World Energy Prepares for Nation’s First Carbon-Allowance Auctions

5/19/08Follow @wroush

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requests-for-proposals (RFPs) and compared bids by hand—a process that was like a “butter knife” compared to the “scalpel” that the company’s online auctions provide, in the words of World Energy president and COO Phil Adams.

Features such as “last bid blind”—meaning participants can’t see each other’s bids in the final minutes of an auction—lead suppliers to underbid competitors (and often even themselves) to win a contract, securing the lowest possible rates for their power buyers, Adams says. World Energy likes to quote one supplier who commented—a bit ruefully, perhaps—that the company’s platform is “brutally efficient at squeezing margins to the bare minimum.”

But even if they have to lower their bids more than they might like, suppliers appreciate World Energy’s services, Adams says. That’s mainly because the company is so meticulously organized about the processes leading up to, including, and following the actual auctions. “Utilities can pull up all the data on what they’re bidding on, and have a week to digest it before they come to the auction,” says Adams. “We hold host-bidder conferences, which we record and transcribe so that everyone has full information. Basically, in these markets that are so opaque and illiquid, our process brings transparency and liquidity, so you get an economic outcome that makes sense.”

Recently, the company has branched out beyond power-contract auctions to help clients sell the slightly more slippery commodities known as renewable energy certificates (RECs) and voluntary emission reductions (VERs), also known as carbon offsets. Some U.S. states and Canadian provinces create incentives for companies to invest in alternative-energy projects by allowing them to sell RECs along with the power their facilities generate; a wind farm or an animal-waste methane capture facility, for example, can sell both energy and RECs. (Indeed, projects like the methane-producing manure digesters being built by Portsmouth, NH-based Environmental Power wouldn’t be economical unless the company could also sell RECs.)

Up to now, the buyers of RECs and VERs in World Energy’s auctions have mainly come in two varieties—big companies such as AIG looking for opportunities to be socially responsible (and perhaps acquire a “green sheen” marketing boost in the process) by offsetting their own carbon-dioxide emissions, and wholesalers such as NativeEnergy that repackage the RECs and VERs in smaller quantities for purchase by consumers. The carbon-allowance trading that World Energy will handle for RGGI will be very different. For one thing, the purchases won’t be … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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