What makes Starbucks' latest clean energy transaction unique

Power Points

What makes Starbucks' latest clean energy transaction unique

As more companies set  and approach 100 percent clean energy targets, the range of renewable energy procurement methods available to corporate offtakers is maturing.

This week, LevelTen Energy, a renewable energy procurement platform, announced the close of a three-project renewable energy portfolio purchased by Starbucks, with a collective capacity of 146 megawatts. The deal provides another example of how corporations with renewable energy goals are developing more options for clean energy procurement.

Starbucks is simultaneously procuring a portion of the clean energy generated by the projects, in North Carolina, Oklahoma and Texas, through three power purchase agreements (PPA). The deal involves 50 megawatts of wind power from an ALLETE Clean Energy, 50 MW of solar power from a Cypress Creek Renewables, and 46 MW of solar from a BayWa r.e. Project. Starbucks is sourcing less than 50 percent of the renewable energy the projects will generate. The rest of the energy will be available for other corporate buyers to purchase, meaning the deal could serve to streamline other companies’ procurement of clean energy.

The energy procured from the PPAs have a collective capacity to power 3,000 Starbucks stores, the company said in a statement. The company has more than 14,500 locations in the United States, which includes about 8,500 company-owned locations and 6,000 stores that are licensed.

Starbucks has a corporate commitment to reach 100 percent renewable energy for its global operations and supply chain and joined RE100 in 2015, a corporate initiative of businesses that commit to 100 percent renewable electricity. By 2015, the coffee giant purchased enough renewable energy certificates to offset electricity use in company-owned stores, and is working to buy renewables from the regions where it uses energy.

Using aggregation to reduce risk

The deal is the first in which a single corporate energy offtaker is aggregating the supply of clean energy across multiple projects, according to LevelTen. The model minimizes risk for the offtaker by diversifying the energy portfolio — "much like a mutual fund," according to the company’s statement and allows Starbucks to benefit from economies of scale while locating energy generation closer to the stores the energy will serve.

"Buying renewable energy from multiple projects across the U.S. reflects how we use electricity across our store portfolio," said Patrick Leonard, energy manager for Starbucks stores in the United States and Canada, in an email. "Inherently, diversity of technology, location and developer should all result in a better balance of risks than picking a single project."

The evolving role of power purchase agreements (PPAs)

PPAs and virtual power purchase agreements (VPPAs) have long been a favorite tool for corporate renewable procurement deals. In 2018, the number of corporate PPAs significantly increased, playing a major role in the record-breaking 6.5 gigawatts of contracts signed by corporates.

Now, developers and suppliers are looking for new PPA structures to reduce risk and attract corporate buyers.

"The PPA remains the most scalable way to source renewable energy but many companies struggle to justify taking a long-term commitment to energy markets," Leonard said. "Having the opportunity to buy renewable energy from a very streamlined process like the LevelTen portfolios… opens the market for us all to make meaningful progress towards reduced carbon emissions."

In a blog post out this week, Google also sang the praises of PPAs (a central tool in the company’s renewable strategy) as a mechanism to add more renewables to the grid.

"PPAs have more impact than other purchasing methods, such as buying unbundled Renewable Energy Credits, because PPAs spur the construction of new renewable energy projects," wrote Google.

How software enables new renewable procurement deals

LevelTen’s software products analyze data on utility-scale clean energy projects, which enables corporate buyers to find and evaluate the value and risk of renewable procurements.

"LevelTen continues to provide valuable niche services to C&I customers by leveraging their innovative software platform," said the Renewable Energy Buyers Alliance (REBA) in an emailed statement. LevelTen is one of REBA’s founding members. "Today’s announcement with Starbucks further demonstrates its ability to create new business models and could enable smaller companies to enter the clean energy market by simplifying the contracting process."

In January, LevelTen disclosed an aggregation deal with multiple offtakers from one project. The deal was also the first of its kind: Bloomberg, Cox Enterprises, Gap Inc., Salesforce and Workday will share the energy produced by a 42.5-MW solar project in North Carolina.

Earlier this week, LevelTen announced $20.5 million in Series B financing, led by Prelude and Ventures, which brings the company’s total investment to $27.3 million. The latest funding round reflects the growing interest in tools that enable a renewable energy marketplace.

Other recent renewable procurement innovations include Facebook's directly investing in a solar farm for the first time in May, and an uptick in utility offerings for corporate buyers in Q1 of 2019.