Lesson Progress
0% Complete

Before designing your procurement plans, it is important to understand the full policy landscape of your operating area, as well as the electricity market structure. Whereas some electricity suppliers or regulators might offer various incentives for renewable energy procurement, some policy environments may not allow for certain procurement methods.

Main Points

  • Policies and regulations in your operating region can have a large impact on your procurement. These can pertain to electricity transmission and distribution, risk instruments, financial instruments, and other relevant areas.
  • Policies and regulations can change, so you must keep an eye on them throughout the procurement process.

First, Consider This

Energy procurement options depend largely on whether the local electricity market structure is liberalized or vertically integrated. Traditionally regulated, vertically integrated markets include Indonesia, Vietnam, and the Philippines.

The local electricity market structure can have a substantial influence on available renewable energy options, particularly with respect to a company’s ability to procure off-site renewables.

In traditionally regulated electricity markets, vertically integrated utilities are granted exclusive rights to provide transmission and distribution services and may also own a substantial share of generation assets. In these vertically integrated markets, corporations interested in sourcing their power from renewable sources must generally procure renewable energy from the utility, install renewable energy on-site, or purchase renewable energy certificates separate from the underlying energy. On-site renewable energy projects are subject to the utility’s interconnection requirements, if grid connection is desired (the energy generated may be used exclusively on-site). There may or may not be an organized generation market in these jurisdictions and it may not be a very transparent or liquid market, if it does exist. Often, in these markets, it is difficult or infeasible for a non-utility corporation to procure electricity directly from a third-party renewable energy provider unless specific programs are created or exceptions are granted, although rules vary across jurisdictions.

In liberalized electricity markets, generation services are decoupled from transmission and distribution and non-utility generators bid generation services into a competitive wholesale markets. In fully liberalized markets, suppliers compete at the retail level, providing electricity customers with retail choice, including the ability to procure electricity from renewable sources. In addition, competitive wholesale power markets provide price transparency to corporate buyers and can enable more sophisticated transactions between generators and off-takers.

Read Excerpt: Section 3.1 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally by NREL, IRENA, WRI and Center for Resource Solutions.

Next, See This

There are a number of policies that can pave the way for renewable projects. In particular, certain financial incentives can present lucrative opportunities for companies to procure renewable energy.

See: Table 12 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally by NREL, IRENA, WRI and Center for Resource Solutions.

And See This

Availability of policy incentives vary depending on your operating region.

See: Table 14 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally by NREL, IRENA, WRI and Center for Resource Solutions.

Now, Read This

In many regions, there are public sector public sector goals for increased renewable energy production. To contribute to these goals, and to secure stable energy costs over time, many regulators are enacting policies to incentivize renewable energy production. One example of this is in Colombia, where the national regulator has split electricity customers into two groups: regulated and non-regulated. It’s important to know what policies apply to your specific company.


[…] Colombia’s Law 143 of 1994 (GoC 1994b) divided electricity end consumers into two customer groups:

  • Regulated: Includes all residential consumers and C&I customers with peak demand of 100 kilowatts (kW) or less and monthly energy consumption of less than or equal to 55,000 kilowatt-hours (kWh). C&I customers with demand of over 100 kW may also choose this structure. These customers pay according to a government-regulated tariff schedule established by Colombia’s Commission for the Regulation of Energy and Gas (Comisión de Regulación de Energía y Gas; CREG).
  • Nonregulated: Large-scale C&I consumers with peak demand of over 100 kW and/or monthly energy consumption of greater than or equal to 55,000 kWh can voluntarily request to transition to this group. They can negotiate with a comercializadora, or act as their own comercializadora and engage directly with gencos for short-term (minimum one year) or long-term electricity supply contracts. Every C&I customer connected to the grid enters the market as a regulated user, and C&I consumers have the option of transitioning to the nonregulated market.

While both regulated and nonregulated customers can procure on-site RE, only nonregulated customers can contract for off-site power purchase agreements (PPAs) directly with third-party gencos or with gencos’ comercializadoras. […]

While grid retail electricity prices have fluctuated significantly in recent years, the cost for Colombian C&I customers to procure RE has declined substantially. By entering the RE market, C&I customers are able to not only fulfill their environmental and climate goals, but also potentially save money on their electricity bills every year.

Recognizing RE’s increasingly low cost and the disruptions to the economics that can come with volatile energy costs due to fluctuating hydroelectric production in dry years, the Colombian government included significant reforms intended to promote procurement of RE in its recent electricity market deregulation efforts. […] Colombia set a new RE installed capacity goal of 4,000 megawatts (MW) (approximately 24 percent of all of Colombia’s projected electricity capacity) by 2030 (IRENA 2019; UPME 2015). […]

In part to catalyze the C&I market to reach these ambitious targets, the government has established multiple incentive mechanisms to accelerate investment in RE. The array of new incentives includes directions to regulators to expedite permitting approval processes for RE installations, and policies to lower the procurement costs of both large- and small-scale RE installations, including the following:

  • A value added tax (VAT) exemption on solar and wind generation systems’ most important components, listed by the government’s Mining and Energy Planning Unit (Unidad de Planeación Minero Energética; UPME)
  • Two income tax deduction mechanisms linked to the value of the installed system
  • Tariff exemptions for importation of all RE components
  • Net-billing regimes for both regulated and nonregulated, otherwise-eligible electricity consumers (GoC 2014)

Read Excerpt: Chapter 2 on pages 7-10 of Corporate Procurement Guidebook for Colombia by CEIA.

And See This Example

State regulators can provide financial incentives such as fee waivers to promote renewable development in their territories. This ensures certainty for corporate buyers and enhances project economics.

Read: Text box 5 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally by NREL, IRENA, WRI and Center for Resource Solutions.

Now, Consider This

The Philippines’ Green Energy Option Program (GEOP) is another example of a policy incentive enacted by regulators. Rather than have distribution utilities (DUs) buy and sell renewable energy themselves, the GEOP allows private sector companies to procure renewable electricity independently through PPAs while ensuring the DUs receive appropriate revenue for providing the necessary transmission infrastructure.

In many markets, electric utilities have a legal franchise to act as the sole provider of electricity within a territory, and other entities cannot use grid infrastructure. The Philippines’ new ‘Green Energy Option Program’ (GEOP) resolves this issue by allowing registered third-party renewable energy developers to use distribution utilities’ (DU’s) distribution infrastructure to deliver electricity to program participants. In return, the DUs are compensated with a ‘wheeling charge’ by the developer or offtaker. The wheeling charge is a small fee incurred for sending power through the grid. Though initially the program will only be available to large commercial customers (those customers with an average monthly peak capacity greater than 100 kW), the next phase of the program could be expanded to allow access to all customers, unlocking further business and investment opportunities. As per current rules, in order to participate in the GEOP, a developer must obtain a ‘Retail Electricity Supplier’ (RES) license from the PDOE. The GEOP offers an advantage to the DUs in meeting their RPS requirements as the utility retains all RECs from the electricity delivered by third-party developers that use the utility’s distribution grid. For example, if a factory in Baguio City, Philippines, signs a PPA with a developer for a new solar power plant, the developer will work with the Benguet Electric Cooperative (BENECO) to coordinate the delivery of the electricity over BENECO’s distribution system, for which BENECO receives a small wheeling charge for every kilowatt-hour delivered. BENECO gets one REC for each megawatt-hour of renewable electricity the developer delivers using their distribution system. BENECO can apply these RECs towards their RPS obligation. Additionally, BENECO promises to deliver power to the factory should the developer’s solar plant ever go offline. In this example, the factory gets renewable power at a lower cost than the retail electricity rate, and BENECO gains RECs at minimal cost.

Read: Section on Green Energy Option Program in Hot Topic Brief: Emerging Policies for Mobilizing Private Sector Investment into Clean Energy in the Philippines by NREL and CEIA.

Finally, See This

Even within a country, incentives may vary depending on precise location. This may be because policymakers or regulators may want to encourage project development in regions with greater resources or better transmission capacity.

SeeCommercial and Industrial Rooftop Solar PV: Vietnam Market Overview and Update by CEIA.

Suggested Actions & Next Steps

  • Research: Find out who the local utility, policymakers and regulators are near your company’s facilities. Ask any of these representatives or search online to determine what financial incentives or mandates currently exist (including a green tariff or green pricing program). Summarize these relevant policies for future reference.
    • If no incentives exist, consider discussing other opportunities with local stakeholders and leaders. Section 2.1 in this NREL document identifies reasons utilities might offer competitive incentives.
  • Think it over: Is your country’s energy market regulated or unregulated? Are commercial and industrial consumers permitted to purchase energy directly from developers or investors? Does your utility permit third party access to the grid? If so, what are the process and the costs? Answers to these questions will help you gauge your procurement options.