The Need for Carbon Offsets Mike Saer June 9, 2010 Reliable, - PowerPoint PPT Presentation

The Need for Carbon Offsets Mike Saer June 9, 2010

Reliable, low-cost electricity • 28 member cooperatives • 900 employees (MN and ND) • 2,800+ MW of owned generation • 4,500+ miles of transmission lines • $788 million 2009 operating revenue • $3.1 billion total assets 2009 GRE Energy Sources (MWh) Other Renewables, Market 0.32% Purchases, 18.66% RDF, 0.76% Net Wind, 6.49% Hydro, 4.45% Coal, 68.13% Oil, 0.03% Natural Gas, 1.14%

Generating plants • Baseload Plants – Coal Creek 1,129 net MW – Stanton 188 net MW – Genoa #3 166 net MW • Biomass – Elk River Station 33 MW • Peaking Plants – 114 MW Oil-Only (4 plants) – 1,259 MW Gas-Fired (4 plants) • Renewables – 345 MW wind – 10 MW of landfill/anaerobic

“ Carbon constrained ” planning at GRE • Established a corporate Carbon Team in 2008 • Strategy and communications are aligned with NRECA and MREA advocacy support • Created and maintaining a carbon cost model – Objective analysis of current legislation – Informs our advocacy positions and strategic planning – Communication with members

Kerry-Lieberman legislation • Introduced on May 12 – still a discussion draft • Emissions targets – 17% below 2005 levels by 2020 – 83% below 2005 levels by 2050 • Covered sectors include: – Electricity generation – Industrial operations – Natural gas distribution – Petroleum refineries

How can electric utilities show compliance under cap-and-trade? Reduce Purchase Purchase emissions allowances or develop internally on market offsets

Offsets as part of legislation • Offsets will be part of cap-and-trade legislation • Benefits of offset usage – Reduced compliance costs for covered entities – Increased time for technological innovation – Added revenue for offset providers • Offsets will be part of a standardized program – Acceptance based on uniformly applicable criteria – Project-based approach requires case-by-case examination

Offsets in Kerry-Lieberman 1.5 billion 500 million 2 billion domestic international total • Oversight: – USDA: domestic agriculture and forestry offsets – EPA: all other offsets • Amount of offsets each covered entity can use is based on its share of emissions from prior year

Offsets in Kerry- Lieberman, cont’d • Offset projects under consideration: – Coal mine and landfill methane collection – Anaerobic digestion – Agricultural, grassland, and rangeland sequestration – Afforestation and reforestation • Voluntary and state programs that may qualify for inclusion into early offset program: – Climate Action Reserve – Voluntary Carbon Standard – American Carbon Registry – Chicago Climate Exchange – RGGI

Many unanswered questions Federal, Will there be What offsets will regional, or legislation? qualify? state? How many What voluntary Who will offsets can be programs will develop needed used for carry over? offsets? compliance? How will utilities Purchase offsets How to manage procure needed or develop offset international offsets? projects? offsets?

Carbon Management Roadmap • Trying to pick the absolutely correct carbon mitigation activities is like trying to hit a moving target • GRE implementing “no regrets” initiatives that create value whether or not carbon has a future cost

Carbon Management Roadmap • Use of offsets is a strategy in GRE’s Carbon Management Roadmap GRE is not currently committing capital to either allowances or offsets but we expect to employ both options if carbon legislation is enacted. Offsets may be a cost effective, yet partial solution. • Other strategies include: – Asset optimization – Compliance with MN Renewable Energy Standard – Investment in R&D

Potential GRE compliance options Great River Energy Carbon Reduction Options $140 $30 - 60 $0 - 30 $60 + $120 1) Biomass co-firing 1) Purchase allowances 1) Carbon capture/storage 2) Energy storage 2) Develop offset projects 2) Partner to build nuclear generation Allowance Price ($/metric ton) $100 3) Legacy asset solutions 3) Reduce output of high-emitting generation 4) Increased use of natural gas $80 5) Renewables development $60 6) Energy efficiency $40 $20 $- 2020 - 2029 2012 - 2019 2030 - 2039

Projected compliance gap Potential Great River Energy Compliance Gap under Kerry-Lieberman Emissions (metric tons CO 2 ) 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 GRE projected CO2 emissions Projected allocated allowances (FREE)

GRE’s interest in offsets • Compliance motive, not profit motive • GRE will seek offsets to fill compliance gap and mitigate rate impacts – Invest in assets that create offsets – Long-term offset purchase agreements • GRE’s preference  MN and ND offset providers – Offset purchases part of GRE’s total revenue requirement – Greater use of offsets vs. allowances will reduce rate impact

Mike Saer Business Development 763 445-5303 www.GreatRiverEnergy.com