After considering all environmental factors related to our project site, its dam and the microhydro installation, we would like to focus on the presentation of the options for dam owners or hydro-site owners to sell their hydropower and to create a revenue stream from their hydroelectric generation. These revenue streams can be categorized into three different financial models: Ownership, Power Purchase Agreement (PPA), and Community Distributed Generation (CDG). Depending on who uses the electricity, who operates the site, who markets the electricity, and how the electricity is marketed as well as other site-specifics, a hydro-site owner can or cannot use one or another.
We would like to introduce the three models here and explain their main differences, before referring you to specific blog posts for more details. We’ve also prepared three reports for download, detailing the specifics of each of the three models.
The Ownership Model
The Ownership model requires a scenario where our hydro-site owner roughly uses all of the electricity that his hydro project would generate. This model is the choice for simple customer-sited, net metered or off-grid projects, potentially even receiving NYSERDA Tier 1 renewable energy credits (RECs). For this model, the project may:
- be developed completely off grid, with no interconnection to the distribution utility.
- be “behind-the-meter”, where the project is wired to the load on site and has an interconnection agreement with the utility for net metering.
- opt to participate in “remote net metering” if they own multiple locations (and electricity meters), one generating electricity and interconnected to the grid and others with load that have utility accounts under the same customer name and within the same distribution utility territory as the account attached to the generation source.
Phase 1 NEM is available under Public Service Law
(PSL) § 66-j and 66-I until Jan 1, 2020. The NYPSC is
working on a proposal to replace it which may include
the continuation of NEM.
In all cases with the Ownership model, the same entity that owns the hydro project also owns the electrical load being served.
The PPA Model
Utilizing a Power Purchase Agreement (PPA) is suitable where the hydro project is owned and/or operated by one entity, and the offtaker with load (the entity that is using the electricity) is a different entity. The offtaker entity purchases the energy output from the generator entity and the revenue from the energy sale is used to finance the construction of the project, sometimes by a third-party investor.
In other words, if your hydro-site is physically adjacent to an entity that could use all of your electricity generation, you might be able to sell your electricity directly to this one entity using a PPA. Alternatively, if you own property with hydropower potential, you might find a developer to build and operate the facility and to sell you the electricity output for your property. In either way, the owner of the generation source and the owner of the load are not the same entity. This model may:
- be an off-grid project, which means that an interconnection agreement with the distribution utility is not necessary.
- be able to use remote net metering if you own property with microhydro potential and load in a separate location, but you wish for someone else to construct, own and operate the hydro project and to sell you the output.
What makes it a PPA is the fact that the offtaker is purchasing electricity from a separately owned generation source.
The CDG Model
The Community Distributed Generation (CDG) model is a program that allows the hydro-site owner to allocate energy output to other electricity customers who sign a subscription agreement. In this case the hydro-project is called “host” and the customers are called “subscribers”. Host and subscribers must be in the same utility distribution territory and New York Independent System Operator (NYISO) zone. In other words, as an electricity customer from Central Hudson, you can only sign up for a CDG within the Central Hudson service territory, National Grid, etc. respectively.
It’s the utility’s job to apply the generation output credits on the subscriber’s electric bill, while the CDG host bills the subscribers for the credits applied the subsequent month.
This model works best if you hydropower potential exceeds your own on-site electricity needs and the project can easily be interconnected to the local distribution utility. Under the CDG program, the host has to directly market to and find retail customers, and bears the risk of managing a subscription business with monthly billing.
CDG is not a long-term contract with a single offtaker; instead, it is an arrangement where the generation output of a project is allocated to a group of subscribers who may come in and out of the program during its lifetime. In the CDG model, the risk of not having enough subscribers to allocate generation output is born by the CDG host and mitigated by effective marketing and continuous solicitation of new subscribers.
To summarize the general differences and stipulations, the following table compares the three models with regard to ownership, grid connection, electricity consumer, marketing efforts and contract duration.
Follow these links for more information about the respective models or download the Bard-NYSERDA Financial Models Report.
- Ownership Model Overview
- What is a Power Purchase Agreement (PPA)?
- What is Community Distributed Generation (CDG)?
Financial Models Reports
While shorter sections to specific topics of the financial models will be posted as blog posts, we’ve also created a detailed report for each of the three financial models as reference: