Entering the renewable energy market can be a daunting but effective approach to meeting sustainability energy targets and goals. This overview will detail common renewable energy market terms, basic power purchasing options, as well as overviews of the processes associated with each.

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Environmental Attribute Certificates

An environmental attribute certificate (EAC) is a representation of ownership rights to the environmental attributes from 1 MWh of renewable energy generation. EACs use specific tracking systems in electricity markets worldwide. For example, Renewable Energy Credits (RECs) are primarily used in the U.S. and Canada, while Guarantees of Origins (GoOs or GOs) are used across European markets.

Unbundled EACs

An unbundled EAC is an environmental attribute certificate that is bought/sold separately from the associated power generated. To procure an unbundled EAC in the U.S., buyers sign a contract with an energy supplier or REC broker for a specified number of RECs, with volumes based on the electricity load the buyer is seeking to offset. In the U.S. buyers can procure ‘national-RECs’ which are not usually attributable to specific load or specify RECs from a specific state or electric-coordination region where they may have a concentrated load. A buyer can expect a price impact if opting for RECs from a specific region. The supplier obtains RECs from the appropriate energy market and either transfers them to the buyer or retires them on the buyers’ behalf. The retirement of RECs allows the retiree to ‘claim’ the renewable energy use; following its retirement, the REC cannot be sold, donated, or transferred to other parties.

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EACs are priced per MWh, with each MWh of RE produced by a generator representing 1 EAC. EAC pricing is based on traditional supply and demand with availability being heavily influenced by the desired market region, e.g.: state, electric- coordination region, or national. In the U.S., RECs have a shelf life of 1-3 years. If a buyer chooses to hold a REC, it may be treated as inventory in financial statements depending on the buyer’s accounting policies.

Buyers currently decide where to allocate EACs on an annual basis, however industry leaders are developing approaches to match electricity demand and renewable supply on an hourly basis. Read the white paper by Google describing progress and insights into moving towards 24×7 carbon-free energy for their data centers.

EACs purchased in conjunction with power are considered ‘bundled’ (power and EAC). Unless otherwise stated, the remaining topics outlined in this document are assumed to be bundled options.

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On-Site Renewable Energy Generation

When generation takes place on the buyer’s property, it is considered an on-site renewable energy project. The most common technology employed in on-site projects is solar photovoltaics (PV). On-site projects can be economically attractive and provide high quality EACs but, projects are often limited by the physical size constraints of properties and struggle to scale (typically, up to 15% of host-facility en- ergy needs can be generated by solar PV). Still, many buyers consider on-site projects to be an essential component of a diversified portfolio.

If an on-site system produces more energy than the buyer uses, excess energy can be sold back to the energy grid for credit where net metering is permitted by the local utility. Net metering laws are dependent upon local policy, includ- ing state level in the U.S., and the type of credit a buyer may receive will also vary, e.g. a buyer may receive a direct billing credit or roll over credits for use in subsequent months.

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Review REBA’s On-site project roadmap on the REBA Member Portal for more details. For more information on becoming a REBA member, please contact membership@rebuyers.org.

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Green Tariffs

A green tariff is offered by a utility as an option to their customers and is integrated in a buyer’s utility bill, which eliminates the need for additional contracting. Green tariffs allow a buyer to purchase both the power and associated EACs from a renewable energy project for up to 100% of their energy needs. Tariffs are typically arranged through long-term contracts from three models: (1) the sleeved power purchase agreement (PPA) model, (2) the subscriber model, and (3) the market-based rate model:

(1) Sleeved PPA model: The utility is positioned between buyer and seller in a tri-party agreement with the PPA contract passing through the utility and allowing the renewable energy and EACs to flow to the buyer (in the form of a specific tariff, which replaces the customers standard electricity rate with the cost of renewable energy from the PPA or a “rider” which is an additional line item to the standard electricity rate). The buyer pays a contracted rate to the utility for the energy and EACs which is subsequently passed to the seller. In order to be legal, the utility must obtain approval from the state-level Public Utilities Commission to ensure that the buyer incurs all the appropriate costs associated with this transaction, including any utility services that wrap around and support the generation source, so that there is no cost-shifting to other customers.

(2) Subscriber model: The same steps occur as (1) except the utility aggregates smaller customers to enhance project cost effectiveness.

(3) Market-based rate model: This option is only available where wholesale markets exist. The buyer signs a PPA for the energy and EACs from a dedicated renewable energy facility. The utility sells all the renewable energy output from that facility into the wholesale market at the point closest to where it was generated and credits the customer at the wholesale market price. Meanwhile, the buyer purchases electricity from their utility as usual, but at the wholesale market electricity rate.

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Green tariffs are not available through all utilities however customer demands are leading to an increase in both the availability and quality of green tariffs.

Community Solar

Community solar allows electricity generated by a solar power plant to be shared among multiple buyers. These projects are sited within the buyer’s utility service territory and deliver power directly to the distribution grid. The electricity and EACs are allocated to participating buyers through direct ownership or through off-taker agreements for shares of production.

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Green tariffs are not available through all utilities however customer demands are leading to an increase in both the availability and quality of green tariffs.

Virtual Power Purchase Agreement (VPPA)

A vPPA, also known as a financial PPA, synthetic PPA, fixed for floating swap, or contract for differences, allows procurement of significant quantities of EACs while having a material impact on the electricity generation mix. Under a vPPA, the buyer pays a fixed rate (often known as the strike price) per MWh of contracted generation and receives the floating/market price for electricity sold (note, not the physical commodity, just the proceeds from commodity sale) together with the associated EAC. If the market price is lower than the strike price the buyer will make a net payment, while if the market price is higher than the strike price the buyer will receive a net credit. Buyers never take legal title of the electricity from the provider, as this is sold to the grid.

The vPPA does not alter any existing utility agreements to supply electricity to the buyer’s facilities.

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Physical Power Purchase Agreement (Physical PPA)

A physical PPA, also known as a direct PPA, like a vPPA is a contract between an energy buyer and an energy provider enabling procurement of EACs at scale while having a material impact on the electricity generation mix. However, under a physical PPA, the buyer takes legal title of the electricity and is responsible to sell or consume it. Because the buyer takes legal title, a physical PPA can alter existing utility agreements to supply electricity to the buyer’s facilities. The buyer signs a PPA with the provider at an agreed upon set price per MWh to allow for the project to be financed.

To support grid management, a seller pays to ‘wheel’ electricity from point of generation to a ‘delivery point,’ usually close to the buyer’s operations allowing for the buyer to take delivery of the energy. As with a vPPA, contract settlement and EACs are typically undertaken on a monthly basis. electricity to the buyer’s facilities.

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Investment: Debt, Equity, and/or Tax Equity

Investment in a renewable energy project can provide a return on capital as well as EACs (assuming a contract for EACs is created with the investment contract). The three investment approaches are debt, equity, and tax equity (U.S. only) which apply to both on and off-site projects. The following are primarily applicable for off- site projects.

All three investment types usually provide finance to the project’s special purpose vehicle (SPV), a company with the specific intent of holding the suite of contract and assets of a specific project, and to create a non-recourse situation where the assets of one project cannot be appropriated to cover liabilities from another project or the development company. The three investment approaches are as follows:

(1) Debt capital is a fixed-income financial product secured on the project’s assets ability to provide a set return (the interest rate) over a set term (loan length) on a set repayment schedule. Debt capital is repaid in entirety (plus interest) and is unable to benefit from any upside gained, for example efficient management or conservative resource forecasts

(2) Equity investments are not secured on specific assets and are inferior to debt in the hierarchy of investment sources in event of company cessation (the funding hierarchy is also known as the capital stack). Equity investors receive dividends based on the project’s performance, following senior capital investors, such as debt capital, have been paid, and as such can enjoy operational upside

(3) Tax equity (U.S. only) is an investment option unique to projects in the U.S. and is primarily repaid through the provision of federal tax credits from the project SPV to the tax equity investor. Tax equity has both debt and equity qualities: the senior investor in the project’s capital stack, and secured on project assets ensures that an investor may enjoy some upside. Tax equity legislation stipulates that solar PV projects attract Investment Tax Credits while wind projects attract Production Tax Credits. At the time of writing, both tax credit systems are in the process of being phased down.

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