To reduce Scope 2 emissions (those associated with electricity use) and meet renewable energy targets, companies need to acquire, and retire, renewable energy certificates (RECs). There are a handful of ways that a corporation can go about acquiring RECs, and most companies use more than one method to reach their sustainability goals.
Purchasing “Unbundled” RECs
When a megawatt-hour (MWh) of renewable electricity is generated from a wind or solar facility and sold into wholesale markets, an associated REC is also produced with information on the time and location that MWh was produced, as well as the technology that generated it. Produced clean electricity and its associated RECs don’t need to remain paired, meaning that RECs can be purchased and/or re-sold by a REC retailer (like a utility). RECs that have been disassociated with their original MWh of clean electricity are called “unbundled” RECs (we’ll get to “bundled” RECs later).
Corporations can purchase unbundled RECs at any time, and they are typically purchased in bulk to cover large percentages of a company’s annual electricity use – as long as the RECs are produced within a 21-month window of the electricity usage the purchasing organization is looking to offset. While not essential, it is recommended that corporations purchasing RECs use a broker that has been certified by Green-e to ensure that the RECs are not double counted.
Purchasing unbundled RECs is a flexible and relatively easy way to acquire these certificates. But the fact that RECs can be purchased to offset electricity usage in regions that are geographically distant from where they were originally produced can make their environmental impact difficult to assess and prove. And, unlike RECs associated with a PPA’s production, unbundled RECs do not need to be – and most often are not – associated with new-build renewable projects: Meaning they come without the reputational leadership associated with the “additionality” claims bundled RECs from PPAs provide. In short, this means unbundled RECs typically don’t help bring new clean energy generation online.
Power Purchase Agreements
A power purchase agreement (PPA) is a contract between an “offtaker” (like a corporation) and a renewable energy project developer or operator. There are two main types of PPAs: physical and virtual. While the mechanics differ, in all types, the contract guarantees that the developer will receive a fixed price for every megawatt-hour (MWh) of energy it sells (up to a certain number of MWhs). In return, the corporation receives the RECs associated with that electricity production. PPAs are long-term contracts, typically spanning 10 to 20 years. The RECs are delivered to the offtaker over time as the project produces and sells electricity. As opposed to purchasing unbundled RECs, PPA-generated RECs can be directly traced to a new project coming online.
In a PPA, corporations aren’t paying a specific price for the RECs they receive (like with unbundled RECs). Most PPAs are “fixed-for-floating” swaps and financially settled on a monthly basis. The amount the buyer pays at settlement depends on the difference between the fixed price agreed to in the PPA, and the floating wholesale market price, which is what the developer actually sells the energy for.
PPA buyers are providing renewable developers with the long-term financial certainty they need to get their projects financed and, ultimately, built – making PPAs an essential part of funding new-build clean energy projects. Unlike most unbundled RECs, RECs from PPAs come with claims of “additionality,” meaning the project they’re associated with is contributing directly to further grid decarbonization. PPAs’ high environmental impact are a large part of why organizations committed to leading on climate action have, and continue to, sign PPA contracts.
Supplier Options: Green Power Programs and Green Tariffs
Many electricity providers, including utilities and competitive suppliers, offer ways for their customers to procure renewable energy and receive RECs in return. These include green power or green pricing programs, which are short-term commitments, as well as green tariffs, which are longer-term contracts.
In green power or “green pricing” programs, the utility typically charges a premium for every kilowatt-hour of clean electricity purchased, which shows up as a line item on a buyer’s utility bill. In a block option (a fixed energy quantity), buyers get a set amount of kilowatt hours of renewable energy for a set monthly charge. In a percentage of the monthly purchase, companies are charged on a cents-per-kilowatt-hour basis, and purchase a percentage of their monthly electricity consumption as green power. The utility acquires the associated RECs, and then retires them on the companies’ behalf in proportion to the amount of green power purchased.
The utility typically sources the renewable energy from one of its own facilities or from another renewable energy project nearby, which means it comes from a project that is located in the same region as where the buyer consumes energy – an important detail for some corporations. That said, the customer generally has no input into exactly which project the energy comes from, and there’s no guarantee it supports the construction of a new project.
If a company is large enough, it may be able to negotiate a long-term contract with a utility company for green power in what is known as a “sleeved” PPA. In this arrangement, the utility company enters into a power purchase agreement with a specific renewable energy project, and then provides the RECs to the buyer. Term lengths for sleeved PPAs tend to be shorter than those for traditional PPAs: often three to seven years. This type of contract enables corporations to support the development of a new renewable project and obtain associated RECs, without needing to navigate the contracting complexity and risks associated with entering into a PPA on their own. What’s more, these types of programs are sometimes available in regulated markets – where a direct PPA with a supplier is not an option for a corporate buyer.
Corporations Are Making a Difference
By directly or indirectly financing the development of renewable energy, corporations in the U.S. are making a difference with their PPA and other REC-associated purchases. As of the end of Q3 2022, LevelTen Energy tracked approximately 22.5 GW of procured renewable PPA capacity within the previous 12 months across the U.S., and competition for renewable capacity is only heating up. With further support provided by the Inflation Reduction Act, there is no doubt that the energy transition is fully underway, and that the REC market is only set to grow.
As LevelTen’s senior director of developer services, Gia Clark ensures that renewable energy buyers have access to fresh supply, and developers receive market intelligence to make strategic business decisions. Prior to joining LevelTen Energy, Clark was VP of Development at OneEnergy Renewables, where she brought her passion for land use planning and thoughtful approach to sustainable development to the renewable energy industry.
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