Renewable Energy Projects: Structuring REC Purchase and Sale Agreement, Interconnection Agreement

Description

RECs offer project developers an increasingly important revenue stream to support renewable energy facility project development, especially as states increasingly mandate renewable portfolio standards (RPS) to implement clean energy objectives. Such RECs can be created and sold in voluntary markets or become a mandatory compliance tool in states with mandatory RPS programs.

When negotiating and structuring REC purchase and sale agreements, counsel should consider voluntary and mandatory REC programs that create markets for RECs, how RECs can be sold and to whom, parties' termination rights, the buyer's commitment to pay, and the applicable state regulatory structures and requirements for RECs, including the state's use of alternative compliance payment mechanisms as an alternative to RECs. Counsel must also understand the state's long-term RPS outlook and how supply/demand economics impacts future market values for RECs.

Interconnection is essential in the delivery of energy to the grid and the generation of RECs. When structuring interconnection agreements, counsel should know the regulatory considerations and implications of whether the project operator is the site owner or the customer and the complexities that arise for REC transactions depending on the answer.

Counsel should also consider the circumstances under which the utility can disconnect the renewable energy project from the grid, and if disconnected, how the project can deliver to the end user. When selling energy directly to a utility under the Public Utility Regulatory Policies Act, a related issue is whether the utility acquires associated RECs from the qualifying facility (QFs) automatically or whether the project developer can sell RECs separately from the energy generated from such QFs.

Counsel must carefully negotiate key provisions in each agreement and evaluate considerations, including regulatory obligations, before advising clients on executing the documentation.

Listen as our authoritative panel of energy counsel discusses navigating the regulatory and transactional structures involved in REC purchase and sale agreements. The panel will offer strategies for effectively negotiating the agreements.