After several years of year-over-year double-digit growth, 2020 marked a slight slowdown in the corporate PPA space in terms of megawatts under contract.1 Nevertheless, driven by stakeholder and consumer demand, corporate buyers continue to compete amongst themselves with respect to grand public commitments to renewable procurement. Therefore, many analysts conclude that the market for corporate PPAs will grow in 2021, even if at a slower and steadier pace than in previous years.2
We expect the following trends in 2021:
- Enhanced Products. Historically, corporate renewable goals were based on an annualized percentage of load. In 2020, sophisticated corporate customers, particularly those in the tech space, such as Microsoft and Google, issued requests for proposals for PPA products with power and carbon free attributes to match, hour for hour, customer load (also known as “24/7 CFE”). Such a product requires a fleet of diverse dispatchable renewable assets and flexible storage capacity, as well as complex tracking and data collective capabilities feeding into a single transaction. We would anticipate other corporate buyers similarly begin to seek load-following PPA products. Additionally, along with load-following products, there is an increasing marketplace for PPAs with proxy generation. These PPAs offer renewable power based on what the underlying renewable generating facility should have produced. In some cases, where a customer is looking to minimize operational risk, the proxy generation may be based on what the facility should have produced assuming 100% availability. In other cases, where a customer is looking to minimize weather risk, the proxy generation may be based on what the facility should have produced assuming a particular weather dataset. In both cases, the risk is shifted to the developer, who may look to wear the risk or purchase an insurance product on the market. Finally, a certain subset of large corporate customers will continue to work collaboratively with utilities and energy providers to develop even more finetuned mechanisms to decarbonize the grid.
- Onsite Opportunity. In recent years, the growth of onsite PPAs (also known as Commercial and Industrial or “C&I”) has been flat, outpaced by the growth of offsite, utility scale projects.3 Certain trends, however, may be in C&I’s favor. First, data collection with respect to available rooftop and commercial real estate is a growing focus.4 Aggregated, reliable data at scale could be a breakthrough for the historically opaque, disaggregated C&I space. Second, the two-year extension of the Investment Tax Credit for solar in the Consolidated Appropriations Act, 2021 will mean that solar projects continue to pencil in certain state markets that rely on the incentive. Finally, community solar tariffs, which have become very popular in recent years, often work in tandem with the C&I customer. For instance, the DC CREF Program5 and the NY-Sun Program6 allow for an individual corporate customer to take the lion’s share of offtake from a community solar project at a rate that is less than what the corporate customer would have paid the utility for grid power.
- Buying Power. As noted in our 2019 Year in Review, the term of corporate PPAs has compressed substantially, from a standard 20 years to 15, 12, 10, and even 8 years. A major factor that has contributed to this is the pressure from corporate customers who have demanded a shorter tenor. The market, in turn, responded with great agility (e.g., valuing tail revenue, financing with an eye-toward potential merchant opportunities, etc.). Length of term is just one of the hotly negotiated deal terms evolving based on customer demand. In the process, renewable developers are taking on more and more risk. We see this in the areas of project delays, offtaker credit support, developer credit support, the settlement point for energy (i.e., hub v. pnode), and production and availability guarantees, among a myriad of other topics. For instance, even during a global pandemic, we do not expect to see any greater tolerance for force majeure as an excuse of performance.
1Industry Pulse: BloombergNFE – Global/APAC Corporate PPA Market Progress and Outlook, Global Wind Energy Council (September 9, 2020), available at https://gwec.net/industry-pulse-bloombergnef-global-apac-corporate-ppa-market-progress-and-outlook/
2U.S. Corporations Responsible for up to 72 GW of Renewable Energy Capacity by 2030, Renewable Energy World (October 22, 2020), available at https://www.renewableenergyworld.com/2020/10/22/u-s-corporations-responsible-for-up-to-72-gw-of-renewable-energy-capacity-by-2030/?topic=245563/&utm_medium=email&utm_campaign=2020-10-28&utm_source=rew_weekly_newsletter
3Utility-Scale Solar Set to Eclipse Onsite Installation in U.S. Corporate Market, Wood Mackenzie Power & Renewables, Inc. d/b/a Greentech Media (November 20, 2019), https://www.greentechmedia.com/articles/read/corporate-utility-scale-solar-to-surpass-onsite-solar
4WoodMac: US Sitting on 145 GW of Unused Commercial Solar Potential, Wood Mackenzie Power & Renewables, Inc. d/b/a Greentech Media (August 10, 2020), https://www.greentechmedia.com/articles/read/the-us-has-145-gigawatts-of-untapped-commercial-solar-potential
5D.C. Code §34-1518.01 (Community Renewable Energy Facilities), available at https://code.dccouncil.us/dc/council/code/sections/34-1518.01.html
6NYPSC: Matter Master: 15-00348/15-E-0082, Order Establishing A Community Distributed Generation Program and Making Other Findings, available at http://documents.dps.ny.gov/public/MatterManagement/CaseMaster.aspx?MatterSeq=47415
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