+ Contract for Difference (CFD):
A type of contract (agreement) routinely used in finance, energy, and commodities sectors, in which the sellers and buyers agree to a fixed price for the product, but the product is not delivered from the buyer to the seller. Instead, the seller sells the product into an open market, and receives whatever price the market is offering; this is called the Reference Price (see “Reference Price”). If the Reference Price is above the fixed price, which is called the Strike Price (see “Strike Price”), the buyer pays the incremental amount of the Reference Price above the Strike Price to the seller. But if the Reference Price is below the Strike Price, the buyer pays the difference to the seller. In Community Empowerment, a CFD can be a means to provide the price stabilization benefits of renewable energy to a community, without undertaking the complexity and expense of actually delivering the energy to each member of the community.
+ Distribution network:
The poles, wires, and other equipment that deliver electricity from the transmission network to each individual end-user (see “end user”).
Any consumer of electricity within the defined community. This consumer could be municipal, commercial, residential, etc. Every end-user will have their own electricity meter.
+ Green Electricity, or Going green:
Furthering renewable energy usage through RECs (see “renewable energy credits”).
+ Investor-owned, utility (“IOU”):
A privately owned company which owns and operates electricity distribution networks, and sometimes generation capacity as well. IOUs generally have monopoly status within a defined geographic area, and are regulated by the state. Examples of IOUs in Massachusetts are Eversource and National Grid.
+ Kilowatt-hour (kWh):
A unit of electrical energy; electricity rates are usually set on the basis of an amount per kilowatt-hour. A typical home in Massachusetts uses typical home in Massachusetts uses about 900 kilowatt-hours per month.
+ Megawatt-hour (MWh):
A unit of electrical energy, consisting of 1000 kilowatt-hours. Large-scale electricity contracts usually reference megawatt-hours.
+ Municipal aggregation:
In Massachusetts, California, and some other states, state law allows local and county governments or municipalities to purchase or broker electricity on behalf of their residents; such arrangements are called municipal aggregation.
+ Municipal utility:
An electric distribution utility which is either owned by the local government, is a department within the local government, or is a local quasi-governmental organization. A municipal utility owns and operates the distribution network within the local community, and typically also purchases electricity on behalf of all end-users in the community. Some municipal utilities also own power plants to generate electricity for their end-users. Municipal utilities are functionally very similar to an Electricity Cooperative, but Cooperatives generally serve unincorporated, rural areas. Municipal utilities are usually exempt from state regulations, such as Renewable Energy Standards. Municipal utilities are monopolies for the areas they serve, and so end-users within their area must receive electricity from the municipal utility.
a state-level policy in which renewable energy generators connected to a utility’s distribution network is allowed to both use energy they generate for their own purposes, as well as put surplus energy onto the grid for use by others. Net-metering generators typically receive a credit for the energy they put on the grid at the same rate as they are charged to use energy from the grid.
+ Opt-out window:
A designated period of time in which consumers can choose not to be included in a Community Empowerment contract.
+ Price stabilization:
The effect of reducing energy price swings or volatility, so as to make it easier for residents and businesses to plan for their energy costs. Electricity prices can change as often as every month in many areas, especially those areas served mostly by fossil fuel generation.
+ Reference price:
In a Contract for Difference (see “Contract for Difference”), the Reference Price is the price that the seller receives for their electricity in a wholesale or other transparent market. In a Community Empowerment contract using a Contract-for-Difference, the Reference Price would likely be the wholesale price received by the generator for the electricity they generate. The difference between this Reference (wholesale) price and the Strike Price (fixed price, see “Strike Price”) may be either positive or negative, and credited or charged to end-users accordingly.
+ Renewable energy credits (RECs):
An accounting mechanism to track who generates, and who can take credit for using, energy from a renewable energy source. One REC is created for each megawatt-hour (see “megawatt hour”) of electricity generated by a renewable energy source. Legally, a megawatt of electricity is not “green” or from a renewable energy source unless there is a REC associated with the energy. RECs are used by most states to track compliance with Renewable Portfolio Standards (see “Renewable Portfolio Standard”), and are sold or traded in a competitive market separate from the physical electricity associated with the renewable energy generation source. In order to meet RPS requirements or to use “green” electricity, the REC must be retired (unable to be traded further).
+ Renewable portfolio standard (RPS), or Renewable Energy Standard (RES):
A state regulation requiring that a certain portion of electricity sold by a utility or electricity supplier comes from renewable energy sources. Typically the required portion of renewable energy increases each year. Community Empowerment enables communities go beyond current RPS requirements, and use even more renewable energy than required by state policy.
+ Request for proposal (RFP):
A community that wants to enter into a Community Empowerment contract may issue an RFP to receive proposals from developers to build and operate specific renewable energy projects. In this way, the community can understand what options it has available in a fair, transparent, and competitive manner. After receiving these proposals, the community decides which project to pursue through a transparent process.
+ Strike price:
In a Contract for Difference (see “Contract for Difference”), the Strike Price is the fixed price agreed to between the buyer and seller. If the Reference Price (see “Reference Price”) is higher than the Strike Price, the buyer receives a credit from the seller equal to the difference. If the Reference Price is lower than the Strike Price, the buyer pays the seller the difference. In a Community Empowerment contract for difference, the Strike Price is the price, per megawatt-hour, agreed to between the community and the renewable energy generator. The effect is for the end-users to have their electricity price stabilized at the Strike Price.
+ Transmission Network:
The system of high-voltage power lines and transformers that bring electricity from large generation facilities to different parts of a large region. For example, all of New England is served by a single Transmission Network.