Demand aggregation comes to corporate solar

A new deal where five big-name companies have jointly signed up for the output of 42.5 MW from a North Carolina solar project may point to the future of corporate solar PPAs.

January 18, 2019 Christian Roselund

Image: Flazingo Photos, Flickr

Now that solar panels and other hardware are dirt cheap – and getting cheaper – the biggest horizon in terms of reducing the cost of solar is “soft costs” – labor, permitting, and all the other non-hardware portions of building a solar plant.

These including financing costs. And while progress is being made with financial mechanisms to reduce performance risk and more conservative investors are flocking to solar, there is still the problem of transaction costs. By the time you pay the lawyers, each contract signed is another line item in the costs on both the buyer’s and the seller’s side.

Yesterday an announcement hit the newswires which indicates that progress is being made on that front as well. In a first for the solar industry, Bloomberg, Cox, Gap, Salesforce and Workday jointly signed a joint virtual power purchase agreement for the output of a 42.5 MW portion of a 100 MW solar plant that BayWa r.e. is developing in North Carolina.

The five companies were supported by the Business Council on Climate Change and the Business Renewables Center, and also received guidance from LevelTen Energy and its renewable energy procurement platform.

Compiling purchasing power

This is not the first time that a group of businesses has come together to purchase the output of a large solar project. Rebecca Sternberg, the VP of power marketing at BayWa r.e., notes that in previous deals like an Apple power purchase agreement that Swiss RE joined, one company was in the lead and the others signed on to the contract.

By contrast, she says that in the new form of aggregation that this more recent deal represents, no one buyer sets the terms, and all agree on a joint contract. She says that this allows developers like BayWa to more efficiently sign contracts with multiple smaller off-takers.

“It would be very difficult for us as a developer to contract with three smaller buyers, who all want different contractual terms, who have different contractual priorities,” Sternberg told pv magazine. “At the end of they day we have a single project to build.”

There is also the element of time, and BayWa notes that this structure allows it to finance and transact more quickly.

The evolution of corporate procurement

As we have explored in multiple articles over the years, corporate involvement with renewable energy has taken many forms. At first many companies were simply buying unbundled renewable energy credits (RECs), which may still serve as the entry level for participating in renewable energy.

For those companies with stronger corporate environmental goals, the advantage of signing a power purchase agreement (PPA) is that they can materially help to get a renewable energy project off the ground – which is also something that they can show to their shareholders, employees and customers as a concrete manifestation of their environmental commitment.

But for many smaller companies, the inefficiencies of a smaller PPA are not the only difficulties. Many companies don’t have the in-house knowledge to know how to navigate something as complex as a power transaction – and may not have the necessary credit rating, either. “They are prevented from doing so for the knowledge barrier and the credit barrier,” notes BayWa r.e.’s Sternberg.

Given all of these potential advantages, Sternberg says that this new model could spread. “Other market participants are able to replicate the contracts, the structure and the model, and bring other customers will smaller need to the market,” she says. “What’s really exciting about this is the potential future of this kind of aggregation.”

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