1. A Historic View of Clean Energy Power Purchase Agreements
GreenGov
Dialogue: Procuring Grid-Based Renewables
September 11, 2015
Washington, DC
Jerry R, Bloom
Winston & STRAWN LLP

2. 1970’s Nation Faced Serve Energy Crisis
1976 – oil embargo, skyrocketing oil prices, high dependence on foreign oil and dwindling natural gas supplies
Gas lines and escalating power prices
Significant capacity and power supply shortages
Need for preservation of nonrenewable resources
Significant contribution to environmental (air, water) problems associated with power generation

3. Federal Government Promotes Alternative Energy Development – Passes PURPA
U.S. Congress passes Public Utility Regulatory Policies Act of 1978 (PURPA)
Goal to promote energy independence and preservation of natural resources by eliminating regulatory and economic obstacles to alternative energy development
Fuel Use Act of 1978 – limits natural gas for power generation, but exempts cogeneration to capture efficiencies

4. The Public Utility Regulatory Policies Act of 1978 (PURPA)
PURPA established two classes of qualifying facilities (QFs)
Cogenerators
Electric and thermal energy
Small Power Producers
Renewables (biomass, waste, wind, solar, geothermal)
Created utility obligation to purchase QF alternative energy and capacity at utility’s avoided cost - ratepayer economic indifference
QFs were permitted to make wholesale sales of power
Exempted QFs from the Federal Power Act, PUHCA and State Utility Regulation as utilities

5. PURPA Power Purchase Agreements
The IOUs (monopsony buyers) were the primary off takers from QFs under the PURPA obligation to purchase, many markets the only purchasers
Some states allowed limited retail sales on site (California added two contiguous neighbors)
Product defined as capacity (firm and as available) and energy
Must take obligation - IOUs purchase all power
Sales and prices under PURPA PPAs were often contentious (avoided cost debates)

6. Benefits from Alternative Energy Development
Advanced US independence from foreign imports
QFs enhanced system reliability, reduced need for high reserve margins and costly transmission capacity additions (distributed generation)
Deployment of Best Available Control Technology – enhanced energy efficiency and reduced emissions
CHP(distributed generation) provided for self-service of thermal and electric demand

7. PURPA Success Drives Changes
Over capacity lead to competitive bid pricing (RFPs) among QFs rather than IOU avoided cost pricing
Success launched the restructuring of certain energy markets throughout the US
Legislators and state Public Service Commissions adopt Renewable Portfolio Standards - mandatory purchases of renewables
Product definition expanded to any know or unknown product associated with the development and operation of the QF (Green Attributes)
Later PPAs incorporated dispatch rights limiting must take obligations
Sales and prices for IOU purchases of QF power remained contentious
Mark to market pricing against fossil-fuel generation

8. Climate Change – the Game Changer
Dramatic increased in focus on environmental benefits from carbon neutral renewables
Abundance of non-renewable fossil-fuels (oil/gas) eliminated preservation and energy independence as a drivers for renewables
State adoption of Greenhouse Gas reduction goals increased IOU RPS requirements (AB 32)
Federal adoption of reduction goals (EO 13693)

9. Public and Private Sectors’ Seek Alternatives to Traditional Utility Service
Price
Escalating energy prices despite decreasing fossil-fuel prices – renewable as a price hedge (Primary driver)
Reliability, Stability
Outages associated with major weather conditions (hurricanes, earthquakes) raise reliability and sustainability concerns
Sustainability Product
Compliance; EPA, state greenhouse gas reduction regulation, Executive Orders (involuntary)
Corporations: Self-initiated programs for enhancement of corporate image/marketing/ shareholder, consumer demands (voluntary)
Public Entities: Addressing sustainability goals and national security issues (defense)

10. Public and Private Sectors’ Role as Active Market Participants
Public and private sector are taking greater control of energy future
Focus on renewable energy and combined heat and power
Products needed to meet sustainability goals usually not offered by the utilities
Public and Private sector as owner/off taker of renewable electrons, renewable energy credits and thermal energy
Private sector is not getting the products it wants from IOUs
Various deal structures bring value to “green” suppressed by renewable sales to IOUs who want “green” at parity with fossil electrons and retire RECS

11. Access to Renewable Energy Products Ownership, PPAs, Leases
On site - Distributed generation – bypass
End user owns the generation facility and the products it produces
Third party owns system on site (PPA, Lease)
Off Site
Customers who take delivery of energy and other products from generation facility owned by end-user or third party
Customers have rights to renewable energy products but they are sold or traded in markets

12. Agreement Terms Vary Widely
Product:
Renewable electrons and/or environmental attributes
Hedges: Market trading (no direct delivery)
Quantity: Full verses partial output
Term: 5, 10, 20 years
Price: fixed, escalating (guaranteed savings)
Project costs differ
Availability of ITC/PTC may competitiveness
Maintenance, metering, liabilities
Disposition of project at end of term

13. The Private Sector Direct Access
Among others, the list includes 76 of the Fortune 500, such as:
Apple
Coca-Cola
FedEx
Google Inc.
Johnson Controls
Intel Corporation
Microsoft Corporation
PepsiCo
Safeway
Wal-Mart Stores, Inc.

14. The Public Sector Direct Access
PPPs ( Public Private Partnerships)
Wide range of options
Wide range of partnerships
Government Buildings
Aggressive sustainability goals
Military Bases
National security
Vehicles – Federal Government 650,000 vehicles
Federal Government $445 B purchasing power
Leading on environment and energy performance
Federal PPAs

15. Questions and Discussion