Energy Hedges With RECs Mitigate Fuel Price Swings, Demonstrate Sustainability

March 31, 2009

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Locking in renewable energy prices can provide companies a valuable hedge against financial risks from fossil fuel fluctuations.

Purchasing renewable energy hedges also demonstrates to stakeholders that a company is using environmentally friendly power options, according to a March 31 Webinar hosted by the Environmental Protection Agency’s Green Power Partnership.

Recent developments on Capitol Hill, including the introduction of a national renewable electricity standard in the House, set the stage for wholesale changes in the way companies source their electricity and other power needs, said Blaine Collison, Director of EPA’s Green Power Partnership.

“The legislation could create a lot of economic growth, including the use of hedges and renewable energy credits,” Collison said.

Throughout this financial crisis, it’s been hard for companies and organizations to get capital to install their own renewable energy systems, even for the ones that have a good business plan, said Tim Swanson of NextEra Energy.

Alternatively, companies can purchase energy from renewable generators, or buy Renewable Energy Credits (RECs), Swanson said.

“Electricity can be very volatile over time, buying renewables in a hedge can take out some of the peaks and valleys,” he said, adding that many organizations opt for a “contract for differences” to even out energy expenditures.

Southern New Hampshire University already employs some sustainable measures, including an acquifer next to campus to assist in heating/cooling of buildings. But recently it also began using a renewable energy hedge agreement.

For companies that do not have resources to build their own renewable energy generation sources, an energy hedge is a reasonable tool to achieve long-term energy budget stability, said Roy Morrison, Director of Sustainability at Southern New Hampshire University and co-founder of Eco Power Hedge LLC.

“You can do an energy hedge for up to 20 years, which can help keep the long-term costs modest,” Morrison said.

When considering a hedge, an organization needs to analyze present and future energy costs with and without a hedge, examining various strike prices and time frames, said Hunter Brownlie, President, Eco Power Hedge LLC.

Southern New Hampshire University’s 15-year hedge is anticipated to provide savings of $1.2 million annually for electricity and gas. If energy prices spike heavily, the savings could reach $2.6 million annually, Brownlie said.

By bundling a hedge with RECs, the university was able to accomplish some environmental objectives, including offsetting all of its carbon emissions (13,125 tons of CO2) and receiving 17,500 Green-e certified renewable energy credits per year.

Because of the energy hedge efforts, the university was able to claim “EPA Green Power Champion” status, he said.

Slides from the Webinar, “Renewable Energy Hedges: How they can save you money and reduce your carbon emissions,” will be available here.

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