| Abstract |
Geothermal power plant developers are becoming increasingly aware of the renewable energy credit (REC) markets that have come into existence with the passing of more than two dozen state renewable portfolio laws (called Renewable Portfolio Standards, or RPS). In fact, the last two years has seen several new geothermal facilities come online, something our country hadn’t seen in the prior two decades. Depending on the location of these new geothermal plants, the RECs they are generating are eligible into perhaps one, and sometimes more, of these state RPS markets. Geothermal developers are therefore facing a whole new set of issues associated with the sale of their output: valuating the REC, including the REC in a long term power purchase agreement (or not), and the multiple liabilities associated with a long term contract. This paper lays an informational foundation for geothermal developers facing these issues in their REC and power contracts. This presentation will cover the major issues that need to be dealt with in medium- and long-term REC purchase and sale contracts; as well as some of the solutions that participants have used to get past thorny problems. I will cover the major terms of a REC contract, including details on the risk and liabilities. I will also discuss in detail the pending Federal Renewable Portfolio Standard and the Federal REC that it will likely create, if such a law is passed. This new federal credit may play an important roll in the financing of new geothermal projects and must be addressed in any geothermal power contract. This presentation is for geothermal developers and anyone who is involved in REC contract negotiations. The landscape for renewable energy has changed dramatically in the US in the last ten years, in large part because now more than two dozen states have passed laws that require load serving entities (LSEs) to source a minimum portion of their load from renewable sources. These laws, usually called a Renewable Portfolio Standard (RPS) (or sometimes Renewable Energy Standard, RES), usually also create and allow for the trading of a renewable energy credit (REC) for every MWh of power generated at an eligible facility. In the last ten years, a patchwork of markets has developed across the United States where RECs are traded with varying degrees of liquidity, fungibility and value. The REC markets have developed something of a reputation for being complicated, opaque, and with in-transparent pricing and trading rules. Part of the problem is that each RPS (around 28 of them) has different renewable eligibility definitions, trading rules, LSE obligations, banking rules, and other market details. And yet there is enough similarity between some state RPSs that regional tracking and trading has evolved. The REC markets present many challenges to geothermal developers. Many of the challenges are involved with these aforementioned issues and revolve around market entry strategies. However once a geothermal developer has approached the market, engaged a buyer, and is facing contract negotiations, a whole new set of issues crops up. These issues will be addressed in the paragraphs that follow. The first problem to tackle is the multiple definitions of a REC, both from a legislative position as well as an individual counterparty contractual position. Second, I will give an overview of REC transactions and how they take place. Third we will cover the major elements of a REC contract, including some of the common problems and possible solutions. Lastly, I will talk about a national RPS and how that might affect the spreadsheets of new geothermal projects. |