Cost Containment International president Hans Herrmann spent this past weekend up in Walworth County, Wisconsin, at the first annual EcoFair360. C2 was a primary sponsor of this three-day celebration of all things green, which brought more than 2,000 attendees together with hundreds of exhibitors and presenters. Cost Containment International had a booth in the sponsor tent, and Mr. Herrmann gave two separate presentations.

He also picked up a little something for dinner.

What you see here is (perhaps) the future of the one-pot meal. This is a SUN over, an oven which cooks exclusively using the energy from the sun. It’s an old concept, as anyone who has used a magnifying glass to start a fire knows. With the SUN oven, reflective panels focus and concentrate the sun’s rays into a central cooking chamber, where it can easily hit and maintain temperatures of 350° and higher. Look closely and you can see the dutch oven in the chamber.

Dinner in this case was chicken, and reports are that it was both well done…and done well.

They say that virtue is its own reward, and Wolin-Levin president Robert B. Levin (shown here receiving a plaque from C2 Intl. president Hans Herrmann…Mr. Levin is on the right) agrees. By acting on his commitment to be environmentally responsible, he has been rewarded with substantial savings on his electric bill.

If this goes against conventional thinking about the economics of “going green,” then Cost Containment Intl. and Community Green Energy (CGE) think that it’s time for the conventional thinking to change.

Wolin-Levin has agreed to “green up” its electricity by purchasing Renewable Energy Certificates (RECs) from Community Green Energy equal to 100% of its annual use. Wolin-Levin will also purchase its electricity through a contract negotiated by Cost Containment, Intl.. This new contract will knock a substantial percentage off of Wolin-Levin’s energy bill.

Both the REC purchase and the new energy contract will help support CGE’s Chicagoland Green Energy Initiative, which has a goal to fund 1,000 new renewable green energy installations in the Chicagoland area. Initiative members fund the Initiative through their everyday business activities. C2 is a charter member of the Initiative, and with this new contract, Wolin-Levin joins them as a CGE supporter.

The REC purchase means that Wolin-Levin can claim their electric use is completely green, which gives them a substantial marketing advantage in the competitive luxury condo market. Their support of the Chicagoland Green Energy Initiative means they will also be helping to bring renewable green energy to their community. And the reduced energy bill shows that what’s good for the environment is good for business, as well.

“We all want to do the right thing when it comes to the environment,” says Levin. “Joining the Initiative and working with Cost Containment made it not just the right choice, but the obvious choice. We’re making Chicagoland a healthier place, and we’re saving money in the process. What’s not to like?”

This is the the kind of talk that Fritz Kreiss, the founder of Community Green Energy, like to hear. “We created CGE because we think green energy isn’t just good energy, it’s good business,” says Kreiss. “For too long, green energy has been pigeonholed as a moral issue. It’s not. America needs it, and America needs to be a leader in it.” CGE has created an economic model that uses traditional business incentives to spur investment in green energy. “Even in these tough times, the American economy is still the most powerful economic engine in history. There is plenty of money to invest in green. We just created a new way to aim enough of it in the right direction.”

That’s an approach that fits well with the Cost Containment Intl. approach. Our focus has always been on aiming your money in the right direction: back in your pocket. Community Green Energy offers an approach that turns a green commitment into a solid business advantage: a new twist on the classic win-win approach.

“Make no mistake: we have a profound belief in green energy,” says Kreiss. “But CGE wants to open the door to everybody. If you join your local Initiative because you have a personal commitment to green energy, that’s great. If you join your local Initiative because it helps you build your business, that’s also great. Just join.”

“Right now, a responsible manager has to make the bottom line their top priority” says Levin. “The traditional equation says green energy is a luxury you can’t afford. CGE and Cost Containment changed the equation. As an individual who has a commitment to a better environment, I’m really pleased. As a good manager, I’ve done my job. When someone offers you a plan like that, you take it.”

You can learn more about CGE at their web site…click here to go there, and you can learn more about RECs by clicking this link.

To recap: we’re stuck in the mid-90s. A move is afoot to promote the use of green energy as a way to combat not global warming but acid rain. The conditions: the solution must involve minimum government intervention and maximum free market forces, because in America in the mid-90s, free markets are how you solve problems. The complication: free markets say green energy is going to lose, because green energy is the priciest option in a very price-sensitive market.

Installation costs for wind turbines are a large part of the reason why wind power has trouble competing.

Why is green energy expensive? High construction and installation costs combined with low, slow payback. While day-to-day generation costs for green energy are small to negligible, and the fuel source itself is free, construction requires a substantial amount of upfront investment. Investors must be paid off in a reasonable timeframe or they will invest elsewhere.

Unfortunately, green energy generators don’t operate at the high level of output that fossil fuel plants do. Fossil fuels are very good at producing high levels of output, which is why they became the dominant fuel source in the first place. Green energy generates at a more moderate pace. So in order to hit a payback level that keeps investors happy, green energy must set a high price to compensate for its moderate pace. In a truly free market, green energy will always be the last chosen.

Renewable Portfolio Standard (RPS) regulation solves this problem by forcing utilities to use a set amount of expensive green energy. But RPS regulation flew in the face of the free market ideals behind deregulation, so RPS by itself was not going to be palatable to the American voting public.

Was there instead, perhaps, a free market solution?

There was, and it involved something called commoditization. This is a another free market idea: that anything with value can be measured, broken up, and turned into a commodity that is bought and sold on the open market, like a stock or an option.

In the case of green energy, the commodity was its environmental benefit: all of the mining or drilling that don’t take place to obtain it, the pipelines and supertankers that aren’t needed to transport it, and the pollutants that aren’t released into the atmosphere when it is used to generate electricity.

Before free market thinking was applied to energy generation, we took that benefit for granted. RECs turned that benefit into something that green energy providers could sell.

RECs give green energy a way to turn its environmental advantage into a competitive advantage. Click the image to see a larger version.

This was a pretty radical idea at the time…it’s still an idea that confuses a lot of people.  But when you think about it, it makes sense. Commoditizing environmental impact is about making the energy market truly fair.

Remember, the utility is only going to accept enough electricity to meet demand, so if one plant doesn’t feed the grid, another one will. And in the language of the free market, each power plants actually produces TWO products: electricity and emissions. If you’re going to pay everyone the same price for their electricity, then a fair market dictates that you have to allow each plant the same amount of emissions as well. This hadn’t been the case before. The assumption had been that green energy produced “no” emissions. Free market thinking challenged that assumption.

Some economists called the pre-REC energy market, which assigned no measurable cost to environmental impact, “the greatest market failure in history.”

In the new plan, every plant was given an emission allowance. For every megawatt of electricity, they were allowed a certain amount of emissions.

When fossil fuels generate a megawatt of electricity, this emission is full of pollution, including greenhouse gases. The emission from natural gas is pretty dirty; the emission from oil is worse; the emission from coal is the worst. Green energy sources gives you the same megawatt of electricity, but their emission is completely clean. Which would you buy?

Under the new plan, green energy providers were allowed to package their clean emission allowance into a commodity called a Renewable Energy Certificate, or REC. Sale of the REC would act as a subsidy for the green electricity, because the green energy provider could now sell their electricity at a lower, competitive price and use the REC sale to make up the difference.

Exact definitions vary from state to state and organization to organization, but a Renewable Energy Certificate (also called a Renewable Energy Credit or Green Tag) is best described as the “environmental attributes” of one megawatt hour of electricity generated by a clean, green energy source. A green energy provider is allowed to sell one REC for every megawatt hour they feed to the local electric grid. The energy sources which are allowed to use RECs are:

• Solar electric
• Wind
• Geothermal
• Low Impact Hydro (facilities that run without requiring dams and other structures that alter water flow)
• Biomass, biofuels and landfill to gas
• Certain hydrogen fuel cells

A REC has a set life span: generally, within the calendar year in which the electricity was generated, plus a few months on either end. After that, it is retired. RECs can be purchased by utilities, or by certified brokers who then resell them. Brokers may break their RECs down into smaller units, as small as 100 kilowatt hours, and sell these REC packages, or REC blocks, at prices that small buyers, like individual people, can afford. Community Green Energy has packaged our RECs at a number of sizes, appropriate for both individuals and businesses.

Clean, green wind is one of the power sources allowed to sell RECs.

When you purchase a REC, you can claim the environmental attributes of one megawatt hour of green electricity (or whatever the size of the package you bought). This is true no matter where you live, and whether or not you are in the same grid or even in the same state as the green energy provider who sold it.

Verification is very important for RECs. Anyone can sell you a certificate and claim it represents clean, green energy. That’s why Community Green Energy brokers our RECs through Green-e® Energy, the number one oversight agency for RECs in America..they certify almost 70% of voluntary REC purchases. They verify that all of our RECs come from certified providers, and that the money you spend helps to actively promote green energy.

While acid rain was the concern when RECs were introduced, most people today are concerned with greenhouse gases. Today’s renewable portfolio standard legislation targets greenhouse gas emissions. But RECs still play the same role, promoting green energy, because green energy is pretty much emission-free. No SO2, creating acid rain. No greenhouse gases, producing global climate change. It’s important to realize that your REC promotes not just a greenhouse-gas-free world, but a cleaner world in every way.

As RECs have become more closely associated with the issue of global warming, people have begun to describe the “cleanliness” of RECs in terms of carbon equivalence. This is an estimate of the amount of greenhouse gas that wasn’t emitted when the electricity was produced. Carbon equivalence is used to represent all the greenhouse gases, because carbon dioxide is the most common, even though some of the other gases are more troublesome. The estimate is based on the average emissions for all the power plants in the area where the REC was generated. Community Green Energy gets our RECs from all over the United States, so we use a national average when estimating the carbon equivalence for our RECs, rather than the average for one particular area. It is important to remember that this is an estimate.

Looking ahead, as more people buy RECs, this will give our government the proof it needs that Americans are willing to accept higher prices for energy in return for cleaner air and a future free of climate fears. They will increase the stringency of RFP legislation. Eventually, they will add a “carbon tax,” or a penalty for the dirty emissions from the fossil fuel plant, which will even out the costs by bringing more users into the mix. Your REC purchase makes you a leader in America’s energy future; others will simply have to catch up with you. Of course, by that point, the cost differences between green energy and fossil fuels may have changed. Green energy will only become cheaper, as improvements in technology and economies of scale increase efficiency and bring down costs. And fossil fuel prices got very high in 2008. Every indication is that these kind of prices will happen again, and will probably get worse.

So, that’s the story, though the story isn’t over yet. To learn more about why people buy RECs, continue on to the next section.

Businesses are increasingly realizing that the “green bandwagon” has officially left the station. If you can’t show the steps you have taken to diminish your environmental impact, you’re at a distinct disadvantage in today’s market. This is particularly true in light of the sea change in attitude towards the environment coming out of Washington, D.C.

Renewable Energy Certificates (RECs) are proving to be one of the quickest and easiest ways for businesses to take their first steps into “green,” though many are confused as to what they are buying, and what good is being done, when they purchase RECs.

Cost Containment Intl. is partnering with Community Green Energy, an organization founded to promote green energy. Among other things, they broker RECs. So we’ll give them some space here to explain what Renewable Energy Certificates are and how they work.

* * *

A lot of industries have a main product that they sell, and a secondary one as well. Corn farmers sell their leftover husks as animal feed. Lumber yards sell the bark they strip off their wood as mulch. Clothes manufacturers sell their rags and scraps to paper mills.

RECs give green energy providers a secondary product they can sell to help make them more competitive. For you, the buyer, RECs provide a way to reduce your impact on the air we breath, and contribute to the growth of clean, green energy.

RECs allow you to green up your electric use by purchasing the environmental attributes of green energy. Click the image to see a larger version.

What do you get when you buy a REC? According to the official definition, you are buying the “environmental attributes” of a certain amount of electricity generated by green energy. These environmental attributes are described as being the equivalent of a certain amount of greenhouse gas NOT being released into the atmosphere.

RECs don’t change your electric bill or your electric service. Most people buy RECs from someone other than their utility. RECs can be considered an add-on that makes your electricity more environmentally responsible. In effect, you’re buying another person’s emissions-free air and using it to cancel out the emissions produced when your electricity was generated.

Does the idea of buying an “environmental attribute” seem a bit abstract? That’s because it is a bit abstract. Renewable energy certificates are best understood by going back about twenty years, to when they were first proposed.

Believe it or not, greenhouse gases and global climate change weren’t involved in the creation of RECs. Acid rain was.

RECs were first proposed in the 1990s. America wasn’t thinking much about global warming in the 1990s. But acid rain, which results from the release of sulfur dioxide (SO2) into the air, was considered a serious enough problem that the Clean Air Act had set strict standards to reduce emissions.

Concern over acid rain led to the legislation that laid the groundwork for RECs.

Green energy from solar, wind and biomass was emerging as a promising new technology. These green sources could have a substantial impact on lowering overall SO2 emissions, since every megawatt generated by one of these clean sources would be a megawatt not generated by a polluting power plant. An electric utility only uses as much electricity as it needs to meet demand, so when one power plant produces more, another must produce less.

To help push utilities to use more clean, green energy, legislation was proposed, called a Renewable Portfolio Standard (RPS). An RPS requires utilities to generate a certain percentage of their electricity using green energy sources.

It was great legislation then, and it remains a vital part of promoting green energy today. Twenty seven states and the District of Columbia have already adopted some kind of renewable portfolio standard since the idea was first proposed, and more are coming on the books every year. But in America in the 1990’s the RPS idea ran afoul of something else that was happening: the deregulation of America’s electric markets.

In 1992, the National Energy Policy Act (NEPA) made it possible for states to open up their electric markets to competition. Thirteen states and Washington, DC elected to do this (originally, there were fourteen, but California would later re-regulate). NEPA marked a fundamental change in the way America produced, and priced, its electricity.

Up until the 1990s, electricity in America was generated, transmitted and distributed by utilities. Utilities are an interesting hybrid in the business world: they are for-profit companies which sell stock and pay dividends; they have a monopoly for electricity in the grid that they oversee; and they are also strongly regulated by the government. Most business decisions require some kind of public review and approval by local politicians. These politicians, as you might guess, are keenly aware of how utility rates and utility oversight can affect their next election. Everyone is happier when energy prices stay low.

Deregulation opened generation of electricity to competition. In this system, the cheapest power source will always be chosen first. This was a problem for green energy, which is expensive relative to fossil fuels. Click the image to see a larger version.

With deregulation, utilities turn the role of generating electricity over to private companies. The utilities are still responsible for transmitting and distributing the electricity in their grid, and they determine how much is needed to meet demand. There might be hundreds or even thousands of plants looking to sell their electricity to the grid.Some go directly to the consumers and sign people up by offering low prices. They get to meet the demand for their customers. The utility runs a continuous auction for the remaining demand; unlike a typical auction, the lowest price wins and gets to sell its electricity. The power plants use a wide variety of fuels: coal, oil, gas, nuclear, hydro…as well as the green technologies of solar, wind, and biomass.

Energy deregulation is an example of free market thinking: the philosophy that free markets can solve problems better than governments can. In America, in the 1990s, free market thinking was very popular. It has lost some luster in 2008, in the wake of the current financial crisis. But in the 1990s, it was what the American people wanted, and it was being applied to new areas. The energy market was one of these new areas.

Free market thinkers believe that when people work to make a profit in an unrestricted market, they will find ways to innovate, to be more efficient, and to bring the best ideas and the best processes into play. This should result in more productivity and lower prices. Everyone will benefit from the results; the best innovators, of course, will benefit the most.

Before deregulation, the public kept energy prices down by voting for officials who opposed utility price increases. After deregulation, the theory went, the public would keep prices down by choosing the power plants that were selling at the best price, and the utilities would keep prices down by picking the lowest bidder in an open auction.

But this was a problem for green energy, because green energy couldn’t compete in these new competitive markets. RECs were designed to fix this problem. We’ll tell you how next week.

Our story so far: in a “cap and trade” system, the government sets allowable levels of emission for every power plant in the country. This is the “cap” level for emissions in our “cap and trade” system.

Every power plant in the country purchases (or perhaps, to get things started, is given at no cost) a set of “allowances” equal to their cap level of emissions. Each of these allowances could be considered a “right to pollute” up to a certain amount. Once the allowance level has been hit, the allowance is “retired” and taken out of circulation.

Allowances can be used until they are used up, or they can be sold (“traded” in the parlance of the system). If a power plant improves their efficiency or creates new ways to reduce their emissions, they may have leftover allowances at the end of the year which they can sell to other plants who are in danger of busting their caps.

Cap and trade accomplishes two things: it creates a truly fair energy market by forcing polluting power plants to bear the cost of the damage they do to the environment, and it creates a system where the market forces of profit and loss, rather than just government intervention, forces power plants to reduce their emissions.

Green energy plants enjoy the benefit of not having to buy allowances, because they produce no emissions. With the energy market more fairly balanced to account for the true cost of energy production, green energy can now compete for price and increase its share of the market.

Until….the government lowers the cap. Then, things get a lot better for green energy, and a lot worse for everyone else.

Supply and demand tells you what will happen. With the cap lower, there are fewer allowances. With allowances scarcer, the price per allowance rises. With the price to pollute increasing, fossil fuel plants must either invest more to reduce their emissions, or raise prices to offset the cost of increasingly expensive allowances. Either way, emissions go down and green energy increases its share.

Then…the government lowers the cap again. The day may come when the phrase “lower the cap” will replace “lower the boom.” Each lowering of the cap makes fossil fuels a less sensible energy option.

Eventually, a cap and trade system could reverse the current reality in the energy market. Fossil fuel plants will have to pay so much for allowances that they won’t be able to compete for price. Those plants that do survive will do so because they have innovated and improved…which is what the free market is supposed to do best. The government will play a role, but only a partial role, in the process, so no one will be able to grouse about “socialization” of energy…although there’s sure to be plenty of grousing.

And green energy will gradually take its place as the logical energy of the future.

This, at least, is the plan.

What this means to you. How will this actually pan out? We should get our first idea toward the end of the year. Right now, the cap and trade plan is on the back burner, but expectations are that the Administration will try and have an initial system in place before December.

Your focus right now should be on whether the initial setup will involve an auction of allowances, or a giveaway. An auction out of the gate will have a serious, and immediate, impact on electricity prices beyond the end of the year. Even if it doesn’t come in 2009, a serious impact is on the horizon.

Meanwhile, NYMEX sits comfortably in the mid-$3.00 range, and natural gas storage levels sit at near record levels. If the thought occurs that now is the time to put a cap on your future electric bills, all we can say at Cost Containment Intl. is that we agree.

Check the NYMEX