2020: The Year of Convergence in Corporate Renewables3 min read
The rapid growth of corporate renewable procurement has been nothing short of a buyer-driven revolution in the United States’ electric sector. Almost 20 gigawatts (GWs) of corporate power purchasing agreements (PPAs) were completed in 2019 across the globe, up from 13 GWs of corporate PPAs in 2018 and triple the numbers from 2017.1,2 And the majority of this growth has come from the United States.
Fortunately for those of us committed to renewable energy, we expect this trend to continue. But as should be expected in such a dynamic, buyer-driven sector, we are starting to see some noticeable shifts in the marketplace as it evolves and grows. I wanted to highlight some of the trends Constellation is watching for this year.
Changes in Renewable Demand and Supply
- First, customer demand is evolving. Today’s businesses and institutions are looking for renewable solution transactions that resemble the electricity transactions they know today. This means shorter terms, price protection, and most importantly, integration into standard electric supply agreements. Essentially, customer demand is evolving beyond the virtual PPA which was and still is the primary contracting vehicle driving corporate renewable procurement, into a physical contracting mechanism at the retail electric meter.
2. The second key change is the number of players on the supply side – a natural outcome given the level of demand being expressed by the country’s biggest companies and institutions. The broker and consultant sector responsible for much of this growth isn’t going anywhere, and we now see banks and insurance companies coming to the table with risk management solutions as intermediaries in these projects. Retail electric suppliers and utilities are looking to create integrated renewable product offerings for their customers. And we see the non-governmental organizations (NGOs), non-profits, and a dedicated trade association, Renewable Energy Buyers Alliance (REBA), that are all here to help. Now we have a vibrant and growing community on the supplier and intermediary side, looking to create solutions for the corporate demand.
Against this backdrop of rapidly growing and evolving demand and a crowded supply side of solution providers, one word comes to mind for 2020: convergence. First off, corporate PPA demand enables the convergence of wholesale and retail markets.
Wholesale and Retail Convergence
The convergence of wholesale and retail energy is occurring. An analogy that comes to mind: when you purchase groceries, you visit your local grocery store or warehouse club to buy them. Each of those stores negotiates with the food, cosmetics, and personal goods vendors, for example, to have products in stock for each of their stores for the retail customer to purchase.
Similarly, a virtual PPA provides the retail customer with access to wholesale generation markets (e.g., food vendors), bypassing retail electric supply (e.g., the grocery store), which can pose a large amount of risk that is taken on by the retail energy buyer. One example of risk might include basis risk, which is the price difference between power prices at the PPA delivery point and the power price at your load’s location.
Integrated retail solutions like Constellation Offsite Renewables (CORe) attempt to solve this exact issue. With a physical PPA, Constellation manages negotiations and the legal and technical nuances of a 100-page power agreement to be able to offer customers a product integrated into their energy supply contract. End users will receive both renewable energy purchases and physical electricity to run their businesses through a short retail power agreement with a retail supplier.
Supplier and Broker Convergence
As buyers continue to demand a better solution, suppliers will be forced to work together more frequently in 2020. I am highly confident that this year Constellation will be doing multiple transactions with customers through a broker or consultant. Similarly, the brokers and consultants I have spoken to have said that their clients are making a clear demand: they want these renewable transactions to be consolidated on their retail energy bill.
…their clients are making a clear demand: they want these renewable transactions to be consolidated on their retail energy bill.
What the customers are asking for, in industry jargon, is a renewable retail sleeve structure, where the retail suppliers incorporate the offsite renewable energy into the customer’s physical retail electric supply. In 2020, the physical players in the market, such as Constellation and other electric supply providers, are going to need to work more closely with the broker and consultant community, and vice versa, so that we can continue to meet the needs of the buyer community. Learn more about working with us.
As customers demand simplified renewable energy transactions, and as more suppliers enter the field, renewable energy solutions and contract mechanisms will continue to evolve. To learn more about our CORe and CORe+ solutions, visit www.constellation.com/CORe.