Indian RECs| Please click one of the links below to jump down to the section: Issues with RECs Addressing REC issues |
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About 99% of all solar radiation is wasted and only 1% is harnessed for solar energy. It takes less than 10 minutes for the sun's light to reach Earth even though it is over 90 million miles away. |
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Issues with RECs and Project Financing
Renewable Energy Certificates are used for the facilitation of trading attributes and support new project development. However, obtaining financing for these projects has proved to be a challenge for project developers.
In general, in order to obtain financing, new projects will most likely need long-term agreements for the electricity as well as RECs, which are in the forms of Power Purchase Agreements. Long-term contracts provide security to a financer since above-market costs make them too risky to finance any other way.
Long-term contractors' role has usually been taken by Utility companies. Utility companies tend to take on this role usually due to regulatory requirements otherwise they are reluctant to make long-term commitments. This is generally due to the fact that Utility companies do not want to be locked into prices that are uncompetitive, especially if prices fall.
The demand for RECs can provide revenue for renewable energy projects, however they are inadequate if considered as a primary means for financing a project. Even the demand that is backed by a long-term Renewable Portfolio Standard (RPS) itself is not sufficient for project financing. Financial institutions typically want a more direct and enforceable commitment. In competitive markets, REC marketers are too small and do not have sufficient credit to provide security. Also, projects usually are financed for 10 to 20 years, where the compliance and voluntary demand is only for a year or two.
Addressing Problems with RECs and Project Financing
There are several ways to address the problems that RECs present with Project Financing for Renewable Energy Projects:
Can offer a price floor for RECs to ensure minimum REC revenue Can have large credit-worthy investors, such as government agencies or universities, offer commitments for the purchase of either stand-alone RECs or bundled RECs. Regulations can be put into place where green pricing utilities have to offer to purchase RECs or bundled energy from those projects that are not yet developed Can have requirements in place that require long-term contracts for stand-alone RECs or bundled energy that can satisfy an RPS (Renewable Portfolio Standard). RECs that are going to be generated over a lifetime of a project can be sold in advance before the construction of the project. This can allow for the generated revenue to finance the project directly.