PPA structures and parties involved

To what extent are corporate PPAs presently deployed and what sort of structure do they take?

Many private companies in the United States have altered the way they procure power significantly in the last decade.  Traditionally, power was obtained by corporate buyers from the local utility without consideration of the sources of such power. Public commitments to use renewable or “green” energy have driven a movement toward the direct procurement by commercial and industrial companies of renewable energy from independent power producers in the wholesale market. Such commitments came first from tech companies but have spread across many sectors, from retailers to industrial manufacturers. In 2020, the Renewable Energy Buyers Alliance reports that 10.63 GWs of corporate deals were announced in the US up from 1.53 GWs in 2016. The EPA’s Green Power Partnership, a voluntary program, now sets minimum usage for its members from 7% to 50%.  Commitments to go 100% renewable or even carbon negative have become more common - the RE100 reports that 79 of its 260 members are in the United States.[1]

Multiple options are available to a corporate offtaker looking to achieve its green power goals. 

Renewable Energy Credits

Historically, corporate buyers have purchased and retired Renewable Energy Credits or RECs separate from power procurement to demonstrate the reduction of carbon emissions. This strategy is still being employed. The NREL reports about 197,000 customers procured about 68.7 million MWh of unbundled RECs in 2019. 

Self-Supply

Another option for corporate and industrial buyers to gain access to renewable energy is through the ownership of on-site generation. This is not achievable at every location since only certain places in the US are suitable for solar or wind, for example. This approach also depends upon the buyer having sufficient space and a facility that can support on-site generation.   

Traditional PPA with an Independent Power Producer

A Traditional PPA involves the direct purchase of energy from a generation project and the physical delivery of energy from such project. The buyer takes title to the power at the delivery point. This requires the ability to physically interconnect either directly or through the local transmission grid. Generation equipment may be installed on-site, including wind turbines or rooftop or ground-mounted solar facilities. The transaction usually includes the purchase of RECs along with the energy. Under existing regulations, physical transactions directly with wholesale producers are not permitted in all locations.      

Virtual PPA with an Independent Power Producer

Virtual PPAs or financial PPAs are based on a contract for the purchase of energy generated by a renewable project which is then physically delivered and sold into the regional wholesale market in which the renewable project is located. The project receives a variable market price from the regional market. If the contract price exceeds the market price, the corporate offtaker pays the project the difference. In this way, the power project is assured that it will sell power generated at a fixed price which supports development and financing of the project.  The transaction is often in the form of a contract for differences or a fixed-for-floating swap.  A Virtual PPA also typically includes the purchase of RECs.  Divorcing the transaction from the physical delivery of energy provides broader flexibility to corporate offtakers in addressing practical constraints and regulatory restrictions which can limit potential transactions.   

Green Tariffs

Bundled products are offered by utilities in some locations including green power and RECs. Retail products can be market-based or linked to a specific renewable project which are sometimes called “Green Tariffs.”

[1] RE100 is an association sponsored by The Climate Group that include companies making such a commitment such as Google, Bank of America and Facebook. See REI100’s 2020 annual progress report online.

Do the country's regulators allow corporate owners to purchase (1) directly from a facility, or (2) from a choice of suppliers?

The options available to a corporate buyer vary based on the location of the corporate buyer’s facility and the project and the transaction type. Independent System Operators and Regional Transmission Organizations operate regional wholesale markets in approximately two-thirds of the US. Independent power producers in these regions own and operate generation projects and sell power via the established market. Not all states take the same approach and various aspects of the wholesale or retail power market may be deregulated and competitive or regulated. 

Other than the generator and the off-taker, are any third parties commonly party to the PPA structure (e.g. a utility or other market agent)?

No. Independent power producers sell to traditional utilities, municipal utilities or regional cooperatives at wholesale who then engage in separate retail transactions with customers. IPPs in some markets can also engage in wholesale transactions directly to corporate buyers or to aggregators representing a group of retail customers.     

Is a generator permitted to sell electricity directly to an end user? If so, do they require a licence or other form of authorization?

Direct transactions are permitted in some locations. Independent power producers typically must obtain certain permits or make certain filings in connection with the generation and sale of power as well as environmental and land use considerations at the project site. Requirements may apply at both the federal and state level and vary widely by state and county.