How AT&T and Iron Mountain procure renewable energy
Large and small companies are increasingly turning to new, aggregated PPA models.
Companies of all sizes are investigating ways to take back control of their energy procurement and source more renewable energy from clean power sources, including wind and solar projects. That strategy is often informed by a corporate desire to reduce carbon emissions, but there are many other potential benefits. Exciting new business models also are quickly expanding the options for corporate buyers, especially those considering their first deal.
In a recent GreenBiz webcast, panelists offered firsthand insight into tools and resources that can guide a company’s strategy, the risks clean power deals pose and how to partner with other buyers and organizations to achieve company goals. Subject matter experts at the Rocky Mountain Institute’s Business Renewables Center and LevelTen Energy, and strategists with AT&T and Iron Mountain discussed the latest trends in renewable energy procurement.
Corporate renewables are becoming more mainstream, according to Lily Donge, principal at the Rocky Mountain Institute Business Renewables Center (BRC). "We’re seeing larger projects, in more diverse sectors, up and down the value chain. Small buyers are now partnering with big buyers as we see more collaboration in the market."
This year to date has seen more corporate renewable deals than any prior year, Donge noted. Indeed, there have been 3.86 gigawatts in deals so far in 2018, up from 0.32 gigawatts for all of 2013.Small buyers are now partnering with big buyers as we see more collaboration in the market.
Donge also discussed green tariffs, which allow customers to buy large-scale renewable energy through the grid. She highlighted an expansion in regions and load for green tariffs across the country. More than 20 utility green tariffs have been introduced in 15 states. So far in 2018, there have been 638 megawatts of green tariff deals, up from just 20 megawatts in all of 2013.
So why aren’t small companies just going to their utilities and buying a few megawatts of renewable energy?
Kevin Hagen, vice president of Environment, Social & Governance (ESG) Strategy at Iron Mountain, observed that renewable energy procurement is disruptive. It creates an opportunity, but some utilities see it as a threat.
"When it comes to expanding corporate renewable energy, regulated utilities are the next frontier," Hagen said. "They have an opportunity to be a key player in greening the grid for everyone."
But so far, that’s not happening in a systematic way, so corporate buyers are increasingly pursuing alternative models.
LevelTen Energy, for instance, offers a dynamic, two-sided market that aggregates power purchase agreement (PPA) buyers and sellers, allowing them to connect and transact more efficiently than they’d likely be able to achieve on their own. LevelTen functions similarly to a mutual fund, explained CEO Bryce Smith, charging its customers a fee equivalent to a small percentage of the contracted energy cost. "Aggregation allows smaller buyers to have a seat at the PPA table," Smith said.
Smith described scaling of aggregation as an exciting development in the industry that can increase the number of megawatts that get built, "which is what this whole endeavor is about. 2018 is going to be a banner year for PPAs."Management increasingly questioned the soundness of conventional energy procurement.
Historically, companies’ efforts at aggregation have presented numerous challenges, including finding partners, aligning objectives and timing, and assessing projects.
"Bringing multiple corporate partners into a deal is a heavy lift," Smith observed. "What happens if a partner bails at the last minute, turns out not to be credit-worthy, or sells power to someone else? Any number of details could stymie what had seemed at the outset to be a straightforward deal."
Smith contends that a better model:
- Understands buyers’ needs
- Understands developers’ needs
- Offers a digital intelligence layer (machine learning)
- Provides real-time data management and analytics
- Includes process standards
- Offers intermediation
- Features multiple aggregation models
Among traditional PPA models, the one-to-many approach is where a buyer purchases all the power from each project. The number of buyers in the marketplace that are large enough to do this is pretty small. Under the buyer-collaboration model, multiple buyers purchase power from a single project, allowing them access to the benefits of a large project. This has become easier with procurement standardization.
The many-to-many aggregation model — which Smith sees as the most compelling aggregation model — provides more optimal risk and value outcomes. Multiple buyers buy power from multiple projects at the same time. "It can revolutionize the PPA market," Smith said.
"This model requires rigorous data management and analysis, and balancing of critical contingencies on all sides of the deal (such as credit, volume, and timing). The PPA market now has the volume and liquidity to support this customized, dynamic management of supply and demand. No matter what the buyer’s aggregation preferences are, executing on these approaches is finally doable."
Hagen explained what drove Iron Mountain to pursue a corporate renewable energy program. "Iron Mountain probably looks a lot like many companies from an energy point of view," he said. "We’re driven by the fundamentals of what our energy footprint looks like, and what risks we confront associated with our energy use."
As Iron Mountain digitized, like so many other companies in recent decades, its electricity footprint increased dramatically. The company’s carbon footprint and energy costs went way up. As its need for power grew, Hagen explained, management increasingly questioned the soundness of conventional energy procurement: "Buying power from a traditional utility constitutes signing an open-ended, no-hedge, no downside-protection contract. In any other area of business, it would never be tolerated."We’re protecting the business from downside risks while greening the portfolio at the same time.
Last year, Iron Mountain derived nearly 30 percent of its energy needs from renewables. This year, the aspiration is to bring that to 70 percent. In so doing, the company is reducing both its greenhouse gas emissions and its cost exposure. "We’re protecting the business from downside risks while greening the portfolio at the same time," Hagen said.
Charles Herget, AVP of environmental sustainability at AT&T, offered some tips on evaluating a project’s risk:
"Look at the firm’s track record. See if they’ve done a thorough wind study, if they have land already under lease, and if they have an interconnect agreement with the local utility. If those are in place, you can feel good that the deal’s going to go through."