As more businesses enter the renewable energy market for the first time, it is critical for them to understand all available options. Multiple factors are considered when procuring renewable energy. Here is a quick review of today’s options.
The Physical PPA, is where the energy buyer agrees to purchase the power from a renewable energy project and associated RECs at a pre-arranged price. The power is physically delivered to the buyer from the generation site, and is Custom built for the facilities' power load.
Renewable Energy Certificates (RECs) are earned by solar producers who generate electricity, representing the clean energy attribute of that electricity. Your organization can offset your existing emissions by buying that REC; and do be sure that you understand whether you are purchasing RECs from an existing project versus contributing to the construction of new renewable energy - to avoid failure to induce “additionality”. When in a lower-priced region, buyers may choose to contract for renewable energy credits (RECs). This allows these companies to contract for clean energy credit without exposure to energy market volatility. However, RECs alone, while affordable and simple, may not give your company sufficient climate or sustainability credit.
For the VPPA, (Virtual Power Purchase Agreement) the energy buyer and seller agree on a pre-arranged price for the power coming out of a renewable project. Once the power is sold into the market, If the market rate for power exceeds the VPPA price, the producer sends the buyer the difference. If the market rate is less than the VPPA price, the buyer covers the difference. With this option, you’ll obtain RECs and you’ll actually contribute to new renewable energy construction. In a VPPA, the buyer benefits when the contract’s set rate, also known as the “strike price”, hedges against high energy market rates. For instance, when market prices spike during a heatwave or a deep freeze, VPPA customers profit from the difference between the high energy rates and their contract’s strike price. They then use this revenue to offset their higher electricity costs incurred during those high-priced weather events. Or, proceed with a virtual PPA in a high-priced region, to capture the upside, while maintaining your current electricity.
Energy only. Renewable Energy developers can just sell the energy directly. But this does not offer your organization the environmental attributes of the project. However, you can also purchase replacement RECs to support your sustainability claims. Here the seller can offer a lower PPA rate as the Seller can monetize the environmental attributes separately.
Proxy Generation PPAs have been used with excellent success by Microsoft, who enjoy the upside sharing, and hedge structures, specialty buyers with unique needs. For an in-depth look at this more sophisticated instrument, I recommend reading: https://orrick.blob.core.windows.net/orrick-cdn/Proxy_Generation_PPAs.pdf
What are your company goals and objectives? A representative at Zam Energy is happy to walk you through the options and implement from site design to execution.