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The Year of the Corporate PPA

Corporate customers signed an eye-popping number of renewable offtake agreements in 2018. Rocky Mountain Institute’s Business Renewables Center logged 6.43 gigawatts of deals, and the year’s not over. That’s already nearly double the previous record: 3.22 gigawatts in 2015.

This year also demonstrated the impacts the C&I sector can have on the greater renewables market. Along with driving a quarter of total solar and wind capacity procured this year, corporates also pushed the industry toward more innovative financing and power purchase agreement structures. Increasingly, corporations are at the vanguard of renewables markets.    

“We’re now seeing this segment of the market actually driving substantial change,” said Colin Smith, a senior solar analyst at Wood Mackenzie Power & Renewables.

This year brought 75 offtake agreements from corporates, what Smith called a “massive” increase. 

While large technology companies have historically led the charge, businesses as wide-ranging as Apple, Nike and Smucker’s contracted renewable capacity this year.  

In assessing renewables deals, companies cite a variety of needs. First, the project has to make economic sense. As Shannon Carroll, AT&T’s director of global environmental sustainability, said: “obviously economics are going to play a part in any business decision.”

But companies also need a guarantee that the project will deliver on their power needs, with minimal risk. 

In October, Microsoft announced the creation of a new risk-avoidance product called a Volume Firming Agreement (VFA). The product, created in partnership with REsurety, Allianz and Nephila Climate, moves risk related to weather conditions and the market value of renewables to insurers. It’s added on top of a PPA. 

“It all spun out of what we perceived as a pretty material mismatch between buyers’ actual needs and what they were getting from renewable energy projects,” said Brian Janous, Microsoft’s general manager of energy and sustainability. “What we were looking at with the Volume Firming Agreement is, how can we create a better match between how we’re buying power and how we’re selling it via these power purchase agreements?”

Janous talked about the model on an episode of The Interchange earlier this year.

So far Microsoft is the first to use the product and has signed three of the contracts, adding them to existing wind projects. Janous said the company — which doesn’t have any monetary stake in the product — is negotiating further contracts, as are other companies. Microsoft’s strategy moving forward is to make the VFA addition standard.  

Microsoft’s move to customize renewables contracts indicates that corporates are using their expertise to shape the market. The increase in contracts signed this year stems in part from increased comfortability with renewables deals. WoodMac’s Smith said all players have learned more about what legal risks, economic benefits and contract terms are associated with corporate deals.

“Both sides are now able to come to the table educated about how [deals] work and whether or not they want to move forward,” he said.

According to a report RMI’s Business Renewables Center released in April, the entire corporate offtake market has widened. In 2013, the market was exclusively owned by IT and healthcare companies. In 2018, financial companies, telecommunications companies and industrial companies have accounted for a larger slice of agreements. And the number of states where deals are located has widened from just seven before 2013 to half the country in 2018. Deals have been signed in the Southwest, Southeast, Texas, Northeast and in the Midwest.

Still, information technology companies have maintained their edge. This year to date, Facebook signed 22 deals to claim the top spot in offtake agreements. Apple and Microsoft also ranked among the top six offtakers. But telecommunications giant AT&T ranked second, Walmart came in third, and oil and gas major ExxonMobil in fourth.

AT&T’s Carroll said sustainability goals are a primary driver. AT&T wants to cut overall emissions 20 percent and its fleet emissions 30 percent from 2008 baselines by 2020. Economic renewables are making these goals easier to hit.

“We’re really just looking for the best deals for the company in the communities where we live and work ourselves,” said Carroll. For AT&T that’s meant mostly large-scale wind deals in locations where the company already has a geographic footprint.

NextEra Energy Resources will develop several of AT&T’s large deals announced this year. NextEra leads the group of developers working with C&I offtakers, according to data from WoodMac. Invenergy, TradeWind, Avangrid and EDP Renewables round out the top five.

But in addition to big-time renewables companies, smaller players are starting to have a more important role. Greentech Media recently reported that co-op utilities are increasingly working with C&I customers on renewable offtake deals. 

When it comes to PPA structures, the landscape also widened in 2018. Smith points to options including physical PPAs, virtual PPAs and green tariff programs as common structures in C&I deals. And while Microsoft usually works on large-scale, virtual PPA deals with a single buyer and a single seller, Janous said it’s important that companies have more choices. 

“There’s been a good increasing flavor of options out there, which I think is a great thing,” he said.

Storage is another area to watch. Janous called it a “critical aspect” of Microsoft’s future plans. Even more valuable than energy storage’s use for load shifting, Janous said, is its ability to maintain regulation and frequency on the grid.

Microsoft is exploring using its uninterruptible power supply systems, which can act like a battery, as grid assets. Colin Murchie at Sol Systems, in a column for Greentech Media, has also pointed to run-of-river hydroelectric power as a goosd option to add to a C&I solar project, allowing a customer to balance loads.   

Janous and Smith said the market in 2019 will likely continue drawing in more retail-sector customers, either through aggregation or distributed generation. RMI’s analysis of offtake agreements did not include onsite generation, but for retailers like big-box stores it could be an enticing option. 

Smith also pointed to community solar programs or buying blocks of larger projects as an option for smaller C&I customers. In 2019, Janous expects “a lot more buyers coming to the table doing smaller and smaller deals under new structures that are not so dependent on the single buyer approach.”

But drawing more corporate customers into renewables deals will depend on how quickly the industry can adapt flexible and tailored models that minimize risk and fit a company’s goals, like Microsoft’s VFA.

“As more and more companies want to buy renewable power, we need continual evolution of the mechanisms that are going to provide it for them,” said Smith.

At the same time, Janous said, the tailored solutions need to be scalable rather than one-off. Many companies are buying renewables at huge capacities, while others want solutions more befitting of a small business. The market needs options for all of them. 

“Ultimately it’s about simplicity. How do you move the act of buying renewable energy from this relatively complex structure that involves tax and accounting and dealing with issues of derivatives, to moving it to just purchasing electricity like you do every month for your home?” said Janous. “We’ve got to get to where consumers of electricity have a suite of options that allow them to participate in a meaningful way in a renewable energy project, but without having to jump through all of the hoops that those of us doing this for the last several years have had to jump through.”

Source: Greentech Media