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, even if at a slower and steadier pace than in previous years.
We expect the following trends:
1. Enhanced Products. Historically, corporate renewable goals were based on an annualized percentage of load. 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, 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.
2. 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. 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. 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 (ITC) for solar in the Consolidated Appropriations Act, 2021 enables some solar projects to pencil in certain state markets that rely on the incentive and current proposals by the Biden Administration to further extend the ITC provide developers with continued optimism.
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 Program and the NY-Sun Program 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.
3. Buying Power. 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.
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