3 tips from the trenches for corporate renewables buyers

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The future of clean energy and a low-carbon future lies in climate financing tools.

The clean energy goals of some of the world’s largest companies have been trumpeted widely. At last count, there were 81 multinational organizations committed to the RE100 initiative representing businesses such as Apple, BMW, Coca-Cola and others that plan to go all-in on solar, wind, and other renewable alternatives.

What’s more, a substantial portion of the renewable capacity added to the grid last year — an estimated 3.5 gigawatts, according to a recent report by Corporate Eco Forum and World Wildlife Fund — can be attributed directly to companies fed up with their inability to source cleaner electricity from their traditional utilities.

More often, however, smaller firms are finding they don’t need the purchasing clout or the procurement resources boasted by these giants of industry in order to source clean power.

Not only are there a far wider range of projects available in this "buyers’ market," developers also are more open to "aggregate" deals that involve multiple off-takers, according to experts on a GreenBiz webcast earlier this week, "Renewable Energy Purchases: Not Just for the Fortune 100 Anymore."

"You don’t have to be a giant energy user," Kevin Hagen, director of corporate responsibility for $3.8 billion information management company Iron Mountain, told the seminar attendees.

The main requirements to participate are a methodical approach to risk management, a willingness to involved a cross-discipline team of negotiators, and the patience to wade through complex and evolving contracts.

"Fundamentally, a renewable energy transaction is about risk management, it’s about economic value, it’s about sustainability and climate value," said Blaine Collison, managing director of clean energy advisory firm Altenex, told the webcast attendees. Altenex has been an advisor on some pretty prominent deals, for companies including Iron Mountain, Microsoft, Google, Procter & Gamble and Walmart.

Here are three practical takeaways from Tuesday’s discussion (in no particular order).

1: It’s fine to start small

The 4,000-or-so projects listed in Altenex’s database vary dramatically in size, from as small as 1 megawatt (MW) to more than 300 MW. (The deals it has helped facilitate in recent months range from 3 MW to more than 228 MW.)

When Iron Mountain started investing in clean power, its first forays involved on-site solar installations, a relatively modest capacity of 2 MW. Some of the installations involved capital expenditures; in other cases, the company leased its roof space to project developers, Hagen said. Over the next two to four years, based on that experience, Iron Mountain plans to add about 5 MW annually, he said.

Those smaller arrangements also gave the company the confidence to investigate much more aggressive projects, including two power purchase agreements (PPAs) that cover a total of 50 MW of wind-generated electricity. (Both deals are worth 25 MW.) "We had a lot to learn about the contracts," Hagen said. "Doing this has very little to do with the technology, this works fine, it’s reliable. The issue is financial engineering."

For perspective, it took Hagen’s team one year to build the case for Iron Mountain’s first big wind PPA in Ring Hill, Pennsylvania — and to get the CEO’s buyoff. The second deal, announced in early October, took just three months to negotiate. That project, based in Texas, will provide enough power to operate 30 percent of the company’s North American operations.

2: Find a friend, or two

In recent months, Altenex has been involved in growing number of deals that involve more than one potential buyer — even though these transactions can be very complex. The rationale is simple: Why not pool buying power? "There are only so many companies out in the market that have the ability to handle one of these huge deals themselves," Collison said.

 

There are also many organizations willing to offer insight. "This is a team sport. NGOs were material in helping us learn fast," Hagen said.

It’s worth noting that the wind PPA Iron Mountain disclosed last month was a deal of this nature. It’s buying about 10 percent of a farm mainly sponsored by e-commerce and cloud computing services giant Amazon. (By 2018, about two-thirds of Iron Mountain’s total North American electricity load will be covered by renewables.)  

3: Get flexible with contract lengths and project locations

Corporate renewables buyers no longer need to think 20 years into the future with their financial models, which traditionally has been the contract length for larger projects, according to Altenex’s Collison. Now, it’s possible to negotiate contracts that are as short as 15 years, 12 years or even 10 years long (although that’s not as common).

The December 2015 extensions of the federal Production Tax Credit and Investment Tax Credit incentive programs, which have helped inspired investments in both wind and solar, are still instrumental in making the financial case. The PTC will be phased out gradually over the next five years, though, which means time is of the essence. But it also means that corporate buyers have a clearer view into how the price the pay per-kilowatt-hour will change over time.

Buyers should also avoid getting hung up over the location of their projects, Hagen said. While it’s nice to buy clean power "directly" (as in, the generating source is feeding the local grid for a specific facility or office), the truth is that most PPAs will be "virtual" — located where wind or solar resources are abundant and incentives are enticing.

"We’re most interested in the economics," Collison said, adding: "Companies need to have a lot of flexibility in correlating the location."