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Pricing bundled renewable energy credits using a modified LCOE for power purchase agreements

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  • Bruck, Maira
  • Sandborn, Peter

Abstract

Throughout the world, various policies and regulations exist that govern the buying and selling of energy. In the United States, government mandates have been developed in the form of State-specific Renewable Portfolio Standards (RPSs) that require specific percentages of renewable energy consumption. RPS laws are managed through Power Purchase Agreements (PPAs) and bundled Renewable Energy Credits (RECs), other parts of the world use similar instruments. Both PPAs and RECs typically use a Levelized Cost of Energy (LCOE) calculation to determine the price of energy and may contain limitations on how much energy can be purchased. Conventional LCOE calculations do not account for asymmetry in cash flows that arise from PPA and REC imposed penalties, which can lead to significant errors. The objective of this paper is to use a modified LCOE to demonstrate the impacts of energy purchase limits and the combined effect of multiple energy generators entering into an energy purchase agreement with one buyer. The Maryland Offshore Renewable Energy Credit (OREC) is used as an analysis vehicle, which demonstrates that the effective LCOE can decrease by as much as 36% or increase by as much as 15% when RPS and REC energy purchase limits introduce cash flow asymmetry.

Suggested Citation

  • Bruck, Maira & Sandborn, Peter, 2021. "Pricing bundled renewable energy credits using a modified LCOE for power purchase agreements," Renewable Energy, Elsevier, vol. 170(C), pages 224-235.
    • Handle: RePEc:eee:renene:v:170:y:2021:i:c:p:224-235
    DOI: 10.1016/j.renene.2021.01.127
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    Cited by:

    1. Kandpal, Bakul & Backe, Stian & Crespo del Granado, Pedro, 2024. "Power purchase agreements for plus energy neighbourhoods: Financial risk mitigation through predictive modelling and bargaining theory," Applied Energy, Elsevier, vol. 358(C).
    2. Wang, Xinru & Long, Ruyin & Sun, Qingqing & Chen, Hong & Jiang, Shiyan & Wang, Yujie & Li, Qianwen & Yang, Shuhan, 2024. "Spatial spillover effects and driving mechanisms of carbon emission reduction in new energy demonstration cities," Applied Energy, Elsevier, vol. 357(C).
    3. Szymon Słotwiński, 2022. "The Significance of the “Power Purchase Agreement” for the Development of Local Energy Markets in the Theoretical Perspective of Polish Legal Conditions," Energies, MDPI, vol. 15(18), pages 1-14, September.
    4. Suryakiran, B.V. & Nizami, Sohrab & Verma, Ashu & Saha, Tapan Kumar & Mishra, Sukumar, 2023. "A DSO-based day-ahead market mechanism for optimal operational planning of active distribution network," Energy, Elsevier, vol. 282(C).
    5. Gabrielli, Paolo & Aboutalebi, Reyhaneh & Sansavini, Giovanni, 2022. "Mitigating financial risk of corporate power purchase agreements via portfolio optimization," Energy Economics, Elsevier, vol. 109(C).
    6. Marios Stanitsas & Konstantinos Kirytopoulos, 2023. "Sustainable Energy Strategies for Power Purchase Agreements (PPAs)," Sustainability, MDPI, vol. 15(8), pages 1-19, April.
    7. Isaac Amoussou & Emmanuel Tanyi & Ahmed Ali & Takele Ferede Agajie & Baseem Khan & Julien Brito Ballester & Wirnkar Basil Nsanyuy, 2023. "Optimal Modeling and Feasibility Analysis of Grid-Interfaced Solar PV/Wind/Pumped Hydro Energy Storage Based Hybrid System," Sustainability, MDPI, vol. 15(2), pages 1-30, January.
    8. Yuhji Matsuo, 2022. "Re-Defining System LCOE: Costs and Values of Power Sources," Energies, MDPI, vol. 15(18), pages 1-39, September.
    9. Takele Ferede Agajie & Armand Fopah-Lele & Isaac Amoussou & Ahmed Ali & Baseem Khan & Om Prakash Mahela & Ramakrishna S. S. Nuvvula & Divine Khan Ngwashi & Emmanuel Soriano Flores & Emmanuel Tanyi, 2023. "Techno-Economic Analysis and Optimization of Hybrid Renewable Energy System with Energy Storage under Two Operational Modes," Sustainability, MDPI, vol. 15(15), pages 1-31, July.
    10. Heidari, Mohammad Reza & Heravi, Gholamreza, 2024. "Development of flexible supportive policy with real options for renewable energy projects: Case of photovoltaic systems," Renewable Energy, Elsevier, vol. 225(C).

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