Corporations around the world are increasingly looking to procure renewable energy. It helps to meet their sustainability goals and hedge against energy market volatility. Two of the most common ways for corporations to purchase renewable energy are power purchase agreements (PPAs) and energy attribute certificates (EACs). Both PPAs and EACs allow companies to power their operations with clean energy. They also allow to reduce carbon emissions.
However, there are some key differences between the two approaches that corporations should understand when evaluating options. So, in this article, we will talk about what is the difference between PPAs and EACs.
Overview of PPAs and EACs
A power purchase agreement (PPA) is a long-term contract. In this method, a corporate buyer agrees to purchase renewable electricity directly from an energy generator. The agreement provides corporations with a fixed price for electricity over 10-25 years. Under a PPA, the company can claim ownership of the environmental attributes of renewable energy. They can further count it towards emissions reduction targets.
When it comes to what are energy attribute certificates. Energy attribute certificates (EACs) are also known as renewable energy certificates (RECs) in some regions. They are tradable instruments representing the environmental attributes of 1 megawatt-hour of renewable electricity generation. Generators issue EACs when they generate renewable electricity and can unbundle it from the physical electricity to sell separately. Corporations can purchase EACs to claim using renewable energy.
PPAs and EACs: Pricing and Cost Structures
One of the main differences between PPAs and EACs is the pricing structure and costs involved.
PPAs provide corporations with a fixed, predictable pricing structure for electricity over the long term. The PPA pricing is based on various factors. It includes the project cost, location, technology, and negotiated terms. While PPAs require some upfront time and effort to negotiate, they can provide corporations with long-term electricity price certainty. They can also provide a hedge against energy market volatility.
Contrastingly, open markets trade Energy attribute certificates, and fluctuations in prices occur based on supply and demand dynamics. EAC prices can be very volatile depending on market conditions. For corporations looking for cost stability, EACs may not provide the same electricity price hedge as a PPA. However, procuring Emission Allowance Certificates (EACs) incurs lower upfront costs. This is compared to negotiating a Power Purchase Agreement (PPA).
PPAs and EACs: Risk Mitigation
When it comes to risk mitigation, PPAs and EACs take different approaches.
Power purchase agreements contractually obligate the power generator. This is to provide renewable electricity and associated environmental attributes to the corporate buyer. As a result, this minimizes volumetric risk. It further helps ensure the corporation can make renewable energy claims. PPAs also shift certain operational risks to the project developer. This is related to building and maintaining a renewable energy facility.
With energy attribute certificates, volumetric risk falls on the corporate buyer. Whether or not a corporation eventually purchases the EACs, it may generate renewable energy. If the EACs are not properly retired, there is a risk of double counting or resale. Proper tracking and retirement of EACs through a registry reduces this risk. However, overall, EACs provide less certainty over renewable energy delivery compared to PPAs.
PPAs and EACs: Ownership Claims
PPAs and EACs offer different levels of renewable energy ownership claims for corporations.
Under a PPA, the corporate buyer can claim direct ownership of the renewable energy produced by the contracted facility. This allows the company to make strong claims. These are about powering operations with renewable electricity from that specific project. PPAs provide the strongest branding opportunities for corporations compared to other procurement options.
With EACs, corporations can only claim support for renewable energy at a more general level. Since physical power delivery unbundles EACs, they do not directly own renewable generation from a specific facility. PPAs have stronger renewable energy ownership claims in comparison.
PPAs and EACs: Matching Electricity Load
When matching renewable energy procurement with electricity load, PPAs provide better alignment than EAC-based approaches.
Power purchase agreements contractually deliver renewable electricity generated by the facility to power the corporate buyer’s operations. This provides a direct match between the renewable generation and electricity load. On the other hand, corporations account for EACs separately from electricity consumption. Renewable energy generation may occur in a different location and period. This is compared to the corporate buyer’s electricity demand.
For corporations where onsite load matching is important, PPAs tend to be better suited than EACs.However, approaches like virtual PPAs can apply EACs to specific load locations to improve the match.
PPAs and EACs: Additionality
PPAs and EACs take different approaches when it comes to driving additional renewable energy capacity.
Most PPAs require the corporate buyer to build a renewable energy facility specifically. This is to meet the terms of the contract. This provides high confidence that the PPA resulted in additional renewable generation. One that wouldn’t have otherwise been built. Furthermore, PPAs bring new renewable energy online.
The impact of EACs on driving additional renewable capacity can be less clear. Corporates would not have needed to rely on EAC sales in most cases for the construction of the renewable facility. Most EAC purchases support existing renewable generation rather than directly driving capacity expansion. However, EAC demand can improve renewable project economics at the margin.
Overall, PPAs provide the clearest path for corporations to add new renewable generation to the grid. Environmental Attribute Certificates contribute significantly to providing environmental benefits. However, their additional effects are less direct compared to Power Purchase Agreements.
PPAs and EACs: Location-Specific Sourcing
For corporations looking to source renewables from a specific geographic location, PPAs provide much greater control compared to EACs.
PPAs directly contract renewable generation from a selected location the corporate buyer chooses. This allows companies to match renewable procurement to operations in a specific country or region.
Once corporations unbundle EACs from renewable generation, they have little ability to control the location where the underlying renewable energy is produced. Global or national EACs sourced through brokers offer less location specificity compared to PPAs.
PPAs and EACs: Procurement Complexity
Procuring renewable energy through PPAs and EACs requires different levels of internal resources and capabilities.
PPAs are complex legal agreements. They require significant time and effort to negotiate with project developers. Companies need in-house expertise across areas. It includes energy markets, contracts, and finance to pursue PPAs. The long-term agreements also often require approval through corporate legal and procurement channels.
Generally, procuring EACs requires fewer resources compared to PPAs. Buyers can acquire EACs through brokers or online platforms with standardized contracts. Departments can sometimes procure smaller EAC batches at their level. The barrier to initiating EACs is lower compared to PPAs.
Overall, PPAs require more significant internal procurement capabilities and executive buy-in. Energy attribute certificates offer a more accessible option for companies with limited expertise and resources. This stands to be the comprehensive difference between both the concepts making the most asked question of what is the difference between PPAs and EAC clear.
Both power purchase agreements and energy attribute certificates allow corporations to meet renewable energy and carbon reduction goals. However, there are tradeoffs to consider related to pricing, risk, ownership claims, load matching, additionality, location specificity, and procurement complexity.
Companies with strong internal capabilities that want fixed-price renewable electricity, direct ownership claims, and the addition of new renewable capacity may find PPAs to be the better option. Corporations with limited resources that want more flexible renewable energy claims from a broader market may be better suited to EAC procurement.
As corporate renewable energy procurement matures, we are likely to see more creative hybrid models that combine advantages from both PPAs and EACs. But for now, companies should carefully weigh the pros and cons of each method against their priorities. With the right strategy, both PPAs and EACs can play an important role in helping corporations meet their renewable energy objectives and transition to a net zero carbon future.
As corporations continue on the journey to net zero emissions, events like the Net Zero Energy Sourcing and Power Purchase Agreements Conference on February 29 – March 1, 2024, will add tremendous value. This leading event brings together renewable energy buyers, sellers, advisors, and experts to explore the latest trends and best practices in PPAs, EACs, and holistic renewable energy procurement strategies. Attendees will gain insights into PPA contract negotiation, risk management, emerging technologies like hydrogen PPAs, and building integrated renewable energy portfolios. They will hear perspectives from organizations that have successfully executed PPAs and EACs across various regions and industries. The conference provides an unmatched opportunity to learn from case studies and directly engage with leaders in the space. So, make sure you register for the event now!