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Matthias Knab reports live from the Wallstreet Green Trading Summit in New York: Tim Smith, Principal from Element Markets LLC explained that a renewable generator (e.g. wind generator) produces actually two products when it creates electricity:

• System energy
• A “REC” (renewable energy credit)

At this time, the markets are very illiquid and have a wide bid/offer spread, with only few speculators. A REC is basically only a compliance purchase and not a hedged commodity.

Compared to electricity, REC prices are relatively low. The market is illiquid, two or three trades in a week for a market is considered active. Parties generally don’t have the time or resources to give much thought to their positions; purchases are largely viewed as compliance.

Individuals who purchase and sell often manage other commodities that have significantly larger impacts on P/L and VAR. Price discovery is very difficult to achieve and contracts, especially for voluntary REC markets, can be cumbersome and risky.

Types of REC Markets: 1. VOLUNTARY

• Demand driven by marketing
• Rules are not clearly defined
• Little regulation
• Almost no liquidity
• Purpose: To drive the development of n......................

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