In 2018 more corporations finalized power purchase agreements (PPAs) than ever before, but still, the vast majority of corporations have no experience dealing with these types of transactions. That means very few corporations have the internal resources and expertise to collect data on renewable energy projects, analyze the data, evaluate proposals and manage contracts and negotiations. That's why most choose to work with an energy broker or advisor who can guide them every step of the way.
Energy brokers help facilitate a deal between an energy buyer and seller. Energy advisors can do the same, but also offer additional services beyond brokering the deal.
Before hiring an advisor of any kind it's important to do your due diligence. After all, a PPA can have major financial consequences for more than a decade. Your advisor will make sure you have the best data available to make informed choices.
Here are eight things to consider when researching potential energy advisors.
1. Specialty and Expertise
At minimum, an energy advisor will help you find a renewable energy project, but each advisor approaches the process a bit differently. Some energy advisors will handle every part of a corporation's energy use (like facilities management and energy efficiency improvements), offering renewable energy procurement as a small subset of their services. Others specialize in PPAs, but their service ends after the deal is signed. LevelTen Energy specializes in utility-scale renewable energy procurement and offers a variety of services before and after a PPA is signed, including RFP Automation, market intelligence and performance monitoring.
2. Data Quality
Energy advisors rely on relationships with project developers to get information on the latest renewable energy projects under development. As a buyer, it's important that you understand the nature of that relationship. Ask how they source and manage data to make sure that you're getting a comprehensive view of projects from as many developers as possible; not just the ones that pay to play (or your advisor's golf buddy).
3. Analytical Firepower
In addition, it's critical that your energy advisor applies rigorous analytics to determine which project(s) you should invest in. The PPA price that a developer offers is only one factor that you should consider; there are many other factors that determine the value of a PPA. When evaluating energy advisors, be sure to ask about their analytical firepower: how they compare projects, the risk factors they evaluate, what models they use, and how they calculate their data.
The time it takes to gather proposals from developers and analyze projects can vary widely between advisors. Some still rely on collecting spreadsheets of data, which need to be carefully evaluated for accuracy and human-error mistakes. Depending on the size of the team, it can take months to evaluate every submission.
LevelTen is an energy advisor, but also a technology company, which means we do things a little differently than traditional advisors. Through the LevelTen Marketplace, Dynamic Matching Engine and RFP Automation Tool, we've been able to drastically cut down the time it takes to generate a short list of projects.
5. Services for Smaller Buyers
Some advisors are not able to provide service to corporate buyers who want to sign a PPA for less than 100,000 megawatt hours. There are a few reasons for this:
- They can't uncover opportunities: Historically, a project developer waited for a single corporation or utility to purchase the vast majority of a project's output. Then, the developer could sell the few remaining megawatt-hours to a smaller company. Because these secondary purchase opportunities were few and far between, often advisors could not find a project that would meet a smaller client's needs. Now, thanks to the LevelTen Marketplace and Dynamic Matching Engine, smaller buyers no longer have to wait for the scraps. They can aggregate their demand and enter into PPAs with projects together, opening up the market to more buyers than ever before.
- They don't find it economical: Collecting proposals, analyzing data, and negotiating contracts takes a similar amount of time whether the contract is for a million megawatt hours, or 20,000. If the advisor bases their fee on the amount of megawatt hours, they may not find it worth their time to take on a smaller account.
If your corporation only needs a small amount of renewable energy, be sure to ask any potential advisors if they are capable of uncovering high-value projects that meet your needs.
6. Portfolio Creation Capabilities
Any good financial advisor will tell you that the best long-term investment strategy is to spread your money across a portfolio of investments, rather than putting everything into a single stock or asset. In the same way, by entering into a PPA with more than one project, you can reduce the overall risk. When putting together a portfolio, it's best if each project is not looked at individually, but as a whole: What combination of projects offers the highest value and lowest risk?
If you're interested in creating a portfolio, be sure to ask if your advisor is capable of recommending one for you. Some advisors simply do not have the ability to process the massive amount of information required to create high value, lower risk portfolios of renewable energy assets.
7. Fee Structure
You should understand exactly what you'll be charged before you get too far down the road with an advisor. Here are a few types of fee structures you may encounter:
- Buyer Pays Over the Contract Term: Some advisors charge a fee to buyers for every megawatt hour sold, wrapping the fee into the PPA settlement payments with no large upfront spend. With this structure, the advisor is incentivized to find a project with the highest value and least risk.
- Developer Pays: Some advisors will charge the developer a certain percentage of the gross revenue they receive on the deal at PPA signing. Although the buyer doesn't directly pay the fee, the charge is reflected in a higher PPA price. When the developer pays, the advisor will collect more fees for a more expensive project, so this structure can lead to a misalignment between the advisor's incentives and buyer's goals.
- Buyer Pays for Time & Materials: Like a law firm or consultant, these advisors charge based on the time spent on the deal. Be aware that this can sometimes cause a disincentive to be efficient.
- Fixed Fees: If you don't need an advisor from start to finish and just want to pay for certain services, some advisors will charge a one-time set fee.
8. Exclusivity Agreements
Be aware that some advisors require exclusivity agreements to work with them; these can last multiple years and can limit your options if you want to work with someone else on your next PPA. If you work with an advisor for a service that's not related to a PPA, their exclusivity agreement may extend to renewable energy procurement as well, so it's a good idea to check if you are already be tied to one of these agreements before you engage other advisors.
In summary, below is a checklist of questions to ask potential energy advisors. If you have questions about any of this information, don't hesitate to reach out.
Questions to Ask Potential Energy Advisors
- Beyond identifying projects, what other services do you provide?
- How do you gather information from project developers?
- How do you run RFPs?
- How do you verify the accuracy of the information you receive from developers?
- How many active developers and projects are in your database?
- Where are the projects located?
- How do you ensure your project data is up to date?
- Do you receive any type of compensation from developers?
- What kinds of analytics do you provide on projects?
- How do you calculate risks?
- How do you come up with recommended projects?
- How long do you expect the process to take?
- Do you work with smaller buyers?
- Do you have megawatt hour minimums?
- Can you aggregate buyers together? If yes, what does this process look like?
- Are you able to make portfolio recommendations? If yes, how do you create these?
- Do you get paid by the developer or the buyer?
- What are your fees?
- Do you require an exclusivity agreement?
- What other companies have you worked with in the past?