When a public agency negotiates a solar power purchase agreement (PPA) they have a somewhat counterintuitive choice to make: do we want to receive renewable energy from the solar project or non-renewable energy from the solar project? In other words, does the public agency want to retain or relinquish the project’s environmental attributes, or what are commonly referred to as renewable energy certificates (RECs)?
What is a renewable energy certificate (REC)?
The Environmental Protection Agency (EPA) defines RECs as:
“A market-based instrument that represents the property rights to the environmental, social and other non-power attributes of renewable electricity generation. RECs are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource. Whether from on-site or off-site resources, RECs are the instrument that electricity consumers must use to substantiate renewable electricity use claims. RECs are the accepted legal instrument through which renewable energy generation and use claims are substantiated in the U.S. renewable energy market.
Why Is This Important?
- If a public agency enters into a solar PPA and they do not retain the project’s RECs the public agency cannot market themselves as receiving renewable energy from the system, that it is reducing its carbon footprint, or even that it “hosts” a renewable energy system on its property.
- For reference, see Federal Trade Commission’s guidelines regarding “Renewable Energy Claims” Section 260.15
- Without RECs public agencies may struggle to comply with sustainability mandates or accomplish renewable energy/carbon reduction goals.
- RECs can be “unbundled” from the solar energy, sold into the open market, and represent a potentially valuable long-term revenue stream for public agencies.
- If a public agency does not retain ownership of RECS then they cannot legally sell them.
- The monetary value of RECs has increased dramatically in the last year.
If you want to take a deeper dive on RECs here are some good resources: https://resource-solutions.org/rec-claims-and-ownership/
If you have entered into a solar PPA and would like us to review the contract to determine REC ownership rights we would be happy to take a look and provide some feedback.
Lastly, if you know anyone that is about to enter a solar PPA and their goal is sustainability please feel free to forward this email. We want make sure that public agencies have their eyes wide open when negotiating a PPA, especially if a goal of the PPA is to procure renewable energy and meet sustainability goals.