The Great REC Arbitrage - Smart Energy Decisions

Energy Efficiency, Finance, Sourcing Renewables  -  July 18, 2018 - By Katherine Ryzhaya

The Great REC Arbitrage

No longer reserved for the Fortune 500, financial instruments like Virtual Power Purchase Agreements (VPPAs) are gaining popularity among smaller companies and public-sector entities looking to cost-effectively meet clean energy goals. Google, Apple, Amazon, and Walmart have paved the way for other, more risk averse but environmentally-minded entities to power their operations with renewable energy. This new wave of buyers – from regional businesses to universities, cities, and municipal agencies – shares the same clean-energy ambitions as the Silicon Valley tech giants, but often lacks the resources, power markets savvy and financial wherewithal of the “originals.”

Many buyers today simply cannot – or will not – absorb a ‘green’ premium in long-term clean-energy contracts. Also over are the days of plain-vanilla PPA structures where absorbing risk is seen as the cost of doing business. From sophisticated power supply arrangements to basis risk management, large loads are re-charting the way power is sourced and consumed.

The most attainable way price-sensitive VPPA off-takers can enhance their VPPA economics is by maintaining a flexible approach to Renewable Energy Credits (RECs). This is particularly relevant for projects sited in burgeoning regulatory markets like PJM, New England, and New York. In these markets, credits regularly fetch $20-30 per megawatt-hour (MWh) or more. That’s because these REC regimes were designed for compliance buyers – utilities, refineries and other large polluters. A corporate entity acting as a buyer in a VPPA has no use for compliance-grade RECs and can lower the overall cost of its renewable deal by swapping out compliance RECs for voluntary ones.

By maintaining the ability to ‘REC swap’ – that is, to strip out valuable project RECs and substitute less-valuable ‘unbundled’ RECs in a VPPA – prospective buyers can expand the universe of cost-competitive projects available to them and gain access to lower pricing. And for existing buyers, who may be locked into an underwater VPPA contract, a REC swap offers a way to reduce or eliminate losses on the deal.

The rest of this article outlines how a REC swap (sometimes referred to as ‘REC arbitrage’) works and where it can maximize value for price-sensitive clean-energy buyers. But first, a disclaimer: a REC swap may complicate an organization’s renewables claims and ‘additionality’ story. Regardless, not every buyer will be comfortable with a REC swap even if many already freely engage in the practice, including some of the most visible clean-energy champions. (We won’t name names, but you know who you are.)

There are three different ways for a buyer to handle RECs in a VPPA:

  1. Buy the ‘bundled’ project RECs and energy; retire the RECs to make renewables claims.
  2. Buy the ‘bundled’ project RECs and energy; sell the (high value) RECs and buy cheaper RECs to make renewables claims.
  3. Buy project energy only, allowing the project’s RECs to be sold separately (in exchange for a lower PPA price); buy cheaper RECs to make renewables claims.

Select North American Market REC Prices ($/MWh)

Compliance Year

PA Solar

MD Solar

PJM Tier 1

NEPOOL Class 1

New York Large Scale

National Green-E




















Source: Lightsource BP analysis of broker quotes. Note: Prices as of market close on June 25, 2018. (*) Represents the weighted average price for 20-year REC contracts in New York’s 2017 LSR solicitation.

As a rule of thumb, for a utility-scale solar project, a REC swap will lower the VPPA price that a developer is able to offer a customer by roughly $5-10/MWh in PJM, $20/MWh in New York, and $30/MWh in most New England states. While large blue-chip corporates may be willing to pay the bundled REC premium in the name of ‘additionality,’ smaller budget-constrained buyers – which account for a growing share of the overall market – simply cannot afford to ignore the value of a REC swap when signing long-term clean-energy contracts.


Katherine Ryzhaya serves as Chief Commercial Officer of Lightsource BP, a global solar and storage IPP with 2 GW of operating assets. As head of business growth and revenue for North America, Katherine oversees strategy development, origination, contracting and partnerships for large-scale renewable infrastructure across the US.  Prior to joining Lightsource, Katherine was co-founder and CCO of Advanced Microgrid Solutions (AMS), a market leader in energy storage and data analytics.  She has 13 years of experience in structuring energy and capacity transactions in wholesale markets and has, to date, negotiated and executed nearly $3B in PPAs. 


Keywords: Lightsource BP

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