWh is diesel and diesel storage alone. Yet Native Energy is selling carbon offsets at up to $12/ton for this project -- claiming that this produces additional wind power compared to not getting the subsidy.
How does Native Energy justify this? The Alaska Tundra may be the harshest environment in the world for running renewable energy projects. The claim is that if the Tookok and other projects failed in the early stages this would have discouraged further development. The money from offsets has been used so far for operations during the first two years to cover monitoring and recovery from failures during this time.
In Brent Petrie's words:
It is one thing to put these wind turbines up, but it is another thing entirely to get them to operate successfully on a long-term basis. If they are not operating, they cannot possibly reduce CO2 emission or our electricity costs. With Native Energy's funding, we are able to ensure that putting them up will turn out to have been worthwhile, because we have a significant reserve available to fund the cost of ensuring that the projects perform.
Tom Stoddard of Native Energy (the offset broker) makes the same point:
... AVECs previous (hydro) projects that lacked O&M funding experienced significant operation failures. As wind projects are even more sensitive to environmental conditions, it seemed that there was a significant risk that these wind turbines would as well, and in fact they were experiencing problems at the time. Thus, the construction funding for these projects came up short on the full "enablement" picture, and in our judgment there was a role for carbon offset funding to provide the rest -- to overcome a barrier to successful operation by providing a needed cash reserve to fund extremely expensive O&M expenses, enabling these turbines to operate successfully, and enabling them to demonstrate that wind development in Alaska can be successful, if the O&M is enabled along with the construction. In our judgment, that is a sound basis for crediting these turbines as additional, especially given the potential ripple effects of their success or failure.
These raise new questions. Petries mentioned in our original interview that O&M was actually lower than anticipated so far. (The turbines have been operating for roughly a year.) So if all these costs were anticipated, had he really not built them into the original financing? Given the cost (15 cents per kWh vs. 45 cents per kWh for diesel), couldn't AVEC have raised their cost to 17 cents per kWh and covered the extra O&M?
However, there is a more important point here. When you talk of this money contributing to the future of wind, you have to remember that Native Energy is not selling general green power. They are selling offsets, a claim of carbon neutrality.
Native Energy is definitely putting an exact number on what they are selling. But tell me how easy it is to put that same exact number on what they are buying. How much time in operations would AVEC have lost without Native Energy funding? How much of future wind power in Alaska will be due to the extra Native Energy funding of the Toksook project? Can Native Energy really put a number on it? Do we even know that the number is something other than zero?
When I first talked to him, Brent Petrie described the Native Energy offsets as a "bonus," a "nice extra." Now, as the quote at the beginning of the post shows, he backed off completely from this -- with extensive backup from Tom Stoddard of Native Energy. But the agreement AVEC signed with Native Energy certifies that the offsets are a "significant contributor to economic viability and seller's efforts to build additional wind capacity." So if Petrie had not backed off from those statements, AVEC would have been in serious legal difficulty of some sort.
It may be those terms really were slips of the tongue in a routine interview. It is possible that additional revenue did enable AVEC to keep the turbines running more of the time than if it had not been available -- that even with the huge cost differences, AVEC could not have found the money to fund the extra O&M somewhere. But the point is that we will never know if the money really did enable extra running time that would not have otherwise been funded, and if it did enable such, we will never know how much it funded. We will never know if Native Energy's claim that small wind would have failed in Alaska without them -- though we may be excused, I think, for doubting it.
When the Oscars claimed their purchase of Native Energy offsets made them carbon neutral, when Clif Bar tells its interested customers to buy offsets to reach carbon neutrality, they are not merely claiming to be nice organizations who contribute to good renewable energy causes. They are claiming to have offset an exact amount of carbon emissions. If you want to buy offsets as an individual, Native Energy even helpfully provides a calculator so you can figure out exactly how much carbon to offset.
There are all sorts of ways to fund renewable energy. But when you sell carbon offsets rather than more general green power, you are making a very specific claim. And it looks like a claim that is no easier to prove in the voluntary carbon market than under the Kyoto CDM.
As Tom Stoddard said in his phone interview with me, an offset is "such a nebulous concept you have to deal with it in the context of market reality." Talking about another project (the family-farm wind program Native Energy also helps fund), Stoppard said, "We can't pick and choose on a per-farmer basis, because transaction costs are too high." So basically they try to estimate how much their subsidy to the turbine manufacturer increases turbine sales. Again, Native Energy is buying something nebulous and vague, and turning around to sell it to offset a very precise amount of carbon emissions.
I sometimes hear offset providers claim that this does not matter; offset purchasers have no illusion about what they are buying. First of all, I wonder if this is really true. Neither the producers of the Oscars nor the owner of Clif Bar are energy experts. At any rate, even if the key decision makers know what they are buying, I'm pretty sure that a high percentage of those visiting the Clif Bar website, or those reading the certificate in an Oscar goodie bag, believed the claims of carbon neutrality. If precise numbers really don't matter, then offset providers could simply call themselves sellers of green power, without making a pretense of offsetting a particular amount of carbon. But of course, the claim to offset an exact amount of carbon is precisely what companies like Native Energy are selling.
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Comments
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kayakkid Posted 4:15 am
20 Jun 2007
The O&M argument does not holdup. O&M for wind is typically just 1% of project cost. Let's double or quadruple that to 4% for Alaska and you're still looking at just $.006 per KWH (or $.156 KWH vs $.45).
The idea that the last 2-4% of the project was not covered while the consumer is saving 66% somehow made the project additional is an incredible argument.
So what are Native Energy's customers paying for, where is the $12 per ton of carbon offset going, how many carbon credits did they buy and how much did they put into the two year O&M kitty in return for those carbon credits?
Consumers goodwill should be financing projects that need it, that are on the edge of viability, not projects that are already cost-effective. This is how we move markets.
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Gar Lipow Posted 4:53 am
20 Jun 2007
Fuel cost alone for diesel (purchase, delivery and storage) ranges from 13-25 cents per kWh. The mid point of that is 19 cents. But diesel is notoriously expensive as a primary way to generate electricity even when fuel is cheap. The problem is that a diesel engine run over a long period of time and variable speeds either has to be replaced frequently or requires really extensive maintenance often both. In addition, in Alaska, Diesels have to be climate controlled cause diesel engines don't work well in extremely cold weather. I would think generation with small diesel engines would add at least a nickel per kWh to generation costs, maybe more. I know that there are cases where unsubidized photovoltaic cells beat diesel on cost in remote areas, back when oil was $15 per barrel. So 24 cents a kWh for generating costs (fuel, fuel transport and storage+ power plant cost, maintenance and O&M) is a low estimate. I would think realistically somewhere between 24-30 cents per kWh. As a check the average figure in the power industry in the U.S. is that generations runs about 60% of cost which would be about 27 cents per kWh. Part of remainder is stuff like administration and billing. Another large hunk is distribution lines. Even though there is no long distance transmission, there is distribution of a hundred or so buildings, and some of the power plants may be far enough from the main part of the village they serve to require a short transmission line as well. With no economies of scale available, maintaining these tiny distribution networks has to be fairly expensive.
However, event taking the low figure, the difference between 24 cents per kWh and 15 cents per kWh could still cover an awful lot of O&M.
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nobones Posted 7:50 am
20 Jun 2007
It reminds me think that the author is shooting at the guys in the white hats...
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Tom Stoddard Posted 8:51 am
20 Jun 2007
To clarify:
* You suggest that AVEC could simply have raised their wind power cost to their customers from 15 cents per kWh to 17 cents per kWh to cover the extra operations and maintenance costs. That puts the cart before the horse. If, as actually happened, the turbines needed significant reconfiguring following the testing period, or if there were other early breakdowns, as happened with its prior project, the turbines can't generate the power needed to obtain that extra 2 cents to pay for the reconfiguration or repair. That's why we provided an O&M reserve, up front. A project that isn't generating power cannot pay for its own repairs out of sales revenues.
* I never said that "offsets" are a nebulous concept. I stated that "additionality" is a nebulous concept. I do agree with you, however, that more analysis and detail is required in the offsets context than if we sold the RECs simply as green power. NativeEnergy continues to be one of the longest and loudest proponents of that view. The question is how much more is required? With offsets, the market reality is that both sides of the equation, the footprint and the offset, must necessarily be estimated. The National Association of Attorneys General Environmental Marketing Guidelines for Electricity (NAAG Guidelines) state that when a specific emissions claim is made, you need to disclose your basis for making the claim, and that disclosure "should be presented in a manner that makes the basis for the comparison sufficiently clear to avoid deception." The NAAG Guidelines do not require precision - just transparency.
* Every detail on how we calculate the emissions reductions estimated to be produced by the projects we help fund is set forth at http://www.nativeenergy.com/how_we_calculate.html. Our web site is replete with disclosures of both the fact that the claimed emissions reductions are estimated, and our methodologies for estimating them. We do not, contrary to your suggestion, claim to offset "an exact amount of carbon emissions." We claim to offset an estimated amount of carbon emissions, just as our customers estimate how much they want to offset. We also employ significant discounting to ensure that our estimates are conservative.
* Additionality is a nebulous concept, and there is a great diversity of opinion on the subject. The bulk of marketers take a very minimalist view, claiming that all renewable projects built after the inception of the market for green power are additional. By contrast, we believe that additionality should be assessed on a project-specific basis whenever possible; and when assessed for a project group, discounting should be employed, which we do, to account for "false positives." What is important to understand is that concluding that a specific project is additional necessarily requires exercising judgment in particular circumstances that are unique to that specific project.
We were fully aware of the project's generation cost and the cost of the power it displaces. We had extensive discussions with AVEC regarding the additionality of the project, its wind development efforts overall, the barriers it faced and that others face in trying to build and operate these projects in extremely remote and isolated areas and under extremely harsh conditions. This direct relationship with the project developers is actually one of the major differences between NativeEnergy and others.
We looked closely at the project through the eyes of the United Nations Framework Convention on Climate Change Tool for the Assessment and Demonstration of Additionality, and we exercised our best judgment. We concluded that this project faced significant technical barriers to successful operations (as opposed to construction) that could be overcome with our offsets revenues.
As in most matters of judgment, the yes/no line is seldom as bright as we might like. So we seriously considered the potential ramifications of this project's success or failure for future wind development in Alaska Villages - the potential for a widespread view that "oh, AVEC tried wind turbines down in Toksook Bay and they just didn't work." We also considered the potential drawbacks of committing to this project rather than others. There is no shortage of projects that need additional revenues to get built or to operate successfully. Demand for offsets is the real limiter. We have no motivation to commit to a project we see as non-additional when so many additional projects are available. Based on all these factors, we concluded that the AVEC project, our customers, the market and the climate were better served by our funding an adequate O&M reserve through offsets than not. As none of the "revelations" in your article are news to us, we remain convinced.
One final note - what the Oscars purchased did not come from NativeEnergy, nor did we put anything in the goodie bags.
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kayakkid Posted 11:03 am
20 Jun 2007
For everything that is undefinable about 'additionality', this project is straight forward, the economics overwhelmingly work and the offset dollars make no difference.
But the key question for any consumer is: where did my money go?
Regardless of Stoddard's explanation, the key question remains. We know the project needed no money to be cost effective. But even if it did need a small O&M fund above the normal O&M fund, this could not have been more than a couple thousand dollars (Native Energy, why don't you tell us?). So where did my money go?
Native Energy does not enjoy the level of certification other offset companies have, nor the transparancy, so at a minimum Stoddard could tell us how much money went to the project for how many tons of carbon credits?
The incredible part is how Stoddard refuses to back down in the face of the overwhelming evidence.
Perhaps Al Gore feels good knowing his money went to an unneeded O&M fund for a project that was already going to reduce costs by over 50%. I doubt most consumers do.
Again, consumers should ask, where is my money going? How much went to the project and how much to Native Energy's coffers.
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Pilgrim Posted 11:11 am
20 Jun 2007
As a private corporation Native Energy does not even publish any financial information. Does anybody certify their projects? Can't tell. Sorry, kayakkid, there is no way to follow the money. Just pay up and kiss it good bye.
Do you think that Al Gore, Hillary Clinton and Ben & Jerry's really did any homework before signing up with these guys? Not likely.
My rule: buy credits from low cost NGO's that maximize the impact of my offsets with certified projects and who release good financial information so I can follow the money.
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Tom Stoddard Posted 1:17 am
21 Jun 2007
Only AVEC can comment on the significance of the net operating savings. We are not about to disclose AVEC's financial information.
Our point is that we never relied on financial additionality with this project. Even the UNFCCC Tool for the Assessment and Demonstration of Additionality makes clear that economic returns do not necessarily make a project non-additional.
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Tom Stoddard Posted 8:04 am
21 Jun 2007
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Dick Rickson Posted 11:55 am
21 Jun 2007
Those who are absolutely transparent will come out the winners. You have to hope that the bad end of the market does not ruin the image of the whole idea of trading among consumers, sort of like jailed Paris Hilton damaging the reputation of all easy, slightly slutty blondes: it wouldn't be fair, and it would be a damn shame.
NOTHING LIKE FREEDOM
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Brent Petrie Posted 12:07 pm
22 Jun 2007
There is a misunderstanding in the use of 15 and 45 cents per kwh in the traffic above.
Generating and delivering power in Alaska's remote communities is a challenging and extremely expensive process. For example, our newest wind-diesel systems are over 400 air miles west of our Anchorage support center, in an area with no roads, where technician access is by air or boat when weather permits. These systems were only commissioned in July 2006 and have been in their break-in process.
Our cost of FUEL ONLY in our 2007 rates ranges from $0.1336 per kWh to $0.3918 per kWh depending on the location. The fuel cost is added to our base retail small power rate of $0.32 per kWh for the first 700 kWh which gives a retail price range of $0.4536 to $0.7118 per kWh. The wind is only useful to us to displace fuel and is not consistently available among the villages that we serve.
Our 2005 fuel costs are posted on our web site at http://www.avec.org/cust.html#RATES. Our 2006 and 2007 rates will be posted when we complete our web site update. The fuel charge is set annually by the Regulatory Commission of Alaska after a review of costs.
Readers need to be aware that fuel costs are the ONLY costs that the wind power avoids for us. The wind power does not, in any way, displace 45 cents per kWh. The 45 cents per kWh is the approximate minimum sum of our fuel cost (the cost to generate a kWh from diesel) plus the costs of delivering that kWh and administering all the other elements of utility generation, distribution, finance and operation - roughly an additional 32 cents per kWh for a customer's first 700 kWh. It costs AVEC the same 32 cents per kWh to deliver a kWh from wind. The ONLY relevant comparison is between the cost to produce a kWh from wind and the fuel cost to produce a kWh from diesel - the numbers shown above. As a non-profit cooperative, all of our costs and savings are passed along, or shared, 100% with the consumer.
The 15 cent number that is mentioned for the wind cost was our rough target cost per kWh. It is the number we felt that we needed to beat in order for the wind to be competitive with the diesel - and not actually end up costing more. The fuel charge will be revised again in early 2008 to reflect the actual cost of fuel per kWh and 100% of the savings for the fuel that is displaced by wind will be passed on to the consumers. The non-fuel costs per kWh are unlikely to change and may, in fact, go up, since the capital cost of wind turbines is so much higher than diesel per KW.
Our production experience with one prior project has been relatively poor. We did not have extra funds budgeted for O&M, and the turbines experienced considerable down time. As the cost of installing wind turbines is mostly up front, the cost per kWh of their output is a function of how many kWh they produce. The longer the downtime they suffer, the higher the cost per kWh and the less fuel displaced.
We recognized that we needed to supplement O&M if a wind project is to be successful.
Hopefully this helps clear the air.
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Gar Lipow Posted 1:28 pm
22 Jun 2007
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