Quick Comparison
| Power Purchase Agreement (PPA) | Renewable Energy Certificate (REC) | |
|---|---|---|
| Scope | Long-term contract to buy electricity (and RECs) from a specific project | Certificate representing 1 MWh of renewable generation attributes |
| Applicability | Large energy consumers seeking dedicated renewable supply | Any organization making renewable energy claims |
| Required/Voluntary | Voluntary; used by corporate buyers and utilities | Voluntary for green claims; mandatory for RPS compliance |
| Geography | Project-specific; physical or virtual delivery | Market-based; traded regionally or internationally |
| Key Focus | Long-term price certainty + renewable energy procurement | Attribute tracking and renewable energy claims |
What is a PPA?
A Power Purchase Agreement is a long-term contract between an electricity buyer (offtaker) and a power generator, typically spanning 10-25 years. In the renewable energy context, corporate PPAs have become a primary mechanism for large organizations to procure clean electricity, support new project development, and manage energy costs.
PPAs come in two main forms. Physical PPAs deliver electricity directly to the buyer through the grid, with the buyer receiving both the energy and the associated RECs. The buyer's utility bill reflects the contracted energy source. Virtual (or financial) PPAs are contracts for differences—the buyer and generator agree on a strike price, and the buyer receives the RECs while the generator sells electricity into the wholesale market. The financial settlement is the difference between the strike price and the market price, functioning as a hedge.
Corporate PPAs have grown dramatically. Bloomberg NEF reported that corporations signed over 46 GW of clean energy PPAs globally in 2023. Major buyers include Google, Amazon, Microsoft, Meta, and TSMC. PPAs are attractive because they provide price certainty (fixed or escalating rates versus volatile wholesale markets), support new renewable capacity (the long-term revenue guarantee enables project financing), and deliver RECs as part of the contract.
What is a REC?
A Renewable Energy Certificate represents the environmental attributes of one megawatt-hour of renewable electricity. Every MWh of renewable generation creates one REC, which can be sold bundled with the electricity or unbundled and traded separately. RECs are the accounting instrument that enables market-based Scope 2 claims under the GHG Protocol.
RECs are tracked through regional registries. In the United States, systems like M-RETS, WREGIS, and GATS ensure each MWh is counted only once. In Europe, Guarantees of Origin serve the same function. The I-REC standard covers emerging markets. When a REC is retired against a company's consumption, the renewable attribute is claimed and the certificate is permanently removed from circulation.
The REC market ranges from compliance transactions (utilities meeting RPS requirements at $15-50+/MWh for solar RECs in certain states) to voluntary unbundled purchases (as low as $1-5/MWh for national wind RECs in the US). The price disparity reflects the different demand drivers and the market's assessment of the environmental value being transacted.
Key Differences
1. Contractual commitment. PPAs are long-term, complex contracts involving credit evaluation, legal negotiation, and financial exposure. Unbundled REC purchases are spot transactions that can be completed in days with minimal contractual obligation. The commitment asymmetry is significant.
2. Additionality. PPAs—particularly with new-build projects—provide strong additionality: the revenue guarantee enables the project to secure financing and get built. Unbundled RECs from existing generators provide no additionality; the project would operate regardless. This is the most important distinction for organizations claiming climate impact.
3. Price structure. PPAs fix the electricity price for 10-25 years, providing a hedge against wholesale market volatility. RECs are priced at market rates that fluctuate based on supply, demand, and policy. A PPA combines energy cost management with renewable procurement; a REC purchase is purely an attribute claim.
4. Financial risk. Virtual PPAs carry basis risk (the difference between the PPA settlement point and the buyer's actual electricity cost), volume risk (generation varies with weather), and credit risk. Unbundled REC purchases carry no energy market risk—you're buying a certificate, not entering a financial position.
5. Organizational requirements. PPAs require internal capacity to evaluate energy contracts, manage financial risk, and negotiate complex legal agreements. Many companies have dedicated energy procurement teams or use intermediaries. Buying RECs requires minimal infrastructure—any sustainability team can execute a purchase.
6. Impact on Scope 2 reporting. Both PPAs and unbundled RECs can reduce market-based Scope 2 emissions to zero. However, the quality of the claim differs. An SBTi-aligned procurement strategy favors PPAs because they drive new capacity and can be geographically and temporally matched to consumption.
7. Scale requirements. PPAs are practical for organizations consuming 50+ GWh annually—the minimum to attract developer interest and justify transaction costs. Small and mid-sized companies typically can't access PPAs directly, though aggregation platforms and utility green tariffs offer alternatives. RECs are accessible at any scale.
Which One Do You Need?
If you're a large energy consumer (>50 GWh/year) with the organizational capacity to manage long-term energy contracts, PPAs offer the strongest combination of cost management, additionality, and renewable energy claims. They're the gold standard for corporate renewable energy procurement.
If you're a smaller organization, don't have energy procurement expertise, or need to fill gaps not covered by PPAs (e.g., operations in regions without PPA market access), unbundled RECs provide a practical alternative. They're less impactful but still enable market-based Scope 2 claims.
The best strategy for most large organizations is a portfolio approach: PPAs for the majority of consumption in key markets, supplemented by RECs for smaller or harder-to-reach operations. Over time, shift the portfolio toward higher-quality instruments—more PPAs, fewer unbundled RECs—as markets develop and organizational capacity grows.
For RE100 member companies committed to 100% renewable electricity, PPAs and RECs are both accepted instruments. However, RE100 has tightened quality criteria, encouraging members to prioritize instruments that drive new capacity and to improve temporal and geographic matching.
Can You Use Both?
Nearly every large organization with 100% renewable energy commitments uses both. PPAs provide the foundation—covering 60-80% of consumption with long-term, high-quality contracts tied to specific projects. RECs fill the remaining gaps for operations in markets where PPAs aren't available, for smaller sites, or for consumption in periods when PPA generation doesn't match demand.
Note that PPAs generate RECs as part of the contract—the buyer receives both energy (physical PPA) or financial settlement (virtual PPA) plus the associated certificates. So every PPA is also a REC transaction; the reverse is not true.
The trend is toward increasingly sophisticated portfolio strategies. 24/7 carbon-free energy (24/7 CFE) matching—pioneered by Google and formalized by the UN's 24/7 CFE Compact—aims to match clean energy supply to consumption on an hourly basis. This goes beyond annual REC matching and requires a diverse portfolio of PPAs with different generation profiles (solar, wind, storage) plus granular certificates.
Council Fire's Perspective
We push clients toward PPAs whenever feasible because they drive real-world impact. An unbundled REC is a claim on paper; a PPA is a 15-year commitment that gets a new wind farm or solar installation built. The difference in climate impact is substantial, and sophisticated stakeholders—investors, customers, ESG analysts—increasingly distinguish between the two.
That said, we're pragmatic. Not every company can sign a PPA. Not every market supports them. RECs remain a legitimate and necessary instrument for many organizations. The key is a clear trajectory: start with RECs if you must, build toward PPAs as you grow, and always communicate honestly about what your instruments are actually achieving.
Frequently Asked Questions
Can small businesses sign PPAs?
Directly signing a PPA is typically impractical for small businesses due to minimum volume requirements and transaction complexity. However, alternatives exist: aggregated PPAs (where a platform combines demand from multiple small buyers), utility green tariffs (where the utility manages the PPA and passes through the benefits), and community solar programs that offer PPA-like structures at smaller scale.
Do PPAs always involve new-build projects?
Not necessarily, though that's the most common and valuable form. Some PPAs contract with existing generators, providing revenue certainty but not driving new capacity. For additionality-focused procurement, prioritize PPAs that enable new projects to reach financial close.
What is the difference between bundled and unbundled RECs?
Bundled RECs are sold together with the associated electricity—as in a physical PPA or a green utility tariff. Unbundled RECs are sold separately from the electricity, which is traded as conventional power. Bundled RECs are generally considered higher quality because the buyer has a direct relationship with the generation source.
How does 24/7 carbon-free energy differ from annual REC matching?
Annual REC matching means purchasing enough RECs to match total annual electricity consumption, regardless of when the energy was generated. 24/7 CFE aims to match clean energy supply to consumption every hour of every day. The latter is far more demanding and requires diverse generation sources and storage, but it better reflects the real-time carbon intensity of electricity consumption.
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