Month: April 2016

An Introduction to Renewable Energy Procurement: Onsite Solar Generation

busy city street out of focus

These are exciting times for companies and institutions interested in expanding their commitment to renewable energy. An evolving landscape is providing more options. But with more options comes more complexity.

At 3Degrees, we talk to a lot of clients that are interested in the procurement of renewable energy but aren’t always sure where to start. The purpose of this series is to help those new to renewable energy procurement better understand – at a high level – the options available to them. We will provide an overview (including the pros and cons) of each of the main options, including:

  • on-site generation
  • off-site, physical power purchase agreements (PPAs)
  • off-site, virtual PPAs
  • virtual net metering
  • direct investment, including tax equity

In this first article, we will discuss on-site generation. In later articles we will discuss the other options.
Before diving in, it is useful to review the primary benefits renewable energy procurement provides to organizations. They are fourfold:

  1. Sustainability initiatives: Most companies considering direct procurement have clear corporate goals to reduce their carbon emissions and/or increase their usage of renewable energy.
  2. Economics: For the organizations we work with, the economics of a transaction are as important as the sustainability results. Generally speaking, projects must provide both financial and environmental benefits to the company. Direct procurement can reduce costs, diversify energy supply, and hedge against future energy market volatility.
  3. Brand reputation: These projects can help a company strengthen its reputation as an environmental leader. Press coverage is common and can build positive brand impressions. Further, direct procurement can meet customer and investor requests to achieve meaningful sustainability goals.
  4. Transparency: Investors and customers are increasingly interested in companies disclosing the impacts of their operations on the environment. Companies that measure their environmental risk are better able to manage it and drive desirable action. The Carbon Disclosure Project is a good example of this global movement towards transparency.

On-site solar generation


Simply put, on-site solar generation involves installing equipment to generate renewable energy at the location where it is consumed. These projects are most often installed in states that allow net metering. Net metering is a state-specific policy set which allows customers to deliver surplus generation to the electric grid and spin their meters backwards, resulting in a credit from their retail energy service provider. However, on-site systems don’t have to be net metered and can simply serve on-site load directly. On-site renewable energy procurement is well established and examples of such corporate and institutional transactions are widespread. Solar power is most common (examples include IKEA and Kohl’s), but on-site generation can also include wind (Budweiser, Nestle), geothermal (Colorado, Idaho, and Oklahoma state capitols), biogas (New Belgium Brewing Company), and landfill gas (BMW, GM).


On-site generation has a number of things working in its favor: cost savings, availability, ease of transaction, and visibility.

  • Cost savings: On-site systems can provide immediate savings with a PPA or equipment lease structure or an attractive return on investment over time with asset ownership. In these cases, the PPA or lease payments are less than the customer’s retail electric rates and are fixed for many years to come, as compared to retail tariffs which tend to rise with inflation. Similarly, with direct ownership, the upfront cost of the system will be offset over time by reductions in the electricity bill. In certain cases, on-site generation can also help reduce demand charges (i.e., those retail charges tied to the maximum power required to serve the customer)
  • Availability: On-site opportunities are also broadly available. Forty-four US states (and DC and Puerto Rico) – or forty-three depending whether you consider the recent changes to Nevada net metering rules – allow net metering helping to create economic opportunities across the country.
  • Ease of transaction: On-site PPAs, leases, and asset purchase are common, and the contracts themselves have become more standardized over time. The direct consumption of on-site generation (and the resulting economic benefits) is also simple and straightforward, making it easier to gain support from internal stakeholders. Together, these dynamics can facilitate a swift and smooth contract execution. In addition, on-site generation can be integrated easily into a diversified and well-balanced renewable energy portfolio.
  • Visibility: On-site projects are often visible to the host company’s employees and customers, which helps in messaging. Equally important, on-site projects are easy to explain and easy for stakeholders to understand, creating strong marketing and brand building opportunities.

On-site solar generation can be integrated easily into a diversified and well-balanced renewable energy portfolio.


One of the most significant benefits of on-site generation – location – can also be its largest drawback. The location of the system can be a challenge in a couple of ways: space and resource availability and site permissions.

  • Space and resource availability: First, these projects can require significant space – either rooftop or land, which may not be readily available. The result is that on-site projects typically only offset a portion of the electricity purchased from the customer’s retail electric provider. It is also important to take the energy resource into consideration. In the event of poor resource exposure, large buildings, trees or other obstructions, the projects may not generate the desired level of savings.
  • Site permissions: Next, a company must also have the right to install the on-site project. In situations where the customer leases the property, they may not be permitted to install the project or the term of the PPA or solar lease may be longer than the underlying property lease.


Although on-site facilities tend to fall lower on the risk spectrum, we see two main types of risks: performance and regulatory.

  • Performance risk: There is always the risk that the system does not operate as designed, which can affect cost savings and projected returns. This risk is minimal as solar power is a mature technology and can be further mitigated by working with experienced developer and installers.
  • Regulatory risk: The economics of on-site projects typically hinge on the existing regulatory framework (most notably related to how excess generation is credited to the customer). Often, operating on-site projects can be “grandfathered” from the impacts of regulatory changes, but there is no guarantee that this will be the case. 3Degrees helps customers monitor the regulatory landscape to identify any potential rule changes early, understand the potential impacts, and advocate for rules that maintain the benefits in place when the project was installed.


There are number of options for structuring and realizing an on-site deal. The three most common are:

  1. Asset purchases by which companies purchase the system outright and realize the tax benefits by monetizing the investment tax credit (ITC). The advantage of this structure is that the project is fully owned and, if properly maintained, will have a significantly longer useful life than the typical 15-20 year PPA or lease. The primary disadvantage of this option is the upfront capital requirements which can make it more difficult to sell internally.
  2. Power purchase agreements (PPAs) are a very common way to purchase on-site renewable generation. In this scenario, a developer owns and operates the project, and the customer pays the developer for the energy generated by the project at a predetermined rate. The benefit of this option is that it does not require upfront capital and the system Operations & Maintenance is handled by the developer. Importantly, this option necessitates a long-term relationship with the owner/operator of the project (increasing the importance of picking the right one).
  3. Renewable project leases are similar to PPAs, but the payment is not directly related to energy production. The costs and benefits of an onsite renewable project lease are similar to a PPA, and customers can similarly protect themselves through performance guarantees in the leases.

In summary, on-site generation projects are a common, easily understood way to procure renewable energy. This structure offers substantial (typically limited) benefits but must be implemented carefully to optimize cost savings and mitigate potential risks, highlighting the importance for even savvy customers to engage a partner who can help them navigate the many decisions along the procurement process. In future articles we will cover the pros and cons of off-site renewable energy projects.

What Inspires your Environmentalism?

To celebrate Earth Day, 3Degrees' employees share moments that influenced their decision to work for the environment

In celebration of Earth Day we asked some of our coworkers what inspires their green streak. Here’s what we heard.



My tipping point was during a trip to Laos where we hiked to a remote village and stayed one night…

Valerie from 3Degrees is inspired by her trip to a village in Laos

Basic necessities, like clean water and septic systems, were all things that most of them had never experienced. They hauled jugs of water back and forth each day from a clean water source a mile away. Cooking happened over an open fire and candles were used after sundown. I realized that if something were to happen to their rice crop, not only would they have nothing to eat but also no source of income. In one night, I was enlightened and realized even basic water pump irrigation systems or renewable energy sources would absolutely change their lives and protect them from unforeseen climate changes. It made me feel incredibly lucky that I grew up where I did and want to do what I can to help to make their lives easier.




My interest in environmentalism grew gradually…

<img=”” rel=”attachment wp-att-2215″>Jason hikes Pacific Crest Trail

I didn’t realize I cared so much during the 4 months I spent hiking the Pacific Crest Trail. I just knew I loved being in nature. I noticed in the months after, when I was digesting my trip and sleeping on the floor of a New York City apartment, that the biggest adventure of my life was on a strip of land 2 feet wide.




Growing up in northern California, my family spent summers at a cabin in Lake Tahoe…

Megan from 3Degrees' summers spent in Tahoe with family inspired her to work for the environment

The days were filled with hiking and fort building with my brother. Year-round, this early appreciation for the wilderness informed my everyday activities, eventually leading me to study Political Science and Environmental Studies. So for me, there wasn’t a “tipping point” or ah-ha moment. I just never conceived another way to be. It’s always been my dream to help build a future where the wonder of our world’s wilderness will be protected, valued and accessible.




I grew up “off-grid” in a communal family arrangement in rural Vermont…

Gates from 3Degrees carrying a pile of boxes in front of cabin

So naturally, in my teens and early twenties I rebelled and sought materialism. Post-college, after a few years of 80-hour work weeks and New York City life, it felt wrong. So I quit. I took a low-paying job at a back-country lodge on the Appalachian Trail. One morning while baking bread for the guests at 5 a.m and desperately sipping coffee, I looked out the window at an under-cast sky.  I saw an ocean of clouds with the mountains peaking through and suddenly understood why my parents chose to raise us the way they did.




I’m an animal lover – and that’s what motivates my environmentalism…

Leslie from 3Degrees knew she wanted to help protect animals when she handfed a manatee when she was 15

I want our planet to be a safe home for everything we share it with: kittens, sharks, snakes, you name it. I realized it when I was 15 growing up in Tampa Bay. I had the chance to hand feed a manatee. Her mouth opened horizontally and then vertically. It was amazing. All my life I’d seen commercials and signs warning boaters to slow down. But it was in that moment, with the manatee, that I realized I should do something to help protect them too.




I grew up in Bluemont Virginia…

Kelly from 3Degrees was inspired to protect the environment after watching The Last Mountain

It’s in a region of our country where MTR (Mountain Top Removal) is a fact of life. Every day at home I was surrounded by beautiful mountains. I never imagined a world where they would be gone. Then I watched The Last Mountain and realized how close Appalachia is to a dramatic restructuring. I knew we still needed energy but I thought there has got to be other options. While majoring in Environmental Studies at VCU I interned at a biofuel company and quickly learned that other people want the choice too.



Sometime in late 2000 I met one of the authors of Cultural Creatives…

Lisa from 3Degrees was inspired to protect the environment after meating the author of Cultural

That’s how I learned that there are 50 million people in the US that care about health, environment and other issues that also mattered to me. I’d been working in investment banking and telecom but was ready for something more inspired. Not long after the meeting, I won a position at a green building materials retailer and quickly recognized that the building industry was a transforming market. Together the two experiences opened my eyes to a different, better way to approach business and that I could be part of doing something beyond business as usual.

REC Claims: Accurate Promotion of Renewable Energy

lone wind turbine on pasture

We all want more renewable energy. It’s a good thing. And we want to talk about its benefits. Renewable energy generators, sellers and customers want to promote their environmental actions. Generators should be able to say they generate renewable energy and renewable energy buyers should be able to say they’re consuming renewable energy. The goal is to do this in a manner that protects consumers and doesn’t jeopardize renewable energy certificate (REC) contracts.

The issue

When you sell a REC, you are essentially selling the claiming rights, reporting rights and environmental attributes (e.g. emissions avoided) associated with renewable energy generation. REC contracts are jeopardized when two parties are claiming the same environmental attributes — known as double counting. Accurate marketing by renewable energy sellers protects their REC sales and reduces the risk of double counting and consumer deception.

Example: If you sold the REC to Party A and the power to Party B, do not use language that gives Party B the impression that he/she is consuming renewable electricity or the associated environmental benefits. Party B has no right to claim any use of renewable energy. If you’re telling both Party A and Party B that they’re both receiving environmental benefits from the same MWh of renewable energy, then that is double counting.

The solution

Below are some best practices for renewable energy sellers that help avoid the risk of double counting:

  • If you do not legally own the REC, don’t make a claim about the renewable energy — where it goes, who buys it or who is benefiting. If you do not make a claim, there is no chance of double counting.
  • Limit the scope of your marketing statements so they do not exceed the RECs you are keeping. The scope of your claims should not overlap with the scope of your REC sales. If you want to talk about the benefits of the renewable energy, it must be done accurately. Do not claim to receive any environmental benefits of the renewable energy unless you own the REC.
  • Match the volumes: If you own 100 percent of the RECs from a project and are retiring those RECs for yourself, then you can make claims about consuming 100 percent of the renewable benefits. However, if you’ve sold some or all of the RECs, then your marketing claims should not exceed the REC volumes you are keeping for yourself.
  • Match the time periods: If you are keeping the RECs in Year 1 and selling the RECs in Year 2, then your marketing in Year 1 should not state or imply that you are using renewable energy in Year 2.
  • If you sell some or all of the RECs, then say so. If you put out a press release or highlight a project profile on your website that describes the renewable energy your project is generating (and this is a project from which you’re selling the RECs), then include a statement to that effect. By doing so, you won’t give the wrong impression that renewable energy is going someplace it’s not. For example: “Hotel Acme has solar panels that generate clean, renewable energy. Some or all of the renewable energy is sold to others.” 

Perhaps the biggest takeaway for REC sellers is to be thoughtful about language use surrounding REC claims. Open, direct and honest communication between REC sellers, REC purchasers and electricity purchasers will help uphold the integrity of REC contracts.

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