This blog is the second in a four-part series on mitigating risk through your power purchase agreement (PPA) procurement process. Each blog in the series focuses on a different risk: market risk, regulatory risk (this blog), operational and execution risk, and reputational risk.
Author: Misti Groves works directly with project developers & purchasers to execute strategic customized contracting solutions.
The national energy economy is influenced by a web of energy market regulation. From national policies that provide incentives for certain types of energy production, to regional regulations directing power supply and delivery, the regulatory environment is complex and subject to shifts.
It is no surprise that policy influences the energy landscape, and variations in price and supply of energy impact all organizations – no matter how they procure their energy. The real question is: how can an organization navigate the variable regulatory environment to its advantage?
Right now, a unique window of opportunity to leverage federal government tax credits exists for organizations in the U.S. energy markets. The recently extended Production Tax Credit (PTC) and Investment Tax Credit (ITC) provide federal financial incentives for wind and solar electricity generation, resulting in lower energy costs for organizations making large-scale renewable purchases. Enter the renewable energy power purchase agreement (PPA). A PPA provides organizations with the ability to contract for 10-20 years for a fixed rate for energy, often below the cost of “brown” power from the grid.
Layered upon the federal regulatory landscape, is a regionally-based governance structure for the U.S. energy markets. This means that strategic siting of a PPA may help an organization diversify its energy procurement portfolio and take advantage of favorable opportunities specific to today’s regulatory landscape. Success depends upon choosing the right project type and location, as well as the appropriate PPA structure. Organizations that pursue a PPA may be able to choose between direct PPAs, co-located in the same region as the organization’s energy load, or virtual PPAs, which do not need to be co-located.
Direct PPAs, for the most part, can be located within deregulated retail markets, where buyers can choose their electricity providers (such as Illinois, Texas, and Maryland).
Virtual or Synthetic PPA opportunities can be located in any deregulated wholesale energy market (such as PJM, ERCOT, SPP, MISO, and others)
Successfully navigating the nuances of energy market regulation opens opportunity for attractive PPA deals, but it can be difficult for an organization to manage on its own. Many buyers turn to a reputable advisor to guide them through the process and ensure they take advantage of nuanced opportunities, and avoid common pitfalls. To learn more about risk identification and mitigation in a successful PPA procurement process, download the Renewable Choice Energy white paper Proactively Managing Risks to Accomplish Your Long-Term Renewable Energy Goals today.
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