Pre-Financing Future Carbon Credits and RECs
Turn tomorrow’s verified environmental units into cash today. This guide explains how prepayments, forward offtakes, streaming, and REC-linked structures actually work, what serious buyers require, and how pricing is set.
What Pre-Financing Really Means
An investor funds part of your project upfront in exchange for the right to receive future units at agreed terms. Units are delivered only after verification and issuance on the registry. Capital is staged against milestones, and security is wrapped around the SPV, registry access, and cash flows to prevent double sale and slippage.
Carbon Credits
- 1 credit = 1 tCO₂e reduced or removed after third-party verification and registry issuance.
- VCM or Article 6 pathways. Title transfers on delivery inside the registry.
- Use cases: offset claims, contributions, compliance-linked corporate programs.
RECs / EACs
- 1 REC = 1 MWh of renewable electricity generated and tracked by an issuer.
- Scope 2, market-based accounting. Not a GHG reduction credit.
- Includes I-REC. Labels like D-REC and P-REC can add an impact premium.
Core Structures That Actually Get Funded
1) Forward Offtake with Prepayment
Buyer commits to volumes over time and prepays a portion upfront. Pricing can be fixed, indexed to a benchmark, or a floor with revenue share above a strike. Draws are milestone-based. Title moves only on issuance and delivery in the registry.
2) Streaming / Revenue Share
Investor advances cash for a fixed percentage of future issuances until a cap or end date. Works for portfolios and early pipelines. Security is still built around delivery of units and control of accounts.
3) Secured Loan Against Future Issuance
Debt with a charge over project assets, assignment of proceeds, and tight registry controls. Amortizes through deliveries and sales. Often paired with trade or credit insurance on the offtaker.
4) REC-Linked Prepay in Power Deals
Buyer prepays for future RECs, sometimes stripped from energy under a PPA. Settlement relies on metering and the REC issuer’s tracking data. Suits utility-scale and distributed assets.
Terms Snapshot
| Structure |
Typical Advance |
Tenor |
Security |
Pricing Basis |
| Forward with Prepay |
30%–60% of PV for carbon; 40%–70% for de-risked RECs |
2–7 years |
SPV pledge, assignment of proceeds, registry control |
Fixed, indexed, or floor + upside share |
| Streaming |
Advance sized to IRR and cap |
3–10 years |
SPV pledge, stream priority, step-in |
% of issuance until cap |
| Secured Loan |
Up to 50%–65% of conservative PV |
1–5 years |
Fixed and floating charges, blocked accounts |
Margin + fees; amortizes with deliveries |
| REC Prepay |
40%–70% of PV for metered assets |
1–4 years |
Issuer enrollment control, metering data rights |
Fixed or indexed to market prints |
Ranges are indicative and depend on quality, delivery risk, and market depth.
Milestone-Based Draws That Buyers Actually Use
| Milestone |
Evidence |
Typical Release |
| Site control, permits, feasibility |
Land rights, permits, baseline plan, budget |
10%–20% |
| Methodology and PDD first draft |
PDD sections, monitoring design, MRV plan |
10%–20% |
| Validation engaged and underway |
Validator LOA and schedule |
15%–25% |
| Registration or commissioning |
Registry listing or plant COD |
15%–20% |
| First verification window closed |
Verifier report, issuance notice |
Balance on delivery |
How Pricing Is Set: The Math Without Spin
Carbon Example
- Forecast issuance: 1,000,000 t over 5 years.
- Registry buffer: 15% → sellable 850,000 t.
- Forward price curve: 7–12 USD/t. PV at 12% ≈ 7.2m USD.
- Risk haircuts across execution, methodology, country: 20%–40%.
- Typical upfront: 30%–60% of PV for credible assets → ~2.2m to 4.3m USD here.
REC Example
- Forecast: 200,000 MWh over 4 years.
- Forward REC price: 2.5–5.0 USD/MWh by market and label.
- Metered generation reduces delivery risk.
- Typical upfront: 40%–70% of PV for operating plants.
Who Gets Funded vs Who Gets Rejected
Stronger Cases
- Clear additionality tied to a recognized methodology.
- Permits, land tenure, and community consent already in hand.
- Credible EPC or restoration partner and budget.
- Validator engaged with a timetable.
- Article 6 path: host-country LoA and adjustments roadmap where relevant.
Weaker Cases
- Vague baselines and disputed rights.
- Optimistic yield with no MRV detail.
- No registry plan or unclear vintage timing.
- Double-claim risk across VCM, compliance, and NDCs.
Controls Serious Buyers Require
- SPV with share pledge and negative pledge on project assets.
- Assignment of proceeds under offtake and streaming documents.
- Registry control: delivery-only accounts or tri-party control to prevent double sale.
- Conservative issuance model showing buffers, leakage, downtime, and failure rates.
- Insurance where it helps: political risk, credit insurance on offtakers, performance covers.
- Step-in rights if the developer fails to meet milestones.
Documents You Will Be Asked For
- PDD or feasibility memo with methodology reference.
- Issuance model with monthly or quarterly phasing and all haircuts.
- Permits, land rights, FPIC or community agreements.
- Budget, use-of-proceeds, sources and uses.
- Validation and verification engagement letters and calendars.
- For RECs: metering plan, interconnection or DRE documentation, issuer enrollment.
- SPV cap table, shareholder KYC, and governance.
Our Process
1. Screening
Share a summary, model, and key documents. We confirm fit and buyer appetite.
2. Term Sheet
Indicative price, volumes, covenants, security, and timetable.
3. Diligence
Legal, technical, and credit review with clear conditions precedent.
4. Closing
Documents executed, funds scheduled, and draw mechanics set against milestones.
Term Sheet Points That Matter
- Price basis: fixed, indexed, or floor plus sharing above a strike.
- Volume: take-or-pay vs take-and-pay and allowed slippage.
- Make-goods: true-ups with later vintages or cash clawbacks.
- Exclusivity by project, region, or methodology.
- Covenants: reporting cadence, budget adherence, no encumbrances, no double sale.
- Events of default: fraud, regulatory change that blocks delivery, long-stop failure.
When REC Pre-Finance Beats Carbon, and When It Does Not
Choose REC Pre-Finance
- Operating or near-COD assets with reliable metering.
- Strong Scope 2 demand in your geography.
- Labels like D-REC or P-REC that command a premium.
Choose Carbon Pre-Finance
- High-quality removals with tight MRV and premium buyers.
- Nature-based projects with strong co-benefits and permanence design.
- Clear Article 6 path for buyers that require it.
Pitfalls That Kill Deals
- Loose registry control that enables double sale.
- Ignoring buffers and verification failure rates in the model.
- Mismatched claims: using RECs for Scope 1 or general “carbon neutral” statements.
- Pre-selling too much volume and starving future cash flow.
- No path to host-country authorizations where Article 6 is required by the buyer.
Frequently Asked Questions
How fast can a credible pre-finance close
Term sheet in 2–4 weeks if documents are ready. Closing in 6–12 weeks driven by diligence and registry setup.
What advance can I expect
Carbon: 30%–60% of conservative PV for strong assets. RECs: 40%–70% for metered plants. Early-stage or complex land tenure pushes advances down.
Can I blend energy revenue and environmental units
Yes. Many structures strip and pre-sell RECs while the PPA handles power. Settlement relies on metering and issuer data.
Do I need insurance
It helps where it is real. Political risk for land-use projects, credit insurance on offtakers, and targeted performance covers can lift advances or compress pricing.
What kills Article 6-linked deals
No host-country LoA path, unclear corresponding adjustments, and shifting national rules without a mitigation plan.
Request a Pre-Finance Term Sheet
Send your PDD or feasibility, issuance model, permits, and validation plan. We respond with structure options and a closing checklist.
Start Your Pre-Financing Process
Financely Group acts as an arranger through regulated partners. All engagements are subject to KYC, AML, sanctions screening, technical and legal diligence, and approval by counterparties. Nothing here is a commitment to fund or a marketing communication for any specific security or issuer.