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The Dynamics of Energy and Environmental Attributes and Future Pricing Trends

Virtual Power Purchase Agreements (VPPAs) are valuable tools to mitigate Scope 2 emissions and bring new clean energy online. But, it’s important to understand the deeper dynamics of energy markets, future pricing trends, and the demand for Renewable Energy Certificates (RECs).

Energy Pricing Volatility and Future Trends

According to the U.S. Energy Information Administration’s Short-Term Energy Outlook, demand is set to steadily increase 2-3% each year over the next several years. And while the energy sector is seeing transformative shifts, notably with the rise of Artificial Intelligence (AI), its current consumption is only 3-4% of total grid electricity.  This seemingly small slice (approximately 4 GW out of the U.S.'s 1,213 GW nameplate capacity as of 2022) is projected to double by 2030 to 8 GW. However, compared to overall capacity, this increase does not forecast a massive surge in demand.    

Conversely, the Inflation Reduction Act (IRA) has introduced incentives for renewable energy development, significantly increasing supply. In 2022 33 GW of solar power alone was added to the grid, with projections indicating an increase to over 50 GW in 2024. As solar becomes the dominant daytime energy source, the future trajectory of energy prices will become increasingly difficult to predict. These trends could impact the financial dynamics of VPPAs, where corporations pay the difference between market prices and their agreed VPPA strike price.

Renewable Energy Certificates (RECs) Demand Surge

Several regulatory developments are poised to boost Renewable Energy Certificate demand. The SEC mandates climate impact disclosures by 2026, which is pushing companies towards renewable investments to manage their Scope 2 emissions. Notably, initiatives like New York's Local Law 97, BERDO in Boston, and upcoming changes in California's environmental taxation are pressing corporations to reduce their carbon footprints. 

Our research indicated that approximately 10,000 companies are currently purchasing RECs, and around 400 are engaging in VPPAs (which includes Additionality and the related Energy risk).  

Furthermore, large corporations are starting to “green” their supply chain (Scope 3 emissions), which will put additional pressure on more vendors to manage their own carbon emissions and use of electricity as part of their processes. 

As a result, we expect the demand for RECs is poised to rise by 200-300% within the next three years.  Additionally, many of the largest corporations along with utilities are securing both the power and the RECs which will reduce the overall supply available as older renewable generation ages past the 15-year mark.

The combination of an anticipated surge in demand for clean energy and the related volatility in energy prices resulting from new generation coming online highlights the critical need for companies to plan their renewable energy procurement well in advance of voluntary or compulsory deadlines. 

Exploring the AREC Market: An Alternative Approach

For those seeking ease and impact in their renewable energy strategies, the Additionality Renewable Energy Certificates (AREC) Market provides a “best of both” alternative. Fixed-price ARECs offer a straightforward way to support new renewable projects without the direct risks associated with fluctuating energy prices, thereby allowing companies to claim Additionality and demonstrate tangible impacts on renewable energy development.


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