How the AREC Market Works

The AREC Market is a software platform where Customers can make fixed-price offers to purchase unbundled Additionality RECs from Zettawatts. Zettawatts then offers to buy the first 5 or 10 years of RECs at a fixed price from renewable project developers and deliver those RECs to the Customer once the project is operational.

Additionality RECs are voluntary RECs with two attributes: a forward financial purchase commitment over the initial years of a new project AND is made prior to the project's actual commercial operating date. Under this definition, PPAs, VPPAs, and Onsite renewables all provide bundled ARECs today (they are not called ARECs but naturally feature Additionality). ARECs meet the GHG Protocol test for additionality both for Timing (prior to operation) and Financial Impact (contributing to the ability for the project to get financed). Zettawatts is creating the first market for unbundled ARECs to allow customers to buy just the RECs without the underlying power. Zettawatts is developing the market to purchase unbundled Additionality RECs as a way for commercial buyers to get the benefit of Additionality without the complexity and risk of PPAs and VPPAs.

Additionality RECs are based on the same underlying RECs currently generated by renewable projects. What makes ARECs better and more valuable is that they provide an advanced financial commitment for projects in the first few years of commercial operation. For suppliers, this increases the viability of new projects and potentially lowers financing costs as a subsidy. For buyers, unbundled ARECs provide a way to demonstrate an investment in decarbonizing the grid commensurate with the electricity they use that drives their Scope 2 emissions. Further, they can purchase at a fixed price and a term length that matches their business model. The Additionality attribute provides buyers with a higher quality environmental marketing claim since it demonstrates that they have committed to purchase in advance in order to support new projects.

Many corporations have set ambitious carbon reduction targets with a significant portion of their Scope 2 emissions coming from grid electricity generation. Buying unbundled RECs and retiring them doesn’t directly spur the development of new projects and as a result, doesn’t reduce the emissions caused by electricity generation. Simply put, ARECs are a forward commitment to buy RECs from new projects allowing buyers to make a more impactful green energy marketing claim.

SREC are regulated in specific states for solar projects built in those states to meet renewable portfolio standards for utilities to grow solar development. ARECs serve the voluntary market for Customers looking to invest in new renewable projects as part of managing their Scope 2 emissions.

The Green House Gas Protocol defines a set of example "tests" for additionality. Zettawatts' is focused on meeting three of the tests - Legal, Regulatory or Institutional, Investment and Timing. Legal, Regulatory or Institutional by meeting various standards and framework definitions like BERDO or NY Local Law 97. Investment by participating directly in the longterm financing of projects as part of the revenue stream. Timing by entering into agreements in advance of the Commercial Operating Date of new projects as both a buyer and a seller. We will continue to refine the definition as it becomes less ambiguous or as Customers request different attributes like location specific projects or time-of-day generation.

Renewable Energy Certificates (RECs) are a tracking mechanism designed by the EPA for energy generated by specific renewable sources like wind and solar. 1 REC is created (minted) for each 1 MWh of electricity produced. RECs can be sold “bundled” with the electricity or sold “unbundled” without it. There are two primary REC markets - compliance and voluntary. The compliance market is primarily for utilities to use in order to meet renewable portfolio standards set by states to increase renewable energy generation. The voluntary market is for companies that want to demonstrate progress toward offsetting Scope 2 emissions from electricity purchased from the grid that is often a mix of renewable and fossil fuel generation. RECs are tracked by various systems including: WREGIS (Western Renewable Energy Generation Information System), M-RETS (Midwest Renewable Energy Tracking System), Texas REC (Texas Renewable Energy Credit Program), PJM-EIS (PJM Environmental Information Services), NEPOOL GIS (New England Power Pool Generation Information System), MI-RECS (Michigan Renewable Energy Certification System), NC-RETS (North Carolina Renewable Energy Tracking System), NARR (North American Renewable Registry), and NVTREC (Nevada Tracks Renewable Energy Credits).

Power Purchase Agreements (PPA) are vehicles for buyers to make long-term (10+ year) forward commitments for both power and RECs. They are excellent investments in bringing new renewable energy to the grid. Customers and developers get to lock in a long-term fixed price for both power and RECs. Virtual PPAs (VPPA) provide similar benefits when physical delivery of electricity from the project is not possible by using a contract for differences (swap) financial structure in a wholesale market. This can be used as a hedge against retail price fluctuations but transfers much of the risk to the buyer for wholesale market risk. When made during new project development, both allow for the RECs from the project to meet the Additionality tests.

Estimates for 2023 are $1.9B for national voluntary RECs and growing to $6.4B by 2030. Today 150 million RECs are purchased in the voluntary market. We believe the clearing price for ARECs will be at 2x to 4x national unbundled REC prices creating a TAM of $12B to $25B by 2030.

The AREC Market Forecast includes the price per MWh and total volume for each 5 or 10 year strip of RECs at a specific start vintage COD by state.

Zettawatts will share details of its risk models, Supplier Terms and creditworthiness to Supplier participants. Setup time to meet with the team here.

No. Zettawatts will enter into a contract with Suppliers to purchase only the RECs from the new project at the agreed-upon fixed price and volume. Zettawatts will then sell the RECs to the Customer and manage the invoicing with them directly.