How Can I Invest In The Energy Sector?

How Can I Invest In The Energy Sector? – PPAs, on-site renewables, RECs, virtual PPAs… Let’s take a moment to explore ways companies can invest in clean energy.

Our Evergreen column highlights stories from the past that are still relevant today. If you’ve been scratching your chin over RECs and PPAs, this guide to purchasing renewable energy has covered the details since it was originally launched in November 2015.

How Can I Invest In The Energy Sector?

Do you want to turn those RECs on or off? And is your PPA physical or virtual? Have you even thought about the annual financial impact of the ITC?

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For the uninitiated, the various ways companies are throwing their weight around in the renewable energy market quickly becomes an alphabet soup.

However, as more companies set sustainability goals or pay close attention to the declining costs of wind and solar power, iterative investment models for renewable energy projects are increasingly in demand.

But we are not talking about any green energy participation certificate. More and more companies are focusing on the concept of “complementarity” or making sure their money actually disrupts new renewable energy capacity, especially as the economic conditions for investment are also more favorable.

“The landscape has changed a lot in the last two to four years,” said John Powers, director of business development at renewable choice energy, a clean energy broker. “In some areas of the United States, it is cheaper to enter into long-term contracts with fixed rates that are significantly lower than trading electricity in the same market.”

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As the American Council on Renewable Energy (ACORE) has shown, investments in clean energy take many forms and have grown at different rates over the past decade.

Clean energy advocates have sought to take advantage of a more attractive investment climate, exemplified by high-profile companies such as Walmart, Ikea, Apple and Google closing in on billion-dollar deals.

Activist groups such as Greenpeace and more business-friendly NGOs such as the World Resources Institute, the World Wildlife Fund and the Rocky Mountain Institute are increasing their calls for action. The new Clean Energy Plan and the upcoming UN COP21 climate talks add urgency, with groups such as CDP, We Mean Business and RE100 signing clean energy pledges.

However, recognizing that one may be open to investing in clean energy is not the same as developing a coherent strategy for renewable energy.

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First, the renewable energy contracts that are becoming common in some states are impossible to replicate elsewhere because of the way the electricity market is regulated. Challenges such as budget constraints for sustainable development, limited labor or unclear environmental obligations may also arise.

“The key thing for companies is to figure out what they want to get out of it,” said Jennifer Martin, director of green energy standard-setting at the Center for Resource Solutions. “If you’re doing consumer products, you don’t want to have to develop a whole energy business.”

For those interested in the marketing and reputational benefits of purchasing clean energy, “green badges” or credentials linked to carbon credits or offsets may be sufficient. Those interested in reducing their exposure to energy price fluctuations often enter into a long-term renewable energy purchase agreement. Others are exploring the potential returns on capital investment in clean energy.

“There’s definitely an increasing sophistication among buyers of renewable energy,” Powers said. “To respond to this, we need an increasingly complex product offering.”

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Green labels, renewable energy certificates, renewable energy credits, renewable energy credits are all the same concept. make sure the company gets credit to support renewable energy.

Martin, whose nonprofit center sets the standard for resource solutions through its Green-e program as a REC, said RECs serve as a paper trail for clean energy.

“RECs are really an accounting mechanism to track who is using renewable energy at the end of the day,” he said. “No matter what kind of business you’re in…the RECs have to flow from the generator to the end user.”

In some states, many of which are concentrated in New England, energy companies face higher renewable energy portfolio standards (RPS), adding pressure to obtain renewable energy credits. While the supply of RECs has been limited in markets like Massachusetts, where solar costs a few hundred dollars per megawatt-hour (MWh), states without standards or with an oversupply of RECs have driven prices down.

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No matter what kind of business you are in… RECs must flow from the generator to the end user.

The problem of complementarity, that the project is not built without investment from a particular company, arises when the price of RECs is so low that it is difficult to assess whether the purchase of credits actually increases renewable energy capacity. In addition to large regional differences in price, Martin said the discussion of additional features can sometimes be overlooked.

“Companies want to tell the renewable energy story,” he said. “What they’re trying to do is show that they’ve made a difference.”

“Either buying RECs or buying offsets makes business sense because you want to have an impact on the environment or meet certain requirements that are important to you, your shareholders or your customers,” Powers said.

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Anyone who wants to claim to be using green energy, even a business that gets its energy directly from on-site systems such as rooftop solar, will include a REC to document who is using renewable energy. .

However, REC prices can range from less than $1 per megawatt-hour to hundreds of dollars, depending on portfolio standards and the regional supply-demand equation dictated by clean energy supply. The reason RECs can become so competitive among portfolio benchmarks is the specter of compliance fees if targets are not met.

“They vary greatly from region to region,” Martin said. “One that will change the calculus is the new Clean Power program. Increasing the amount of renewable energy can be very beneficial for the state.”

One of the features of the REC system is that credits can be traded. They are considered “decoupled” when certificates are sold separately from the physical energy produced. For example, a company may want to purchase electricity from a remote solar farm, where the electricity is sold to a third-party user or utility, although the company still requires RECs.

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“Where decoupled CERs draw criticism is in the complementarity controversy,” Powers said. Because RECs relate to clean energy production (low or no carbon dioxide emissions), they can be obtained from a large, long-term wind farm, rather than being a financial addition to new energy. producer.

To that end, Martin noted that one changing part of the green energy guidelines is the “new date,” or how long a renewable energy development can be considered new enough to qualify for the credits. The current standard is 15 years, and the share of clean energy required for processing has also been refined over time.

At a basic level, carbon offsets are a way to pay for infrastructure projects that reduce net carbon emissions. They are useful because it is often impossible for companies to produce carbon dioxide, which means that offsets are used to offset the impact of greenhouse gases (GHGs).

Various offsets can mitigate greenhouse gases, from planting carbon-absorbing trees to corporate energy efficiency programs or preventative measures that generate varying degrees of controversy, such as burning methane gas that leaks from unregulated landfills.

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Buying renewable energy for your company’s office electricity is not as easy as choosing a supplier and signing a contract.

In the liberalized energy market, customers can buy wind or solar electricity at retail and tap it directly onto the company’s properties. Or they can enter into a long-term contract to buy the electricity produced by the plant from external renewable sources.

Things can get complicated quickly in the regulated electricity market. The trades are more theoretical and often rooted in energy price protection. The result of capital directed towards financing new renewable energy capacity is the same.

“The corporate buyer — Google, Walmart, and so on — has long offered a structured, guaranteed income that allows a bank to say, ‘Okay, I’ll give you a $200 million loan to build this. ‘ thing.’ said Peter Mostow, energy attorney at the law firm Wilson Sonsini Goodrich & Rosat.

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The corporate buyer … provides a long-term, structured, guaranteed income where the bank can say, “Okay, I’ll give you a $200 million loan to build this thing.”

However, entry barriers for different types of electricity procurement are still high, which increases interest in new integrated forms of clean energy development.

“This is a really controversial area,” Mostov said. “Strike at the Heart of Useful Business Models.”

Let’s say you’re a company that wants to buy electricity produced outside of a wind or solar farm for a particular property. If you play with a 12-15 year commitment,

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