This may seem like an odd time
to suggest that utilities look for profitable growth opportunities
in the renewable energy sector. Many utilities still think of
renewables as a money pit at worst and a public relations
opportunity at best. They should see renewables as an opportunity.
If you unpack the renewables business, you will find that
utilities have most of the key competencies required to succeed.
You will also find that creative business models can provide
access to the other needed competencies and resources. Success
lies in realizing that only a fraction of the value of a renewable
energy asset is created by building and operating a plant. The
greater part of the value is created by managing tax incentives,
by building and employing political and regulatory capital, by
marketing and trading energy, managing the various credits
associated with renewable energy facilities.
This article makes four points about utilities and renewables:
- The renewables sector will expand and that expansion is
likely to be substantial.
- That expansion will probably harm utilities if they don’t
work to shape it.
- By getting involved, utilities can shape the development of
renewables in positive ways.
- Utilities can find profitable opportunities in renewables.
Economics and Politics Will Drive Renewables
The renewables sector will expand. We believe that because
renewables make both political and, in many cases, economic sense.
The idea of renewable energy is popular with the public,
particularly now that oil prices are commonly in the news. That
popularity is especially potent politically because it comes from
several very divergent sources. Some support for renewables is
ideological. Some comes from groups with a direct economic stake
in the industry. Additional support comes from groups that simply
find renewables sensible. Utilities have seen the power of that
kind of support before. The original PURPA legislation was an
example of the same phenomenon. “Co-generation” sounded appealing
and made economic sense in enough cases to gather broad political
support.
All told, expansion of renewable energy offers a good
compromise or quid pro quo to regulators and legislators faced
with other, less popular, energy issues. Gas-fired generation
could be installed in many places with relatively little
opposition in the 90’s.The construction of coal and nuclear plants
now being proposed, however, will work to the benefit of the
renewables sector. We saw a similar effect in connection with
electric restructuring and the expansion of merchant generation. A
variety of “popular” measures were tacked on to restructuring
legislation to make the entire package broadly palatable. The
promise of renewables mitigates the “pain” of coal and nuclear.
How much will the sector expand? That will be determined by a
combination of politics and economics. Some companies already face
mandated state renewable portfolio standards (RPS). More will
come. Guessing at how federal energy legislation will address
renewables is beyond the capacity of our crystal ball. Recent
draft legislation did not mandate renewable energy quotas. Still,
advocates are likely to renew efforts to require 100,000 to
200,000 MW of renewable energy capacity by 2020. More
significantly, current and proposed state legislation could result
in 20 – 30 per cent of this figure. Later in this paper, we
discuss the realistic prospects for market expansion.
Regardless of exactly how much expansion will occur, it is
clear that there will be enough expansion to create entirely new
income streams for utilities. Still, it is also clear that this
market is fraught with business and political risks. How can
utilities participate successfully in such a market? The short
answer is by remembering that they have a great deal of political
and regulatory capital and know-how. By focusing on these assets,
and not just on financial capital, they can be significant
players. Doing that calls for a new business model and a new
perspective that incorporates asset and risk management
principles.
Political Uncertainty on Renewables Continues
It would be foolish to try to predict the exact course of
federal and state legislation and regulation affecting renewables,
but uncertainty is not a basis for passivity. Whatever the
details, renewables expansion will be as much about government
action as about technology and market forces. Utilities must
participate positively in the political and regulatory development
of the renewables sector.
Historically, when faced with popular issues that didn’t fit
traditional utility business models, many utilities tended either
to await the outcome of the political process or to take a “just
say no” approach. Alternatively, companies sought protection from
the financial aspects of change, sacrificing customer-related
considerations. The industry expended a great deal of political
capital opposing major legislative and regulatory changes from
PURPA to market restructuring. Companies made much less effort to
shape state and federal initiatives to support their own
strategies. The usual result: rules unfavorable to utilities. In
competitive situations, the rules favored competitors. In
non-competitive situations, the rules imposed excessive costs on
utilities. Often, utilities and their affiliates were closed out
of new opportunities entirely.
Unless utilities work actively and constructively to structure
the renewables market, history will probably repeat. That is
natural. Regulators pursue what they believe to be the public
interest and what will address public concerns. While they
certainly develop their own views of what that means, they also
consider outside views. When utilities abstain from discussion of
public issues or take obviously parochial positions, the relative
influence of other parties is increased. Taking an active role now
in the renewables discussion has four advantages for utilities:
- You can influence the shape of the local or regional market
- If you wait too long you will be relegated to a passive
buyer
- Properly approached, renewables can be a profitable business
opportunity
- Experience and market presence will be valuable
What, then, are the particular areas in which policy can be
shaped? As of this writing, many energy issues have been presented
to Congress and not resolved. Renewables policy is one such issue.
While the president has indicated there is a role for renewables,
it has not been a prominent part of administration energy policy.
Despite, or because, of the political limbo at the federal level,
state efforts to stimulate renewable energy are accelerating.
Texas, California(1) and New York are currently leading the pack,
but New England and Middle Atlantic states are showing increasing
interest. The shape of the political battleground and the likely
marketplace is defined largely by seven parameters:
- Investment incentives. Primarily tax credits for
qualifying facilities,(2) these can be the biggest part of
project value. Credit transferability remains a disputed issue.
- Production incentives. Annual payments of 1.5 to 2.5
cents per kilowatt-hour may be granted some or all technologies,
probably up to some aggregate limit. Local considerations may
result in preferential treatment for certain technologies.
- Renewable portfolio standards (RPS). These quotas,
usually ramped up over 2005 – 2020, vary from 4 to 10 percent of
supply with outliers such as California calling for 20 percent.
At the high end, the quotas might crowd out otherwise economical
additions of conventional capacity.
- Compliance responsibility and penalties. Who is
subject to the RPS – the utility that buys power for retail
delivery or the wholesale power seller –varies across proposals.
In California it is the retail seller (utility); under proposals
in New Jersey, responsibility may fall on the wholesale power
seller. RPS compliance penalties also vary.
- Renewable energy credits (REC). In many proposals, a
separable and tradable REC would be issued for each kWh produced
by a qualifying facility. Marketing and trading these credits is
an area of potential advantage for utilities or their
affiliates.
- Qualifying facility definitions. Renewable energy is
usually defined to include wind, solar, biomass and
hydroelectric, with some jurisdictions adding geothermal, tidal,
landfill methane and even some fuel cells. New hydroelectric
sites or dams are ineligible in some proposals. The definition
of biomass is often narrowed to discourage incineration of
recyclable materials such as paper. Not surprisingly, local
economic interest can affect the definition of “renewable”.
- Federal or state purchase quotas. Some proposals call
for graduated federal electricity purchase standards up to 7.5
or 10 percent. State plans vary.
Regulatory and Legislative Strategy Issues
Utilities that want to seize the opportunities and avoid the
pitfalls offered by renewables must develop and execute a
proactive regulatory and legislative strategy. To date, most
utility approaches to renewables have been reactive, shaped by
experience under PURPA and EPACT. One New York utility executive
noted sardonically about state proposals to encourage distributed
and renewable power through net metering at retail rates “if you
liked 6¢ [PURPA] power, you’re gonna love 12¢ [renewable] power.”
An effective, proactive, strategy will lead to a market structure
in which utilities have a fair opportunity to profit from
renewables. Failure to develop and execute a proactive strategy
will, at best, yield policies that impose operating burdens and
cost pass-ons without the chance of gain.
It has been a long time since PURPA laid the groundwork for
non-utility power generation. We don’t want to over-emphasize the
parallels with renewables. There are similarities, but there are
also important differences from the PURPA experience.(3) In the
PURPA episode, utilities were required to purchase all the power
offered at “avoided cost” prices set by state regulators. There
was a general sense that there was neither economic nor regulatory
risk associated with these mandated purchases. Instead, many
utilities wound up paying dearly to buy out over-priced contracts
they felt pressured to sign in the first place.(4) Some states
have proposed similar programs for both renewables and distributed
generation.
In contrast to PURPA, most proposed federal and state energy
bills set purchase quotas but not prices. The retail utility or
the wholesale power seller supplying the wires company can meet
its quotas by buying renewable energy, renewable energy credits (RECs)
or so-called green tags. Who bears compliance risk is a critical
issue. In some states, utilities have tried to shift compliance
responsibility to wholesale power suppliers, but that alone may
not insulate consumers from cost responsibility. Regulators find
ways of preventing the pass-on of excessive costs. It is better to
design a structure that avoids those costs in the first place.
That requires a proactive approach to market design.
In a less artificial market than the one created by PURPA,
renewables projects will likely be less highly leveraged than the
debt-driven PURPA machines. Extreme leverage was made possible by
the utilities’ obligation to buy every kWh offered at prices which
guaranteed profits to the developer. Most “standard offer”
wholesale purchase power agreements today have short terms that
will not support long term investments in renewables. Unless this
situation is altered in future legislation or regulation, projects
will need substantial equity investment. Utilities must decide
whether a market financed in that way is advantageous, given their
own strategies.
Another important strategic factor will be the relationships
among federal, state, and regional actions. States are likely to
vary in their approach to renewables based on regulatory
philosophy, local politics, and local economic interests. That may
be helpful to local developers and some traders. A federal
approach would probably impose some common standards. Equipment
suppliers and large developers will probably favor national rules.
Utilities need to decide, based on their own business strategies,
whether they favor the current state-by-state approach or should
push for a more uniform federal approach.
Utilities will doubtless react to each of these strategic
issues in different ways depending on their individual
circumstances. Some may oppose creation of large, liquid
renewables markets on political or economic grounds. Even these
companies should recognize the marketing potential in aggregating
and selling “green” power. (We believe that strategy would
sacrifice many opportunities for revenue growth.) Whatever the
strategy, however, involvement in shaping the market and its
regulations will be crucial to success.
Renewable Energy Market Size and Potential
Renewable power makes only a modest contribution to electricity
supply today but is expected to grow rapidly. The small market
size and rapid growth potential mean that no one is in a dominant
position today and there is opportunity for a company to take a
major position based on an effective strategic vision of the
industry, complemented by the competencies necessary to execute
that vision.
Many renewables advocates envision a truly audacious, probably
implausibly audacious, renewables industry. For example, recent
Senate proposals sought to create, in a little over 16 years, a
renewable energy fleet comparable to or larger than today’s
nuclear power plant fleet.
Depending upon the mix of eligible technologies chosen to meet
the RPS mandates and their capacity factors, somewhere between
100,000 and 200,000 MW of renewable capacity would be needed by
2020 if a 10 percent mandate were enacted. The low end of that
range is probably more reasonable because higher capacity-factor
technologies such as biomass and wind would dominate the mix.
Using a moderate $1500 per kW capital cost results in a cumulative
investment requirement of about $195 billion by 2020. It’s hard to
envision goals like these being met. At some point sanity and
market forces would call for a reassessment. For planning purposes
a more realistic 20 year estimate is probably closer to 40,000
-50,000 MW – still very large numbers.
Renewable energy, including hydro electric (which is often
excluded from proposed RPS)(5) accounted for only 7.6% of U.S.
electric generation in 2001. Removing hydroelectric capacity’s
contribution reduces the remaining solar, biomass, geothermal and
wind contribution to just 2% of the electricity supply in that
year. By 2004, generation from non-hydro renewables had increased
by 14% (mostly from wind), but was still only 2.25% of total
generation. The EIA’s Annual Energy Outlook (AEO) for 2005
projects that renewable electricity generation, excluding hydro,
will almost double by 2025, although actually declining as a
percentage of total generation. (EIA does not assume new
renewables mandates). EIA projects that the major sources of
growth will be in biomass, wind, and geothermal, as the following
chart from the AEO shows:
With the exception of hydroelectric, a few large wind farms,
and geothermal in the west, relatively little renewable power is
connected to the grid or produced directly by electric utilities.
In 1997, non-hydroelectric renewable energy accounted for only 2
percent of total U.S. electricity generation(6) and less than 10
per cent of that was produced by utilities.(7) Biomass is the
largest non-hydro renewable source of electricity (1.5 percent),
followed by geothermal (.3 percent) with wind and solar accounting
for only (.12 percent).
Developing a Renewable Energy Portfolio
Although most companies have so far concentrated on a single
technology, a mixed portfolio of renewable energy technologies may
offer better potential than a strictly “least cost” capacity mix.
- Incentives distort the underlying economics, especially in
the short term, making “least cost” difficult to define
- Given a patchwork of regulations, the value of tradable RECs
may vary with technology; a mixed technology portfolio may
create valuable trading opportunities
- Given the rapidly changing technologies, a portfolio offers
a hedge against technology risks
- Some technologies, such as bio-mass, offer a wide range of
segment-specific solutions
- Some technologies, such as solar, offer political hedges and
may command a photo-opportunity value for customers eager to
boost their environmental credibility
Getting reliable comparative cost data is difficult because so
many variables affect cost and the technologies are moving
rapidly. The table below contains recent EIS estimates for the
western region.
The incentives being sought will not favor all technologies
equally. One PV industry leader says: “PV won’t be a big
beneficiary of proposed portfolio standards. At $5000/kW and
15-20% capacity factor, PV will be bypassed primarily by wind and,
depending on jurisdictional renewable definitions, landfill gas or
even natural gas fuel cell demos. But PV has the lowest
cost-per-photo opportunity and it has the broadest public appeal
so most developers should want to do a little. "
Right now the renewables “answer is blowing in the wind.” The
American Wind Energy Association claims that wind energy is on a
track that could provide six percent of electricity by 2020. That
may be problematic. Although wind clearly will be a big play, wind
is a long lead-time, hard-to-site technology. Although many
utilities will play a role in the delivery end of the value-chain,
with the exception of FPL and a few others, most are unlikely to
develop the competencies necessary to be competitive in wind
technology. Moreover, wind can be politically disruptive in many
regions, as Cape Wind has discovered trying to site an offshore
wind farm in Nantucket Sound. Green-field development costs shown
above are increasingly competitive with fossil-fired plants. Costs
of existing wind assets reflect the value of the power contracts
associated with the facilities. FPL recently acquired 106 MW of
California wind for about $82 million or around $780 per kW.(8)
In our opinion, utilities should look hard at biomass and try
to ensure fair rules of the road for its development.
- Biomass is among the more “competitive” renewable energy
sources, albeit with a significant range of costs depending on
feedstock type and availability
- The balance of plant, perhaps 60% of costs, is familiar and
similar to conventional steam plants, somewhat mitigating
project and operating risks
- Biomass offers an opportunity for utilities to serve as
community problem solvers. There are upper Midwest plants
successfully using the same raw material found in cow pies.
Groups of utilities may even be able to build regional biomass
plants that efficiently dispose of agricultural or forestry
wastes.
- Hybrid energy plants may accelerate biomass development much
as hybrid gas/electric cars have outperformed pure electric
vehicles. Biomass may flourish if hybrid or blended applications
are eligible for pro-rata RECs. A “tolling” plant that burned
both biomass and fossil fuel that qualified for pro-rata RECs
would likely be more reliable and better able to track with
market prices.
Renewable Energy Revenue Streams
This is an incentives-driven business.(9) Depending on
technology and jurisdiction a renewable energy project may
generate cash flow from production tax credits, subsidies, REC
sales and, of course, kWh sales. These multiple cash flows give
rise to opportunities for creative financial products, especially
when integrated with other tradable credits such as SO2 and,
possibly, CO2 if current discussions on a cap-and-trade approach
bear fruit.
Energy and credit marketing capability may become an important
competitive advantage. Under many proposals, the government would
issue producers a separable and tradable REC for every qualifying
kWh. The REC can be sold separately from the electricity.
Utilities could buy RECs to comply with their RPS; others could
buy them to feel good. “Aggregators” such as Green Mountain Power
already consolidate the output of many “green” producers and sell
tranches of certified green power to utilities or end customers.
Intermediaries for RECs already exist. Conservation Services Group
is a national market maker while Mainstay Energy has created a
“green tag” market in Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, and Vermont. (10)
It is difficult to predict the market clearing prices of
tradable credits. We have learned from earlier trading proposals
that initial estimates of the market prices of credits are often
far off the mark. The sulfur dioxide trading system initiated in
1990 as part of the Clean Air Amendments has been very successful,
but before it went into effect, people were estimating that an
allowance might be worth as much as $500/ton of SO2 emitted.
Actual prices, of course, are as low as $100.
Effectively, the REC allows producers to reduce the price of
their renewable energy by the value of the credit. If there is no
renewable power price premium – power is power – then the RECs
will sell for the difference between the price of renewable and
conventional power up to the level of the non-compliance penalty,
if any. Market inefficiencies are likely to result from the
interaction of state and federal programs and from the public
relations “need to be green.” That is especially true if the costs
of renewables are treated as pass-throughs for retail customers.
Because there are significant and persistent regional price
differentials for conventional and renewable power, RECs may
initially be worth more in some regions than others. Thus there
may be substantial inter-regional trading in RECs. Since RECs are
fungible paper or electronic commodities they should eventually
trade nationally at a common market clearing price, assuming local
regulations don’t preclude that.(11) The likelihood of a common
national REC price has several important consequences:
- It tends to support renewable energy production in the most
advantageous locations for each technology, making small local
efforts even less economic,
- It means that relatively efficient companies will earn more
“producers surplus” making it worthwhile to consider how to gain
scale and scope economies
- It provides an opportunity for firms with trading
competencies to earn arbitrage profits and construct hedge
products.
Renewable Energy Industry Structure and Business Models
The nature of the renewables business and the lessons learned
in the merchant power industry suggest that designing an effective
business model will be a crucial factor in capitalizing on the
opportunity which the growth in renewables offers. Today, most
companies are looking at three options for renewables: (a) the
traditional build, own and operate model, (b) purchasing green
power or credits, and (c) a mixture of these two strategies. Some
will find a strategic fit among these options. but there may be a
better one.
Solar, wind, geothermal and biomass have very different
technologies, industry structures and business models. There are
several business models in the renewables sector
- Focused value-chain players such as component manufacturers,
marketing aggregators and green power traders
- Total value chain or turnkey developers including some of
the large PV and wind power companies
- Build, own and operate developers and, in some cases,
utilities
Solar PV manufacturers range from relatively small companies like
AstroPower and Evergreen Solar competing on the basis of advanced
technologies to oil company subsidiaries such as BP Solar and
Shell Solar.(12) Kyocera’s business model fuses information and
solar technology to offer tailored products to a number of
segments.
The wind-generation sector is relatively concentrated; FPL
Energy, with something over 2700 MW of wind power and 42 wind
farms in 15 states, generates about 40% of the U.S. total. Wind
power manufacturers include a few small, niche players but large
companies such as GE Wind Power,(13) NEG Micon and Vestas dominate
the utility scale turbine business. Most of these companies offer
a full range of project development and site management services.
The European wind market is much more developed than the U.S.
giving companies there an installed base and some scale
advantages.
Biomass is the most eclectic of the renewable energy sources.
Although it is in many respects the technology closest to central
station steam generation, there are many potential feed stocks
promoted by numerous interests and producers. Thus, biomass
opportunities depend upon local feed stock potential and
environmental constraints on combustion.
Utility Renewable Business Model Options
The build, own and operate model is the asset acquisition model
traditionally employed by utilities. It is also the model most
often used by developers. But, it may not be optimal for many
utilities looking to comply with renewables mandates.
- Many utilities won’t want (or don’t have the capability) to
locate, design and build renewable energy facilities.
- Renewables involve a fairly steep learning curve and few
companies have enough native demand to achieve economies of
scale or technology diversity.
- The renewables industry is very fragmented, complicating the
task of making technical choices and selecting business
partners.
- Even though some utilities or their affiliates have the
capability to build and operate, and the scale to achieve
economies, there is no reason to believe that there is room for
20-30 new, redundant utility programs. (Although this may
initially occur and inflate a renewables bubble.)
On the other hand, relying exclusively or heavily on contract
renewable power may also be risky.
- Long-term contracts may be difficult to lock-in or hedge.
- Revenue streams and investment needs are likely to be out of
phase. Revenues will come from short-term standard offer power
supply contracts and retail sales. Investment will involve
long-term commitments.
- Executives who remember cogeneration and QF power contract
problems may vow never again to be trapped in onerous contracts
but can never be sure that this foray into government-assisted
energy decision making will turn out different.
- Buying contract clean power or green tags also limits the
opportunity to profit from the development of renewable power.
- The historical experience demonstrates that just because you
have a contract and just because the regulators told you to do
it, doesn’t mean all the risk has been transferred to customers.
A profitable renewable energy business model must (a) deal with
the fragmented and rapidly evolving industry structure, (b)
mitigate the uncertainty and risk perceived by investors and
customers, (c) leverage the strengths and assets of utilities or
affiliates, (d) be financially designed to optimize all of the
potential revenue streams, and (e) address public policy
objectives. At this stage in the development of renewable power
some companies have an opportunity to play a strategic integration
role and reap exceptional rewards while facilitating market
development.
Conclusion
Renewable power is here to stay. Utilities should embrace it as
an opportunity and work to shape the regulatory and legislative
developments so important to the renewables sector. They should
develop and implement regulatory strategies for renewables. This
new approach requires a careful choice of business model. For
some, the traditional build/own/operate model or the newer
contract model may make sense. Others will find that a new
approach to renewables requires a new business model like the
network manager model.
Footnotes
(1) The Governor of California signed legislation enacting
California’s Renewable Portfolio Standard (RPS) -SB 1078 - on
September 12, 2002. This legislation, which requires retail
sellers of electricity to purchase 20 percent of their electricity
from renewable sources by 2017, establishes California as having
the most aggressive RPS in the country. Renewable sources include
biomass, solar thermal, photovoltaics, wind, geothermal, fuel
cells using renewable fuels, small hydropower of 30 megawatts or
less, digester gas, landfill gas, ocean wave, ocean thermal, and
tidal current. Municipal solid waste is generally only eligible if
it is converted to a clean burning fuel using a non-combustion
thermal process. There are restrictions for some of these
technologies.
Under the RPS, retail sellers of electricity are required to
increase their procurement of eligible renewable energy resources
by at least 1 percent per year so that 20 percent of their retail
sales are procured from eligible renewable energy resources by
2017. The RPS legislation requires that the Energy Commission and
CPUC work collaboratively to implement the RPS and assigns
specific roles to each agency. The two agencies are currently
developing rules that will apply to investor owned utilities
(IOUs), and will later develop rules for Electric Service
Providers and Community Choice Aggregators. Municipal utilities
are ordered by the legislation to implement RPS programs under
their own direction. [Source:DSIRE]
(2) In some states there are also privately financed incentives
including so called “green tag” payments.
(3) IPP and merchant power players are largely outside the
renewables sector today although a few merchant power companies
are exploring renewables. Given slow demand growth and present
capacity margins, high-end RPS targets might cause renewables to
displace conventional power in the new plant stream.
(4) One possible similarity with the IPP era is that the
renewables industry might experience the same sort of boom and
bust cycle. The once-thriving IPP and merchant power sectors
spawned by PURPA and EPACT have been distressed as over-capacity
emerged, trading margins shriveled and natural gas prices rose.
There are some signs a renewables bubble could occur as many rush
to the entrance.
(5) For example, only hydroelectric capacity upgrades and
additions at existing sites were eligible in the 2003 Senate bill.
(6) This appears to be higher than the proportion required by
2005 in the draft legislation, but since all companies would have
to meet that level, it is likely that additional sources will be
needed. For whatever political or social reasons, some companies
may choose to exceed the required level.
(7) For example, of the 86 billion kilowatt-hours domestically
generated from non-hydroelectric renewable energy sources in 1997,
nonutility power producers accounted for 91 percent and electric
utilities 9 percent. EIA Chapter 5 Issues for Renewable Fuels in
Competitive Electricity Markets.
(8) In Decemeber 2003 FPL Energy, LLC acquired from Enron 106
megawatts (MW) of California wind assets for $82 million. FPL
Energy subsidiaries purchased 100 percent of the assets of the
40-MW Cabazon and the 16.5-MW Green Power projects near Palm
Springs as well as Enron’s 50 percent ownership interest in both
the 77-MW Sky River and the 22-MW Victory Garden Phase IV
projects.
(9) Just how incentive-driven can be seen by the sensitivity in
forecasted wind additions to the expiration or extension of the
wind Protection Tax Credit (PTC) enacted in 1992 (a 1.8-cent per
kilowatt-hour credit,adjusted periodically for inflation, for
electricity produced from a wind farm during the first 10 years of
its operation). Some observers suggest that incentive-driven
industries and business plans can’t survive While it is prudent to
keep the risks of incentives in mind, we should also remember that
incentives have nurtured plenty of successful industries. Much of
the real estate business has been tax-driven for decades.
(10) Mainstay makes a one-time payment per kW of capacity of
$100 and $50 for solar PV and wind, respectively. The money for
this incentive does not come from state or federal governments,
nor utility companies, but rather from the sale of green tags to
environmental markets. These tags are "unbundled," from the
electricity at the point of generation, and can be sold
independently.
(11) The value of RECs and the extent of inter-regional trading
will, of course, also depend on transmission cost and
availability. This is another area in which utilities possess
valuable capabilities.
(12) Other than deep pockets, it is difficult to see shared
competencies or technical overlaps between the oil and solar
industries. Some observers expect the remaining oil companies to
recognize this and exit as Mobil did several years ago.
(13) GE bought the Enron wind business out of bankruptcy and is
reported to have a $1billion book of business.
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