As we approach the midpoint of 2021, that old adage “time flies'' comes readily to mind. And while your organization’s end-of-year energy and sustainability goals may still seem distant enough to achieve regardless of their size, the truth is that meeting ambitious objectives takes extra planning, review, and time to execute successfully. This holds particularly true for complex transactions involving multiple parties, such as power purchase agreements for offsite renewable energy.
The urgency of beginning the procurement process quickly is only heightened by the fact that, as noted in LevelTen Energy’s 2021 Q1 PPA Price Index Report, renewable PPA prices continue to rise. With new corporate climate goals being announced every day — driven primarily by large tech companies — it’s highly likely this trend will only continue for the foreseeable future. Simply put, corporate buyers are no longer in a position to wait for better or lower prices to emerge, particularly if they’d like to meet their 2021 goals. The PPA market is sending a crystal clear message: The time to act is now.
As you may know, LevelTen works with leading renewable energy advisors, as well as select direct customers, to provide the platform that enables confident procurement of PPAs from the world's largest two-sided renewable energy marketplace. For buyers who need to run a solicitation to source a new renewable energy PPA, LevelTen recommends you and your advisor issue a solicitation to project developers on or before June 1 in order to leave sufficient time to execute and capture the highest-value projects before the end of the year. For new corporate renewable energy buyers with no experience in virtual PPA negotiations and execution, the PPA execution timeline can extend beyond the standard 4-6 months (especially when budgeting for time off during Q4 holidays).
While LevelTen has automated much of the procurement process to enable clients to move at speed with confidence, we also recognize that every PPA transaction is highly unique and will often take three months or more to progress from Term Sheet to fully-negotiated PPA. To prepare to issue an RFP, buyers and their advisors will need to engage internal stakeholders in Finance, Legal, Accounting, and Treasury (at a minimum) prior to soliciting the project market so that the company is ready to evaluate PPA offers when submitted by project developers. For those buyers who do not require a formal, competitive solicitation, the renewable supply experts at LevelTen and our partners can identify specific offers on the LevelTen Energy Marketplace that meet your procurement objectives and greatly reduce the PPA execution timeline: a tactic that has been successful for many buyers and greatly increases speed to execution.
Developers are now offering projects on the LevelTen Energy Marketplace with Commercial Operation Dates (the date when energy begins to flow from the completed project) in 2025. Although this seems far away, developers will need to have contracts in place to “safe harbor” the highest-value tax credits available to their projects within this calendar year (2021). To keep all options available, corporate buyers with sustainability goals that have 2025 targets should absolutely consider entering the market within the next 6-12 months to take advantage of the lower prices offered with full-value tax credits available to wind and solar projects.
To summarize, there are several main reasons why your organization should act now to secure the best renewable PPAs:
- Deals require approval from many internal stakeholders and simply take time; often longer than initially planned for;
- demand for renewable PPAs has never been higher, and will only increase;
- PPA prices are increasing, and projects with nearer-term CODs are being taken off the market;
- the economic advantages brought by renewable tax credits are maximized by procuring sooner than later.
The PPA landscape is an evolving one, and with corporate demand on a steady upward trajectory, competition for the best projects will likely only increase with time - along with PPA prices. With the accelerated and efficient services a platform like LevelTen provides, you or your renewable energy advisor can find the right projects to contract with to meet your organizational goals. But to lock in the best deal, it’s more important than ever to seize the moment and act now.