Energy Project Development

1. Energy Project Development A Discussion on State and Federal IncentivesPresented By Dennis Plaster, General Manager

2. Introduction • Renewable Energy Projects Development Incentives • Production Tax Credits • Renewable Portfolio Standards • Renewable Energy Credits • Carbon Credits • Certified Emission Reduction Credits • Voluntary Emission Reduction Credits

3. Production Tax Credits • The Production Tax Credit (PTC) under Section 45 of the Internal Revenue Code is an incentive used to encourage the development of alternative energy sources • This corporate tax credit is used to reduce the amount of taxes a business owes making renewable energy producers more competitive with traditional coal-fired or gas-fired electricity generators. • This credit is given to companies that engage in the production and sales of electricity through the use of renewable energy technologies. • The amount of tax credits is based on the amount of electricity generated. • The credit ranges from 1 cent to 2 cents per kilowatt hour of power produced. Energy Project Development Incentives

4. Production Tax Credits • Businesses and/or individuals can take the credit by completing IRS forms: • 8835Renewable Electricity Production Credit or • 3800General Business Credit • Currently, PTCs are available through 2008. Energy Project Development Incentives

5. Renewable Energy Credits • For every megawatt hour of electricity a renewable generator generates, it also generates a one-megawatt hour renewable energy credit. The generator can sell both commodities together as "renewable electricity" or sell the electricity as "generic" electricity to one buyer and the RECs to other buyers (bundled or unbundled). • RECs are tradable environmental commodities in the United States • RECs give the exclusive legal right to claim that a unit of electricity is renewable, and to claim responsibility for the environmental benefits it produces. Energy Project Development Incentives

6. Renewable Energy Credits • A certifying agency gives each REC a unique identification number to make sure it doesn’t get double counted. • The green energy is then fed into the electrical grid and the accompanying REC can be sold on the open market. Energy Project Development Incentives

7. Renewable Energy Credits REC Payment Renewable Energy Facility RECs Sold REC Provider Generic Power Power Payment Electricity Grid Utility Generic Power becomes Alternative Power RECs Power Payment REC Payment Energy Project Development Incentives

8. Renewable Energy Credits - Prices • Prices for the RECs can fluctuate greatly, in 2006 prices ranged from $5-$90 with a median of $20. • Prices depend on many factors such as locations of the facilities producing the RECs, whether there is a tight supply and demand situation, whether a REC is required for RPS compliance, and type of power produced. Energy Project Development Incentives

9. Renewable Energy Portfolio Standard • The Renewable Energy Portfolio Standard (RPS) mechanism generally places an obligation on electric power supply companies to produce a specified fraction of their electricity from renewable energy sources. • Certified renewable energy generators earn certificates for every unit of electricity they produce and can sell these along with their electricity to supply companies. • Supply companies then pass the certificates to some form of regulatory body to demonstrate their compliance with their regulatory obligations. Energy Project Development Incentives

10. Renewable Energy Portfolio Standard • Currently, states with RPS requirements mandate that between 4 and 27 percent of electricity be generated from renewable sources by a specified date. While RPS requirements differ across states, there are generally three ways that electric power suppliers can comply with the RPS: • Owning a renewable energy facility and its output generation. • Purchasing Renewable Energy Certificates (RECs). • Purchasing electricity from a renewable facility inclusive of all renewable attributes (sometimes called "bundled renewable electricity"). Energy Project Development Incentives

11. States with RPS Requirements Examples of State RPS Requirements MA - 4% by 2009 and 1% added per year after 2009 NY - 24% by 2013 CT – 27% by 2020 RI – 16% by 2020 States with RPS States with RPS Goals Energy Project Development Incentives

12. Eligible Technologies Under the RPS Requirements Energy Project Development Incentives

13. Carbon Credits • Carbon credits are a key component of national and international emissions trading schemes that have been implemented to mitigate global warming. • They provide a way to reduce greenhouse effect emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading. • Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. • Credits can be used to finance carbon reduction schemes between trading partners and around the world. Energy Project Development Incentives

14. Carbon Credits • Companies can sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. • These carbon offsetters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. • The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. • This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously-validated Clean Development Mechanism (CDM). Energy Project Development Incentives

15. Certified Emission Reductions • Certified Emission Reduction (CERs) are the global standard in carbon credits, certified audited and verified by the United Nations through the Kyoto Protocol’s Clean Development Mechanism (CDM) regulatory process and traded in the international carbon market. • Each CER credit guarantees the buyer that it has reduced or sequestrated one ton of carbon or equivalent greenhouse gas. Energy Project Development Incentives

16. Voluntary Emission Reductions or Verified Emission Reductions • Voluntary Emission Reduction or Verified Emission Reductions both known as VERs are not currently regulated the same way that the CER market is. VERs are carbon credits developed by carbon offset providers that are not certified. • High quality VERs are developed according to the principles of the CDM (Clean Development Mechanism) or a recognized standard such as emerging the Voluntary Carbon Standard (VCS), which promote sustainable development alongside greenhouse gas emission reduction objectives. • A VER credit will do the same as a CER credit – it has just not necessarily gone through the same UN approved process. Energy Project Development Incentives

17. Closing • Energy development projects have the potential to receive a wide variety of state and federal incentives • Example - Landfill Gas to Energy Projects • Production Tax Credits, $.01/KWH • RECs for producing energy from a renewable resource and offsetting the use of fossil fuels • Renewable Energy Portfolio Standards • Carbon credits (CERs or VERs) for destroying methane, which is 23 times stronger than carbon dioxide as a greenhouse gas. Energy Project Development Incentives

18. “The Leaders in Landfill Gas to Energy” 2999 Judge Road Oakfield, New York 14125 www.ieslfge.com Innovative Energy Systems, Inc