2019 was a record-breaking year for corporate renewable energy procurement in the United States, bringing more attention to the market than ever before. Some of the topics that dominated headlines this year included the rise of buyer aggregation (like the deal that LevelTen Energy facilitated with Bloomberg, Cox Enterprises, Gap Inc., Salesforce and Workday); the phase down of federal renewable energy tax credits and its potential effect on clean energy prices; and new risk mitigation options, like proxy generation PPAs.
So what will everyone be talking about in 2020? Here are five key trends to watch.
1. New solutions will arise to meet the unique demands of corporations
In 2019, more corporations procured renewable energy than ever before. According to the Renewable Energy Buyers Alliance, as of October, corporate and industrial (C&I) organizations purchased 7.15 gigawatts (GW) of renewable energy capacity, topping the 6.39 GW purchased in 2018. And the number of buyers has grown significantly; 50% of those deals were completed by first-time buyers.
This represents a real turning point in who is buying renewables. It's not just tech titans like Google, Facebook and Amazon anymore; the market has expanded to include midsized corporations in a variety of industries. One of the major hurdles that corporations face in entering into a power purchase agreement (PPA) for the first time is aligning stakeholders and making the business case. This gets a lot easier the second time around, so in 2020, there will be more repeat buyers with higher levels of sophistication regarding the PPA process.
We expect the industry to continue to develop new, innovative ways to help corporate buyers overcome barriers in the PPA process. That includes new contract options (like proxy generation and volume firming agreements) and insurance products to mitigate risk, which is a key concern among corporate finance teams. It also includes enhanced analytics on renewable energy projects, so that buyers can make informed decisions about projects to invest in. Repeat buyers will not only be evaluating the risk and value of a single project, they'll also be evaluating how that project could improve their portfolio of renewable energy investments (like the portfolio LevelTen created for Starbucks). Another key hurdle is getting deals financed; we expect to see more evolution in project financing for developers and PPA financing for buyers.
2. The "Greta Thunberg Effect" will cause more corporations to set Scope 2 and Scope 3 emissions targets
Corporations are facing pressure from all sides to reduce their greenhouse gas emissions, not just from consumers, but also from their competitors, investors and employees. Marginal carbon footprint reductions and pilot projects are no longer enough; stakeholders are looking for material investments in reducing Scope 2 and 3 emissions. To meet Scope 2 targets, more corporations will turn toward power purchase agreements, and to meet Scope 3 targets, they'll use their buying power to pressure suppliers to reduce their emissions as well. To that end, we expect to see more aggregated deals among corporate titans and their suppliers.
It's not just the pressure that will bring corporations to the table, it's also the ability to act. Thanks to innovations like the LevelTen Marketplace, corporations can easily evaluate all renewable energy projects under development and choose a PPA that meets their needs; something that used to be a monumental undertaking, requiring large teams of energy analysts. Standardization of contracts is also key; innovation in PPA contracting speeds the process and lowers transaction costs for corporate buyers.
3. Innovations in storage will change the market
In 2019 we saw a lot of solar + storage projects in CAISO (and some groundbreaking deals by traditionally regulated markets, like Nevada), and we expect to see more come online in 2020. We're hearing a lot of interest from corporate buyers on how they can benefit from falling storage costs, and on the development side, developers are looking at ways they can enhance the value of their projects. Unlocking the value of grid-connected storage projects for corporate customers will open up a new pathway to bring much-needed storage services onto the grid. In 2020 it will be an ongoing topic, and we hope to see it operationalized and commercialized.
4. Federal tax credits will impact PPA offer prices
The production tax credit (PTC) for wind projects just received a year-long extension. Wind projects that qualify in 2020 will receive 60% of the PTC if they bring those projects online by 2024. We expect the extension of the PTC, and the phase down of the solar investment tax credit (ITC) to affect the market in a few different ways.
In 2019, the phase down caused a flurry of development, as developers rushed to spend enough to qualify for the credits. This created a shortage among their suppliers, increasing procurement costs. This could have caused PPA prices to rise, but the increased competition from other developers mitigated the effect. In each of the LevelTen PPA Price Index reports this year, developers cited "competition from other developers," the "tax credit phase down," and "increased engineering, procurement and construction (EPC) costs" as the top three factors affecting PPA prices. In our Q3 survey of developers, 15% of respondents saw the expiration or phase down of federal tax credits as having the largest impact on their PPA prices, and 24% felt this will carry over into 2020.
In addition to affecting PPA prices, the tax credit phase down is spurring activity from buyers. There's a pool of projects under development that have attractive pricing because they qualified for the 2019 ITC - but that pool is fixed. Eventually, these grandfathered projects will be purchased, so there's a pressure to buy now to get the lowest price.
5. Corporate PPAs will take off in Europe
There are a number of factors that are coming together to fuel corporate procurement in Europe. First, the European Union is removing administrative barriers to corporate PPAs through the recently enacted Renewable Energy Directive, and it's setting more aggressive greenhouse gas emission targets through the European Green Deal. Second, efforts have been made to standardize contracts in the region. Finally, LevelTen recently announced that we are expanding our platform to Europe, which will make it easier for corporations to find and evaluate PPAs there. Corporations with a carbon footprint in Europe are facing pressure to reduce their emissions there, and now that key administrative hurdles are coming down, they have the ability to act.
Those are a few of our 2020 predictions - what are yours? We'd love to hear your thoughts on Twitter.