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Green Contracting

Structuring renewable agreements to survive change.

Fortnightly Magazine - November 2009

definition of environmental attributes. However, some also include a reference to the type of environmental attribute of primary interest, such as a particular state’s RECs. This balanced strategy of sweeping and specific provisions has the most resilience, and will withstand change, including a shift from a state to federal standard. An environmental attribute is almost always explicitly defined to exclude any tax incentives, consistent with the typical allocation of environmental attributes to the buyer and tax benefits to the seller.

An important term that is sometimes overlooked is a representation, or series of representations, that the project is qualified to receive environmental attributes and the seller holds good title to all the environmental attributes associated with the energy generated by the project and hasn’t, and won’t, transfer title to the environmental attributes associated with the energy sold to the buyer to any other purchaser during the term of the contract. This type of representation is a necessary foundation to the conveyance clause.

The parties also should limit transfer of the environmental attributes to those associated with the power purchased by the buyer and provide for a return of any environmental attributes associated with power for which the buyer defaults in its payment obligation. Contracts also commonly specify the allocation of responsibility, including responsibility for paying fees, for registering and tracking the environmental attributes through an appropriate registry such as the Western Renewable Energy Generation Information System (WREGIS).

Portfolio mix

Much of the recent growth in the renewable sector is in technologies with intermittent output, such as wind and solar. This limitation becomes more critical as renewable generation’s market share grows. In particular, the need for new clean baseload resources will become more acute as existing fossil-fired baseload plants are retired in the normal course of operation or due to escalating carbon costs. Utilities must balance the immediate need to meet renewable standards with long-term needs for a portfolio that will have the operating characteristics necessary to meet future load.

An obvious strategy is to mix existing renewable baseload technologies that are available now, such as geothermal, biomass and landfill gas resources, with wind, solar and demand-response technologies. However, there also are promising new energy-storage technologies. Buyers requiring the flexibility of storage should consider building into their competitive procurement processes a mechanism that gives credit in the ranking process to projects that either provide a storage option or can be adapted in the future to integrate a storage technology. Sellers should consider the adaptability of their projects for storage as an additional selling point.

Contract terms can be structured to permit or facilitate the addition of storage at a later time. For example, each party can commit to engage in an evaluation and planning process for a storage addition if the buyer requests, and the buyer and seller can agree to a process for negotiating cost allocations and price adjustments and adapting scheduling provisions to facilitate use of the flexibility provided by storage, if a determination is made that storage would be cost-effective.

Minimum Performance Guarantees

Notwithstanding the “as-available” nature of most renewable