The latest energy trading certificates to hit the market are energy efficiency credits, otherwise known as White Tags or EECs, which represent 1 MWh of energy savings.

The credits are an alternative to renewable energy credits and trade in a similar fashion. But unlike RECs, which are tied to creating and delivering renewable power and are measured by meter readings, White Tags are created by reductions in energy usage and are measured through software and control technology.

"It rewards companies and others that have actually implemented demand-side management programs and it encourages more to happen," Sterling Planet Inc. President and CEO Mel Jones told SNL Energy. "It's a measurement of energy efficiency based upon certain rules that are established … so that the customer can determine how many kWh are saved over time. They are sold just like RECs except they are credits generated from energy savings, whether it's a new chiller you put in a building or energy management systems or just processes that you do to lower your demand."

Three states have adopted legislation requiring White Tags as part of a mandated portfolio standard. Connecticut will be the first state to implement a White Tag standard in 2007, according to Jones. Nevada and Pennsylvania have adopted White Tag mandates as well. White Tags originated in the United Kingdom, France and Italy, according to Jones.

Trading of White Tags is currently following Connecticut REC trading, with prices ranging between $30 and $50 per MWh. However, Jones expects the price range to drop to $15 to $30 per MWh on a national average because Pennsylvania and Nevada do not have established trading markets. Sterling Planet is beginning to sell White Tags on its Web site, Jones added.

Jones predicts that within the next two years, the states with existing renewable portfolio standards will start viewing energy efficiency as comparable to renewable energy and will adopt White Tags. "I believe you'll see the White Tag states grow from three to about the same number of renewable portfolio states, about 20, and then we'll see a cap and trade enacted by the federal government and energy efficiency tags will play a big role in meeting those credit issues," Jones said. "It's still early in the market for these credits but they're all legitimate."

Voluntary REC markets: Demand, prices increasing

Demand for voluntary RECs was up in the first quarter of 2006 compared to the same period last year, Evolutions Markets Director Lenny Hochschild told SNL Energy. The surge in demand has translated into some higher prices, particularly short-term price increases, but Hochschild was quick to note that while the uptick has been noticeable, it has not been dramatic. In addition, term deals that could not get done last year are being completed this year.

The reasons for the rising demand for voluntary RECs include the growing sense of urgency in the United States to reduce the country's reliance on foreign fuel, rising fuel prices, the good publicity companies receive through their efforts to purchase and support clean, renewable energy, and corporate and government mandates to support renewable energy resources. Although the United States chose not to adopt the Kyoto Protocol, many multinational companies are complying with the standards set by the treaty. In January, Whole Foods Market said that it purchased RECs from wind farms to offset 100% of the electricity used in all of its stores, facilities, bake houses, distribution centers, regional offices and national headquarters in the United States and Canada.

For the last couple of years, Evolution has seen "healthy" volume increases in just about all the markets the company serves, and the company expects that trend to continue, Hochschild said. Pricing has picked up on a national basis, particularly in the Pacific Northwest, he added.

The Western Renewable Energy Generation Information System, or WREGIS, is expected to launch in the first half of 2007. The new regional renewable energy tracking and registry system is expected to provide stakeholders more comfort in REC-based trading systems. "At the moment, you have numerous states in the West that have an RPS but very limited REC trading and the reason why is because unlike the Northeast markets, where you have a gas system in place for tracking and accounting, that does not yet exist in the Western markets," said Hochschild. "I think [WREGIS] will provide an impetus for perhaps some rule changes, particularly in California, that could provide allow for unbundled REC trading."

Hochschild is a committee member of WREGIS.

Compliance REC markets: PJM most active market

New Jersey's compliance solar market for reporting year 2006 has begun to trade and has seen prices climb to $250 per MWh and above, Andrew Kolchins, director of environmental markets at Evolution Markets, told SNL Energy. The rise in prices was expected but occurred perhaps a few months earlier than some people anticipated, he noted. Market participants are waiting on the New Jersey Board of Public Utilities to determine whether the solar program will move forward with rebates or evolve into a self-sufficient program, according to Kolchins.

Maryland launched its compliance trading in the first quarter; Evolution Markets conducted the first brokered transactions for Maryland Tier I and Tier II RECs, which traded at $2.50 and $1.25 per credit, respectively, Kolchins said.

"Most of the activity has really been in PJM, with Maryland coming online, Pennsylvania finalizing their RPS rules, and the New Jersey [basic generation service] auction," said Kolchins. "For the Texas market, prices have been low; the Texas PUC has set the capacity conversion factor at 27.9% and that was lower than most generators had hoped, so prices have been lower on a historical basis."

The capacity conversion factor is a formula used to convert the capacity requirements into RECs. Generators are required to retire their pro rata share of this total, based on the percentage of total load they serve. The Electric Reliability Council of Texas determines the CCF.