Skystream thrives with energy certificate marketplace
Stamford-based startup Skystream Markets is in the business of facilitating transactions between buyers and sellers of renewable energy certificates. As an electronic brokerage provider, Skystream has helped more than 120 national utility companies and trading firms save money and make a profit on this commodity in the past five years.
Connecticut is one of 30 states that require utility companies to obtain a certain number of renewable energy certificates under the state”™s renewable portfolio standards program. These renewable energy certificates quantify how much power energy companies place back on the electric grid. One renewable energy certificate is equivalent to one megawatt-hour of renewable energy that gets produced and delivered to the regional power grid.
“Let”™s say you serve 100 megawatt-hours of power and you”™re told 10 percent must come from renewable resources,” said Kapil Mohindra, co-founder of Skystream Markets. “You prove that you put that amount back into the grid by owning 10 RECs. You own the RECs by buying it from a local producer or creating your own renewable energy project.
He added the third option would be to pay a penalty of $55 per megawatt-hour of the quota the utility company doesn”™t meet in order to reach the minimum requirement.
With the 30 states raising standards on how much renewable energy utility companies must return to the power grid each year, owning a certain number of certificates is crucial to utility companies. In order to meet state requirements, many utility companies are relying on Skystream”™s services to find sellers of these certificates.
The certificates guarantee a certain amount of renewable energy has been placed back on the power grid. The types of renewable energy that qualify for certification include wind, hydro, biomass, landfill gas, geothermal and fuel cells. Connecticut is one of the few states that doesn’t have a secondary market for solar renewable energy certificates.
In order for utility companies to be accountable for meeting their renewable energy requirements, a registry account keeps track of how many RECs power companies own. Among the 30 states, the average requirement of renewable energy utility companies are expected to place back on the grid is between 7 and 8 percent. Connecticut is ahead of the game, with an 11 percent requirement for each utility company.
By 2020, the average amount will increase to a minimum of 20 percent. As the demand for more renewable energy increases on the environmental market, Skystream has been growing in client numbers throughout the Northeast, Midwest and South.
“The core growth comes from the build-out of our electronic marketplace for RECs,” said Naeem Hukkawala, co-founder of Skystream. “We”™re creating a marketplace that”™s more transparent, provides integrity and security and is cost efficient. It means markets get more liquid, and there”™s more chance to trade and more participants trading.”
Skystream provides a way for the buyers and sellers to instantly find their matches electronically and efficiently exchange large amounts of RECs for a profit, company officials said. Before Skystream came out with its electronic platform, business transactions between buyers and sellers were conducted through bilateral trading, in which two parties reach an agreement on price and set a date and time for the transaction to happen. Another method utility companies have used is hiring brokers to obtain RECs for power utility companies.
RECstream, Skystream”™s software, is one of the newest technologies on the marketplace for buying and selling RECs. It allows parties to view different trading opportunities on its software platform and see their options before making a decision.
“When we build our technology, we are very collaborative with the market,” Hukkawala said. “We spend lot of time with the trading community to see what services provide value. A lot of our technology is built with direct feedback.”
RECstream was built with three concepts in mind. The idea was to provide pricing, so people know what something is worth. The system takes prices from participants across different markets and allows the buyer to calculate what the actual value or market clearing price is. Another intended advantage is that RECstream provides concentrated sessions in which it brings people together to trade at the same time. The third concept is the creation of a competitive marketplace that keeps traders anonymous, leveling the playing field.
“The system allows traders to post large volumes anonymously,” Mohindra said. “It provides confidentiality so prices don”™t get impacted and allows its participants to transact without giving up the size or direction of the trade.”
Since the company started in 2009, Skystream has grown to about 80 counterparties using its RECstream trading platform and 125 counterparties overall who have used Skystream”™s traditional brokerage services.
“Connecticut is one of the most progressive states in terms of its renewable energy policy,” Mohindra said. “Many states are adding new policies and refining certain aspects in terms of absolute percentages within the renewable portfolio standards program. The trend is going in a positive direction, and there”™s activity across all RPS programs.”
Note: In an earlier version of this article, it said Connecticut does not allow certificates to be sold for putting solar energy back into the grid. That statement is incorrect. Connecticut does allow certificates to be sold, but there isn’t a secondary market for solar renewable energy certificates. Also, RECstream is not a database. Rather, it is an electronic trading platform.