While many companies seek to make a demonstrable impact on climate change by bringing new renewable energy projects into their electricity supply portfolio, this aspiration has been challenging for companies with smaller or geographically distributed loads whose needs are too small to enable a project to come to fruition. Enter aggregation.
By joining together, smaller energy users can create enough buying power to make a material impact on a project’s financial outlook, attracting the attention of project developers and opening this impactful solution to a wider range of companies. In addition, by bringing multiple companies into a single procurement, aggregation has the ability to reduce transaction costs and create economies of scale.
In 2018, 3Degrees supported Apple, Akamai Technologies (Akamai), Etsy and Swiss Re as they leveraged their collective buying power in the largest aggregated corporate renewable energy transaction to date. This aggregation resulted in six power purchase agreements – the largest one greater than 130 MW and the smallest less than 5 MW. The companies’ efforts demonstrate how corporate energy buyers of all sizes can successfully purchase renewable energy directly from new renewable projects.
Challenges
News in the corporate renewable energy space is often dominated by announcements of mega-purchases, where a large energy user strikes a deal with the developer of a large wind or solar project. These announcements send an implicit message that the economic and environmental benefits of contracting with large renewable energy projects are only available to the largest of electricity users. Fortunately, the market is evolving to serve buyers of all sizes. Aggregated purchasing is one effective option gaining traction among buyers with diverse needs.
This aggregation came together when four prospective energy buyers – Apple, Akamai, Etsy and Swiss Re – decided to act jointly to purchase renewable energy in the PJM energy market. The participants recognized their common aims through their already-active work in the energy sustainability space – variously as buyer-supplier companies, peer-to-peer colleagues, and as clients of 3Degrees. They also shared a desire to help prove new renewable energy purchasing models so as to enable other companies to secure renewable supply more quickly and easily. These four companies, dubbed The PJM Gang, had diverse energy needs but also had corporate renewable energy goals with similar timing requirements and a consistent view toward the importance of making an impact with their purchase.
After the team of buyers was in place, 3Degrees was tasked with finding the perfect blend of projects in terms of size, technology, location, economics and timing. While generally aligned, each company had unique needs. It was also essential to ensure that all four buyers were ready and willing to move cohesively through the procurement to contract execution.
How we helped
3Degrees led the procurement process, resulting in individual PPAs for each company, while providing stakeholder education and support to each company individually, according to their differing needs.
The first stage of the process consisted of quick market price discovery and analysis to gather the facts necessary to engage, educate and align company stakeholders. This early market analysis was critical to ensure all companies had a green light for the procurement, as well as gained approval on contract length, acceptable pricing, general terms and conditions, and offtake amounts. Each buyer made a go/no-go decision regarding participation in the second stage.
After all four companies gave the thumbs up, 3Degrees solicited proposals from project developers, validated project development assumptions and completed rigorous risk and financial analyses. For the shortlisted projects, a deep-dive qualitative due diligence was conducted to provide the four companies with a holistic picture of each project’s viability, the reputation of the developers, as well as background on the developers’ engagement with the local community to date.
For the top ranked projects, 3Degrees evaluated numerous project pricing options to determine the best possible financial offers, then navigated the intricate process of allocating the offtake available from several projects still under consideration among the four buyers – balancing differing project characteristics and financial specifics across the buyers’ needs and aspirations. Next, a custom calculator was developed to compare prices across multiple project combinations, considering a variety of hypothetical wholesale energy market price scenarios which would affect the purchase’s overall economics. Ultimately, the buyers selected an Illinois wind project and a Virginia solar project, agreed upon the final offtake allocation and entered into the contract negotiation phase.
3Degrees supported the buyers throughout the contracting process – acting as a unified voice for the group during negotiations, advising on contract terms and making recommendations based on each client’s unique needs and priorities. In spite of varying risk tolerances and needs for specific terms, the PJM Gang negotiated from a single set of commercial terms which were ultimately translated into side-by-side PPAs for each buyer and project.
Results
290 MW of additional renewable energy will be coming on-line by the end of 2019 thanks to the joint collaboration of Apple, Akamai, Etsy and Swiss Re.
The PJM Gang aggregation is a clear demonstration of how corporate energy buyers of all sizes can successfully purchase renewable energy.