Are Onsite Power Purchase Agreements Right for Your Company?
This is the first in a series of blog posts co-developed by Schneider Electric and RILA about renewable energy options for retailers.As retailers look to reduce their environmental footprint and grow renewable energy investments, understanding the ever-changing renewables procurement landscape can be challenging. That’s why RILA is developing a new renewable energy guide, which highlights the fundamentals of different procurement options and key considerations, specifically for retailers. In this excerpt from the guide, we discuss the opportunity for onsite power purchase agreements (PPAs).
What are onsite PPAs?
Onsite power purchase agreements (PPA) are a contract between a retailer and a project developer, in which the project developer typically owns, operates, and maintains a renewable system for a term of 15-25 years. The retailer pays for all the system production at a fixed price for the life of the agreement.
While onsite solar PPAs are the most common form of clean onsite generation, there also may be opportunities for retailers to enter into PPAs for fuel cells and battery storage.
Who uses them/What are the key benefits?
Onsite PPAs are ideal for retailers that prefer renewable energy projects to be financed externally, rather than allocating company CAPEX. And because the agreement locks in a utility at a fixed price, onsite PPAs provide long-term electricity price stability and provides cost certainty for internal planning.
In addition, because the developer operates and maintains the installations – and gets paid for the kWh that is produced – the developer is incentivized to ensure the system operates as efficiently as possible.
Onsite PPAs also offer retailers the reputational benefits of supporting renewable energy.
A number of retailers have executed onsite PPAs, including Walmart, Target, Macy’s, The Home Depot, and Whole Foods.
Are onsite PPAs right for you?
Advantages:
- Requires no CAPEX or OPEX
- Provides long-term electricity price stability
- Guaranteed system optimization
- Positions company as a sustainability leader
- Provides potential to reduce facility emissions
Downsides:
- Regulations
- Contracted PPA electricity rate may be more expensive than the utility’s price
- Renewables onsite does not mean 100% renewable energy
- Long contract term length
- Unique contract structure
- Net metering policies
- Varying environmental claims rules
- Administrative complexity
Ready to move forward with onsite PPAs?
Like any renewable energy initiative, engaging company stakeholders is crucial to get buy-in and ensure there is a thorough understanding of the deal structure, benefits, risks, and implementation. Stakeholder groups that should be involved include Facilities, Procurement/Energy, Finance/Accounting, and Risk Management.
Engaging independent consultants familiar with product structures, end-user opportunities, and the financial impact of entering a potentially long-term PPAs can also provide helpful guidance to retailers entering onsite PPAs.
To learn more about onsite PPAs, if they’re a viable option for your company, and next steps for moving forward, access the full chapter in the renewable energy guide here.
To continue to the second blog in this series, on the opportunity for owned onsite systems, click here.
This post first appeared on RILA’s blog. To read the original, click here.