How to choose a renewable energy adviser
The following story is sponsored by Altenex.
Commercial, industrial and institutional purchasers are driving the renewables market in the United States. Many of these organizations are choosing to work with a third-party expert adviser to help accelerate their efforts to manage their organization’s risks.
As the market leader in renewable energy advisory services, Altenex has a few thoughts to share about how companies effectively evaluate advisers to select the right partner for their needs.
What does an adviser do?
At the simplest level, advisers help organizations procure renewable energy. But there are wide variations in the specific services provided, the model underlying those services, compensation structures, independent analytics, supply-side intelligence, risk mitigation and more.
Some advisers are simply RFP managers: Tell them what you’re after and they’ll push an RFP to the market, then help you read the responses.
Altenex has designed its approach around comprehensive support from internal education, project to identification — drawing from the entire supply landscape — to economic, project and risk analyses, to contract negotiation and execution and continuing into post-execution monitoring and validation services.
With a few simple questions, organizations can assess qualifications and gather intelligence about potential partners. If a prospective adviser can’t address these questions with clear data and transparency, you’ve discovered something important.
The energy markets are not a place for the inexperienced. Ten- to 20-year corporate commitments need to be executed properly: A mistake in project selection, due diligence, risk mitigation, financial analysis and savings forecasts, contract structuring and the like can have serious financial implications for the corporation.
A proven record matters: Ask how many PPAs a prospective partner has helped clients execute. And be diligent: Some advisers will claim credit for PPAs that companies that are no longer clients or were clients for a different service have executed.
Some consultants will claim credit for RECs purchases, utility green pricing programs, even grid provided renewable energy. The PPA for an offtake agreement of renewable energy is far more complex. Check the language.
- How many transactions covering how many megawatts has your firm executed with clients?
- In what markets has your firm executed transactions?
- How many transactions have they completed with organizations such as yours? And what were the key takeaways from those experiences? A retailer may have different criteria from a manufacturer. A university’s needs differ from an automaker’s.
- References: An adviser should be able to provide at least five references from organizations that have executed transactions.
More than 5,000 renewable energy projects are under development in North America. Altenex has created and maintains a proprietary database that monitors the critical economic, technology, permitting, interconnection and development data on each one. This gives our clients comprehensive visibility into the market. This full-landscape view is important if a key question for your organization is, “How do I know the projects we’re considering are the best ones for us?”
The contrast is with advisers who identify projects through favored relationships with certain developers or who determine a project pool based on the responses to an RFP. Altenex can save your organization time and money by eliminating the need to administer an RFP because of up-to-date market intelligence.
- On how many projects does your firm maintain comprehensive economic and developmental intelligence and how frequently is it refreshed?
- How quickly can you show the client a specific short list of projects based on the client’s specific criteria? How do you develop these criteria?
Corporate decision-makers need to have several analytical challenges addressed by an adviser. Developer-supplied project data need to be reviewed and normalized. Future energy prices need to be evaluated and contextualized. Weather variations need to be taken into account. Developer- and project-risk need to be evaluated and ranked. Project financing and its viability need to be considered.
Altenex has integrated a 100-layer Risk Analytics engine into its project-tracking database. Altenex simulates every project under client consideration against 30 years of NASA-supplied historical weather data. This dials in every project’s expected performance, smoothing out risk for potential off-takers.
- How do you evaluate developers’ projects?
- What’s your methodology for forecasting and contextualizing future energy prices?
- Do you run independent project production/performance simulations on every project under consideration using 30 years of historical weather data?
The commercial transaction between a corporate/adviser and a prospective developer/supplier is critically important. An independent adviser needs to be fully independent and working on behalf of the customer’s best interests.
One common mistake Altenex sees in this market pertains to the PPA contract itself. Many advisers guide their clients into transactions that use a PPA supplied by the developer. There are more than a dozen specific PPA terms and conditions in which discretionary risk can be borne by either the off-taker or the developer. Not surprisingly, in a developer-supplied PPA, all of those risks — and they won’t be identified as discretionary risks — are worn by the off-taker.
Efforts to develop a standardized PPA are interesting as far as they go. But a review of those efforts shows that even those leave significant risk reduction and value for the off-taker on the table.
From the beginning, Altenex has preferred to use our proprietary Renewable Energy Purchase Agreement (REPA); a buyer-oriented PPA. The REPA has been the basis for more than a gigawatt of executed transactions. It has cleared the internal review and approval processes of more than a dozen Fortune 1000 companies.
Using the right PPA reduces cost and reduces risk. It provides long-term performance assurance and protection.
- What is your compensation structure?
- Does any compensation by developers vary or is it subject to negotiation?
- Does your firm accept any compensation from developers to influence project inclusion or selection?
- Are your developer fee agreements identical across the entire market?
- Does your firm charge fees to both the off-taker and the supplier in a transaction?
- If your organization engages an adviser, but you ultimately choose not to execute a PPA, what are your organization’s financial responsibilities?
- What PPA do you typically use for a C&I transaction? And why?
Experience matters. And so does the right experience. Renewable energy analysis and execution require multi-disciplinary knowledge and experience. Altenex’s team comprises former renewables developers, corporate renewable energy managers, capital market participants, technology developers, economists, utility executives, policy experts, consultants, brand managers and more.
- How many renewable energy transactions have your staff executed before joining the advisory firm?
- What expertise does your staff have?
- How does your team handle accounting treatments of PPAs?
A renewable energy adviser can help accelerate an organization’s efforts. The right adviser will serve as a powerful extension of the internal team, bringing to bear specific and detailed expertise.
By asking a few simple questions, an organizational energy manager or sustainability leader quickly can identify providers with the right experience, accomplishments, structural and analytical capabilities to bring new renewable energy online, reducing energy costs and risks.