Today, LevelTen Energy announced LEAP™, a new technology-enabled way for renewable energy buyers and developers to secure power purchase agreements (PPAs) that is 80% faster than a traditional RFP process, reducing the time it takes from the typical 12 months or longer down to about two months. LEAP™ stands for LevelTen Energy’s Accelerated Process, and it eliminates tedious and time-consuming PPA negotiations. This new approach was developed in collaboration with Google, and is now available to clean energy buyers in North America and Europe.
LevelTen is extremely proud to be launching this exciting innovation for the entire industry. But before explaining how LEAP™ works, it’s worth starting by describing why we created this solution in the first place.
Why LEAP™?
Prior to joining LevelTen Energy, I spent nearly a decade as a renewable energy developer and originator. As recently as 7 or 8 years ago, the renewables industry still felt a bit like the Wild West. A handful of large corporate buyers had recently come on the scene and were experimenting with new contracting structures as they went – often taking significant risks while paving the way for the industry to come. Input pricing was highly volatile, but in a consistently downward direction, and projects felt like they were a dime a dozen. Luckily, over time PPA structures became more widely adopted with the development of standards, best practices, and a robust PPA ecosystem.
Fast forward to the present where, as Chief Operating Officer and Head of Innovation at LevelTen, it’s my job to find new ways to help North American and European clean energy buyers and developers get deals done faster. LevelTen is in the unique position of having access to a range of pricing and transaction intelligence – both by working directly with some of the world’s largest energy buyers and sellers, and by supporting advisor and retail partners who use LevelTen’s marketplaces and software to transact (a suite of services we call “transaction infrastructure”). From this vantage point, I’d identified three key learnings over the past couple of years:
- The longer it takes to reach a deal, the higher the likelihood that it will fall apart;
- Transaction efficiency requires buyers and sellers to “meet in the middle” faster; and
- PPAs that can flex with changing market conditions are a critical tool.
The market volatility we’ve seen since 2020 has brought this into sharp relief. Between the second quarter of 2022 and 2023, PPA prices increased nearly 30% in both North America and Europe, according to LevelTen Energy’s PPA Price Index. One recurring theme is that rising development costs have triggered frequent PPA price increases in the midst of negotiations, which always stalls and sometimes ends contract discussions. Failed negotiations mean many thousands of dollars in lost staff time for both parties. And, according to LevelTen’s MarketPulse pricing software, over the past three years, PPA prices have, on average, increased $2.27 per quarter in North America and €2.65 per quarter in Europe. With PPA prices rising so quickly, failed deals and delayed RFPs can become extremely costly. For every quarter that passes, LevelTen estimates that $7 million dollars of settlement value is lost; this could be even more, depending on the contract length, size and location.
Simply put, the innovations that the first wave of corporate buyers developed 5-10 years ago are no longer optimal for today’s environment – where projects are in comparatively short supply, and input cost volatility is trending upwards. Our challenge now is to accelerate the deployment of new clean energy projects by bringing buyers and sellers together faster, and with greater certainty of PPA execution and project COD. The stakes – climate change – are extraordinarily high and our runway is short. So, we teamed up with Google to round up an internal team of experts, including former developers, buy-side experts, and transactions specialists to figure this all out. LEAP™ was one of the primary outcomes of this collective effort.
How does LEAP™ work?
A traditional PPA process includes four distinct phases: issuing an RFP, project shortlist selection, term sheet negotiation, and PPA negotiation. This process is not only time-consuming and expensive, but it can increase the risk that a deal is never made. LEAP improves upon this by streamlining the phases and making contract terms transparent from the beginning, increasing the chances of deal success.
Here’s how LEAP works:
- First, the buyer sends out an RFP through the LevelTen platform, but in this new process, it also comes with the entire PPA.
- The PPA enables the Seller to tailor certain terms for their specific need. There are PPA elections a seller can choose, giving them the flexibility to customize the ways in which they manage risk.
- For sellers, seeing the PPA at the beginning creates a transparent and reliable way to verify how their offers are evaluated. It also enables sellers to create pricing based on the final contractual details, as opposed to speculating on future terms that are likely to change during the negotiations.
- In the final step of the RFP, buyer selected projects sign the PPA.
These changes significantly shorten the start-to-finish time. We received strong developer participation in LEAPs with Google, signaling that developers were on board with this new approach.
One giant leap for the energy transition
LevelTen Energy and clean energy buyers and sellers all share the same goal: to bring new projects online, faster. And we share the same challenge: executing PPAs efficiently in a way that balances buyer and seller needs. The PPA contracting process that exists today takes too much time, and is too prone to failure, to achieve this shared goal.
To bring new projects online at the rate required to slow global warming, the entire PPA process needs to scale. LEAP™ is a new approach that represents an important step towards standardizing the purchase and sale of clean energy, making it faster and easier for more types of companies to participate, and to execute PPAs with greater certainty. If you’re interested in LEAP™, please reach out to info@leveltenenergy.com.
