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Renewable Energy & Cleantech

In the Age of PPAs, Renewable Energy Certificates Remain Critical

Author: Amy Haddon shares her expertise in communications and corporate sustainability.

Commercial and industrial (C&I) power purchasing agreements (PPAs) are on fire. Although only a handful of companies, universities, and government agencies have executed on PPAs, interest in this contracting mechanism has exploded. Just last week, Bloomberg shared its list of the top 20 institutional renewable energy users in a catalyzing article pointing to the valuable role that organizational purchasers play in shifting the grid to green.

Why all the buzz? PPAs offer several valuable benefits to organizations, including the ability to lock-in a price for power over a 10-20 year period.  PPAs also provide significant reputational benefits.  Companies that contract on PPAs can claim that they are making material additions to renewable energy market development and that they are using green power—which is valuable when so many companies are setting aggressive carbon-reduction goals.

In the age of the sexy PPA, good old-fashioned renewable energy certificates (RECs) look rather humdrum indeed. However, one of the most common misconceptions of PPAs is how companies can make green power claims.  As it turns out, PPAs rely on RECs—or other energy attribute certificates (EACs)—to convey the environmental attributes of the power they produce. Virtual PPAs, in which a buyer and the project it contracts with do not need to share a geographic grid, are, in effect, long-term, complex REC transactions.

RECs get a bum rap.

Despite the fact that renewable energy certificates have been around since 1999; are the accepted, standard way for renewable energy to be tracked and traded in North America and in many countries around the world; are used by utilities to meet state Renewable Portfolio Standards (RPS); and have been consistently used by thousands of organizations—including the U.S. Environmental Protection Agency—to address the emissions associated with purchased electricity, they have been dogged by an inconsistent and skeptical reputation.

The primary reason for this is that RECs aren’t generally additional—meaning that they don’t advance renewable energy beyond business as usual.  For some, this has led to RECs denigration.  However, renewable energy certificates provide several non-additional, but key, contributions to the renewable energy and carbon-reduction space:

1. RECs and other EACs are one of the only ways the environmental attributes of green power are conveyed from generator to buyer. In order to claim the utilization of renewable energy, a purchaser must own and retire EACs equivalent to their purchased electricity use.  When renewable electricity is unbundled from its corresponding EACs—even if it comes from a clean power source like wind and solar—it cannot be claimed as clean generation.  Renewable electricity and RECs, or other EACs, go hand-in-hand.  No ownership of renewable energy certificates—no clean energy claims.

2. RECs and other EACs are the predominant means for companies to make zero carbon Scope 2 claims when calculating or reporting their carbon footprint. Under the new GHG Protocol Scope 2 guidance, RECs are considered a market-based contractual instrument.  When paired with location-based electricity consumption at a 100% match to purchased electricity, RECs and other EACs that meet the Protocol’s quality criteria convey an emissions factor of zero to that generation, resulting in zero Scope 2 emissions.

Even if the contractual instrument used is a PPA, the EACs attached to that PPA must be reported in order to make the zero Scope 2 emissions claim. The PPA itself creates additional nuance to Scope 2 accounting and must be reported as project-level avoided emissions, separate from an organization’s overall footprint calculation.  See the Scope 2 guidance for more information.

3. RECs and other EACs provide a critical market indicator. Although renewable energy certificates do not displace global emissions or generally lead to new projects being built—part of what has led to their criticism—they do counterbalance the emissions from purchased electricity and provide a secondary source of revenue to renewable energy facilities. When used over time, in greater quantities or in emerging global markets, RECs provide a valuable indicator of demand in these markets that can lead to additional generation.

4. RECs are for everyone; PPAs are not. The scale of PPAs is unparalleled—C&I PPA purchases are having a dramatic impact on renewable energy development worldwide. The reality, though, is that PPAs aren’t for every company. PPA offtakers have to be creditworthy, with a big energy appetite and the tolerance for a long-term contract. Getting a PPA deal done can take months, even with the help of a buyer’s agent like Schneider Electric, and they require the involvement of a cross-organizational team, up to and including the C-suite. While many large organizations can meet these criteria, many cannot, and many smaller companies less so. For these buyers, renewable energy certificates are a credible option to reducing the emissions from purchased electricity and using renewable energy.

Want to learn more? We invite you to contact one of our industry experts today.

PS:  While we strive to provide the best and most up-to-date information in our blog, we’re advisors, not lawyers.  None of the above is intended to be legal advice.  If you have questions about claims that require legal advice, we encourage you to consult an attorney.