POWER September 2021 - 37

PROJECT DEVELOPMENT
Physical Delivery PPA
In physical delivery PPAs, the developer
sells electricity and RECs from a utilityscale
project directly to a customer.
They're not particularly common because
many utilities in the U.S. have exclusive
service territories and effectively operate
as monopolies. Therefore, other companies
can't sell electricity directly to customers,
except in competitive markets.
Furthermore, if a developer makes a
sale to a retail customer, it may find itself
subject to regulation as a public utility,
which would mean the public utility commission
could regulate the rate that the
IPP charges customers. This would be a
serious turnoff for lenders. Still, the opportunity
for physical delivery of power
does exist in some locations.
" We see that in Oregon, we see that
in Pennsylvania, and in other jurisdictions
where that is permitted to one degree or
another, but there's always a somewhat
limited supply, and some complications
associated with doing those transactions,
such as whether your load is in a
place where you can get the physical delivery,
that we find them to be less common, "
Holmes said.
Green Tariff 2.0
One way to effectively deal with a utility's
exclusive service territory rights is
using what Holmes calls " Green Tariff
2.0. " In this type of deal, the IPP sells
the electricity and RECs to the utility,
then the utility enters into a back-to-back
agreement with the C&I customer to sell
them the energy and RECs.
Sometimes, the utility will make its
own obligations contingent upon the performance
of the corporate customer. In
that case, the IPP may need to enter into
a separate agreement with the customer
for credit support.
" These transactions are potentially
complicated, they're not automatic, and
they're not available with all utilities-
not available in all states, " said Holmes.
One benefit for the C&I customer is that
this type of deal allows it to point to a
specific renewable energy project that's
located near its facility, for example, and
proclaim that it is helping contribute to
the local tax base and supporting renewable
energy jobs in the community.
Community Solar
Community solar PPAs can follow a
somewhat similar scheme, that is, the
IPP sells electricity and RECs to the utility,
and the utility facilitates the community
solar program (Figure 2). However,
September 2021 | POWER
2. Minnesota Power's community solar pilot
program includes a 1-MW array in Wrenshall,
Minnesota. Courtesy: US Solar
in some deals, corporate off-takers enter
into a subscription agreement with the
IPP, pursuant to which the customer purchases
bill credits based on its share of
the system output. The bill credits are
then provided by the utility.
" The one thing to keep in mind is that
the utility may be the party that's acquiring
renewable energy credits, and that
may limit the ability of the C&I customer
to claim that it is using renewable energy, "
Holmes explained. " An important
point to bear in mind is that RECs are the
key and essential component of a corporation's
claim to be using renewable energy.
If you don't control the RECs, you
don't control the renewables. "
Virtual PPA
Virtual PPAs (VPPAs) are frequently used
when physical delivery is precluded by
utility monopoly structures. VPPAs require
a liquid electricity market, such
as an ISO or RTO, in which the price for
power can be reliably and publicly determined
at various points in the grid. The
IPP sells RECs to corporate off-takers,
while selling the power to the grid at the
best possible market price.
" With respect to the settlement specifically
of a VPPA that makes it different
from a physical PPA, it is considered a
swap, because you're not delivering
physical energy and you're settling based
on the contract for differences structure, "
Le Hir explained. " This is basically
a formula that settles for every hour of
transaction in the market, and then you
aggregate and net out the amount owed
to each party over the settlement period,
which is usually every month. "
For example, if the fixed price was
$20/MWh and the market price was $25/
MWh in a given settlement interval, the
IPP would financially settle by paying the
corporate buyer $5/MWh. If in the same
example the market price was $15/
MWh, the corporate buyer would financially
settle by paying the IPP $5/MWh.
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The parties would usually settle monthly
by aggregating and netting settlement intervals
to produce a single amount owed
by one party to the other.
This structure allows an IPP to assure
lenders that it will always get the fixed
price, and it allows the corporate buyer
to get the RECs and an electricity price
hedge. The corporate buyer can also claim
" additionality, " which essentially means it
can tell customers and other stakeholders
that additional renewable energy has
been added to the grid that would not exist
without the company's involvement.
Portfolio PPA
The portfolio PPA concept is often desirable
for a corporate buyer interested in
purchasing renewable energy from a host
of projects in multiple regions throughout
the country. These are arranged as
a master purchase agreement in which
the terms are negotiated in one PPA.
The agreement has a " confirm structure, "
which means, as each project is proposed
or getting ready to come online, the developer
will offer confirms and the parties
will execute each of the confirms for each
of the individual projects. These agreements
often have the flexibility to alter
schedules by shifting projects around,
which can also provide benefits.
" This is a way that people can have
trusted partners that they have negotiated
these larger portfolios from and they
can basically be able to procure a larger
volume in hopefully a shorter amount of
time, " Le Hir said. " Instead of negotiating
10 different PPAs with 10 different
developers, they're now negotiating with
one developer. "
Block Delivery PPA
A block PPA requires a physical delivery
of energy and RECs to a certain location.
It guarantees a shaped and firmed
amount of electricity every hour of the
term. Usually, the buyer will nominate
quantities based on its expected load
forecast, with different amounts in different
blocks. The seller is obligated to deliver
the agreed upon renewable energy.
" Since you can't just turn wind and
solar on or off, the seller has to make
up the difference based on market purchases, "
Le Hir said. " With respect to
the RECs, we make sure that the RECs
match the actual deliveries that were
from the wind and solar in order to help
the corporate buyer meet their renewable
procurement goals. " ■
-Aaron Larson is POWER's
executive editor.
37
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POWER September 2021

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