Power Purchase Agreements—Not Just for Fortune 500 Giants Anymore

In 2010, Walmart and Google became the first commercial, industrial, & institutional (C&I) organizations to engage in a power purchase agreement (PPA). Their landmark deals put corporate PPAs on the map, and they helped revolutionize the way organizations could pursue green power.

In the six years since then, C&I buyers have collectively added more than 7,000 MW of new wind and solar projects to the U.S. grid and over 1,000 MW of new green power internationally. Corporate buyers also officially surpassed utility and bank-driven renewable energy development by purchasing 52% of new wind capacity added to the grid in 2015 alone.

Renewable energy continues to sweep boardrooms and C-Suites across the globe.  In fact, just weeks ago, Walmart made history again by becoming the world’s first (and largest) retailer to set science-based targets.  The industry is growing.  And it is evolving.  One must ask – what’s next?

In the midst of industry giants changing the way organizations approach energy and climate challenges, a new market of underserved businesses is emerging.  There is a long list of small-to-medium sized corporates that may not have the clout or creditworthiness of major Fortune 500 players, yet still have ambitious renewable energy targets and a desire to engage in innovative solutions, such as PPAs.

A PPA is a long-term (12-20 years) contract between a renewable energy developer and a dedicated, creditworthy buyer—or offtaker.  PPAs enable developers to secure financing for the construction of new wind or solar projects.

Because developers need to secure financial confidence from the offtaker(s) in order to move a project forward, organizations must contract for a significant portion of the wind or solar project.  As these projects generate a considerable amount of electricity, organizations that use less than 125,000 MWh per year may find it challenging to access the PPA market solo.  With an aggregated PPA, however, committed companies jointly gain a higher load threshold, increase their purchasing power, and earn greater economies of scale.

Because an aggregated PPA deal inherently involves more variables, there are some challenges worth consideration. For instance, each organization will bring its own unique timeline, credit, and desired PPA term length and size to the negotiation. Organizations also need to collectively gain internal approvals in order to sustain a deal’s momentum, and the legal contracting requirements increase as more entities become involved.

Working with an experienced buyer’s advisor, such as Schneider Electric, that has existing clients in a similar position, can alleviate these challenges. Programs that group PPA buyers together create simple contracting solutions for developers and simultaneously support internal engagement across multiple corporate cultures.

Contact our strategic renewables team today to learn more about how we are opening up this aggregated PPA opportunity with our mid-sized clients and to explore the opportunity available for your organization to realize its energy and sustainability goals.  

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