Editor’s note: This article comes from the Project Finance NewsWire, a publication sponsored by Chadbourne Parke LLC and edited by Keith Martin.
Keith Martin
Utilities are working to squash net metering, but missing the larger picture. Seventy-five percent of the 1,800 MW of new power purchase agreements signed by wind companies in the United States in Q4 2015 were directly with large corporate off-takers. Have we reached a tipping point where most contracts in the future will be with corporate buyers? What does it mean for the financing of projects? The following is an edited transcript of a discussion about these and related questions at the Chadbourne 27th annual global energy and finance conference in early June.
The panelists are Quayle Hodek, chairman of Renewable Choice Energy, Paul Kaleta, executive vice president and general counsel of First Solar, James Pagano, CEO of Terra-Gen Power, Mitchell Randall, president of Recurrent Energy, and Michael Storch, executive vice president and chief corporate development officer of Enel Green Power North America. The moderators are Rob Eberhardt with Chadbourne in New York and Caileen Kateri (“Kat”) Gamache with Chadbourne in Washington.
- EBERHARDT: Quayle Hodek, give us a sense for how significant a market there is for corporate PPAs.
- HODEK: In 2013, there were roughly 500 megawatts of power contracts signed by large corporations directly with developers. The contract terms might run 12, 15 or even 20 years.
In 2014, the market grew to about 1,100 MW and then, last year, we had 3,200 MW. In the wind market, more than 50% of all new PPAs signed last year were corporate PPAs. It looks like 2016 will be even bigger with something like 4,000 MW of contracts expected to be signed this year.
My company, Renewable Choice Energy, has been advising corporate purchasers for 15 years on their renewable energy options. They have a lot of options. They can do onsite solar. They can do renewable energy credits. They can do carbon offsets. They look at a lot of things and, while PPAs are just one of those, they are by far the most interesting option today for companies trying to hit long-term sustainability goals.
Of the Fortune 500, you have more than 220 companies that have made specific carbon reduction, renewable energy or sustainability targets, and the question is how best to reach those targets. Several industry groups and non-profits have been formed to bring these large corporate buyers together. These are high-level gatherings. This is a CFO-level decision when a company is looking at committing to a $150 million long-term contract. The Rocky Mountain Institute is projecting 60,000 MW of new wind and solar projects will have to be built between now and 2025 to serve the corporate market.
- EBERHARDT: We have four representatives from project developers. Jim Pagano, what has been your experience to date with corporate off-takers?
Challenges
- PAGANO: We have been in discussions with several corporate off-takers, but we have not gotten one over the line yet.
We see a couple of trends over the last 18 months. Corporations were interested initially in the sustainability objective and the additionality that implies. We have operating projects that are uncontracted. They do not want megawatt hours from those projects. They want new megawatts so they can advertise the additional renewable energy that is being built as a consequence of the contract they are signing.
Companies with this focus were hurt as gas and, therefore, wholesale power prices fell throughout 2015. They are now a little more focused on their ability to hedge basis risk, or the value relative to the wholesale market price. They have become more sophisticated.
The private financing side of the house has become more concerned about some of the positions. We see a trend toward greater risk on the developer. Arguably that is where it belongs because corporate off-takers lack the expertise to evaluate basis risk in the same manner that a utility would.
- EBERHARDT: Mitch Randall, has your experience been the same?
Read the rest: http://www.chadbourne.com/corporate-PPAs-project-finance-august-2016
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