Purchase Renewable Energy Credits – In order to meet renewable energy targets and reduce greenhouse gas emissions, companies must acquire – and give up – renewable energy certificates (RECs), sometimes called renewable energy credits. There are several ways a company can go about purchasing RECs, and many companies use more than one method to meet their sustainability goals. In this book, we will look at different approaches to RECs, and the pros and cons of each, to help corporate leaders in their sustainability initiatives.
Off-grid RECs are RECs that are not connected to the power grid (see our article Introduction to RECs for more information). This type of REC is not linked to a power purchase agreement. Although there are many transactions with third-party providers that sell RECs, it is recommended that companies use Green-e certified brokers to ensure that RECs are not double-counted.
Unlimited RECs can be purchased from REC vendors at any time, making them one of the easiest ways to meet renewable energy goals. Companies often buy in bulk to cover a large portion of their electricity consumption. As long as RECs are submitted within the 21-month eligibility window during the operational period they are used, they will count towards the renewable energy target. In its sustainability report, the EPA recommends that RECs be distributed evenly across all electricity-using facilities, so that each facility has a certain percentage of its use met by RECs.
The fact that companies can purchase unconnected RECs in one part of the country and use them to generate energy in another part of the country makes it difficult to assess the environmental impact. There is a large supply of non-renewable RECs in the market, which has caused REC prices to drop so that they are not a major source of income for renewable energy project developers. Unlike a power purchase agreement for a new project (we’ll get to that later), an open REC purchase does not mean that a new renewable energy project will be built; in fact many current REC production projects would have been built outside of the REC market.
But because RECs are not easily accessible, many companies start here before looking at other impactful options for generating new electricity. Additionally, time-limited companies can use unlimited RECs to meet their targets until RECs from long-term power purchase agreements become effective (more on this later).
A power purchase agreement (PPA) is an agreement between a “taker” (such as a company) and a developer of a renewable energy project. There are two main types of PPAs: physical and virtual. Although the methods are different, in all types, the contract ensures that the developer receives a fixed amount for each megawatt of energy (MWh) of energy it sells (up to a certain number of MWhs), and in return, the company will receive the corresponding REC. PPAs are long-term contracts, lasting 10-20 years. RECs are released over time, as the project produces and sells power.
It takes a lot of money to build a new wind or solar project, and many investors turn to banks to finance the construction using their own money. Most banks will only lend money to developers if the developer has a PPA in hand, guaranteeing a large amount of income: Good. This means that when entering into a PPA, the company makes it possible for the new project to receive financing and construction.
Unlike buying an open REC, the investment can be monitored closely with a new project coming online. The amount of greenhouse gas emissions avoided by bringing a project online will vary depending on its location. A new renewable project on the “dirty” grid will have a far greater impact than in California, for example, where there are many wind and solar projects.
In a PPA, companies don’t pay for a specific number of RECs they receive, as they do when they buy unlimited RECs. PPAs are known as variable rate PPAs, and are typically “settled” monthly. The amount paid by the company in payment depends on the difference between the fixed price agreed in the PPA, and the variable market price, which is what sells the power. For example, if the PPA price is $15, but the developer sells the power for $25, the developer pays an additional $10 to the family. On the other hand, if a developer sells power for $10, the company must pay the developer $5 to make up the difference. In fact, the rise in the price of energy during the next 15 years of the contract, the developer will receive $ 15 per megawatt hour: no more, no less.
A lot of analysis is needed to estimate what the company will pay for the RECs obtained through the PPA, because it depends on the number of products that will be in the next 10-20 years. This is where the power of LevelTen comes in. We calculate over a billion points every day to give our customers an understanding of the value that can be realized by offering a wind or solar PPA. At its peak, PPA provides a large number of RECs to the organization and actually generates revenue for the agency. In the worst case scenario, the company ends up paying more than it expected every month, or the project is not built at all, meaning no RECs are issued.
Once the PPA is signed, it could be another year or more before construction of the project begins, and another year or more before all power is delivered. That’s important to remember when you want to reach a sustainable goal by a certain date.
Although you can only enter into a PPA for a project located in a certain part of the country, the RECs you receive as a result of the PPA can be used for your renewable energy company as a whole, wherever you use energy. We will go into RECs and sustainability reporting in more detail in the next article. If it is important to you that your power purchase be close to your business, it may not be possible with a PPA, depending on the location.
Many electricity providers, including utilities and suppliers, now offer their customers ways to access renewable energy and receive RECs in return. These include green energy plans or green prices, which are short-term commitments, and green prices, long-term contracts.
Due to pressure from corporate energy buyers, many utility companies are starting to offer green programs, giving their customers access to renewable energy and charging RECs as a solution. According to the US Department of Energy, as of 2017, there are at least 850 utilities that offer some type of utility program.
In a green or “green” plan, utilities typically pay a fee for the kilowatt hours you buy, which shows up as a line on your bill. Phil
Purchase, your company is billed on a kilowatt-hour basis, and you buy a percentage of your monthly energy as green energy—for example, 70% can be renewable, and the rest can come from conventional or brown electricity. You can subscribe or unsubscribe from the green program at any time, that’s easy.
The company usually produces renewable energy in one of its operations or in other nearby renewable energy projects, that is, from a project located in the same area as that which uses energy, which is useful to the same company. That said, you, the client, usually have no input into how the project is done, and there is no guarantee that you will support the creation of a new project.
The device finds the REC associated with it, and uses it for you, based on the amount of green you bought. This allows you to search for these RECs in your sustainability report. To provide this service, the utility charges energy, which means you may pay more in RECs than other service options.
Other types of green energy providers include “competitive providers” and public choice programs:
Competing suppliers: If your property is in a choice of electricity, you can choose to buy electricity from all suppliers, not just your business: These are known as suppliers. Participating customers still pay for electricity through their monthly bills, which are then billed directly to competing electricity suppliers. The company accepts RECs, but at a higher price
Community Cohesion (CCA): These programs are local governments that purchase electricity on behalf of the community
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