By Jason Tundermann, LevelTen Energy
If there’s one positive thing that COVID-19 has brought us, it’s clarity. It has never been easier to see the positive impacts of reducing greenhouse gas emissions – the cleaner air in Lisbon, the clear Venetian canals, the Taj Mahal set against a blue backdrop.
As lockdowns begin to lift (hopefully), everyone is eyeing the path to economic recovery. But this won’t – can’t – be a normal economic recovery. To maintain the level of emissions this year – which were dramatically reduced with the economy on pause – LevelTen estimates that the world would have to build nearly 12,000 new wind and solar projects next year alone. That would represent seven times the rate of historical annual renewable energy development.
Those numbers might seem daunting, but they are possible, and there are a lot of recent developments that bring hope:
1. Governments Are Feeling Pressure to Act
If there’s one more positive thing that has come out of COVID-19’s wake, it’s the political will to stimulate the economy in an environmentally responsible way. In Europe, the European Commission has proposeda €750 million COVID-19 crisis recovery plan, much of it earmarked for rolling out wind and solar projects. The IEA recently published a Sustainable Recovery plan that outlines a range of global strategies — including investment in grid infrastructure and renewable energy incentives — that would combine economic recovery and job creation with sustained low carbon approaches.
It’s not just policy makers pushing for this: corporations are also joining the call. In a letter recently published by RE-Source, over 50 major corporations, including Mars, Ingka Group and VF Corporation, outlined several key ways governments can encourage renewable development, including the reduction of regulatory and financing barriers slowing renewable energy deployment. In addition, in the UK more than 200 businesses have joined theBuild Back Better campaign, which calls on the government to deliver a COVID-19 recovery plan that builds back a more inclusive, stronger and more resilient UK economy.
But corporations aren’t waiting for governments to act; they’re also taking it upon themselves to reduce their own carbon footprint by procuring their own renewable energy.
2. Corporations Are Feeling Pressure to Act
Despite the economic downturn, LevelTen’s clients have pressed ahead with renewable energy investments, demonstrating that it is no longer a nice-to-have: it is a must-have. Corporations see climate change as an existential threat to business, and their investors agree. Eight big investment groups, including BNP Paribas Asset Management, DWS and Comgest Asset Management, told Financial Times that businesses would be given leeway when it came to climate change this year, but warned against backtracking on targets to reduce carbon emissions.
And corporations still have public commitments they need to meet. Over 200 of the world’s most influential companies have already pledged to become 100% renewable through RE100, an initiative to accelerate the change to zero carbon grids. According to BloombergNEF, RE100 members alone are set to stimulate global investment in renewables worth €90 billion over the next ten years. With over 40% of RE100 members headquartered in Europe, the EU should see a significant proportion of this investment.
3. This Tidal Wave of Demand Will Accelerate Project Development
As a result of government stimulus packages and corporate initiatives, billions are about to flow into the European renewable energy market. But what does that mean, exactly?
From a government perspective, that could mean taking actions like reevaluating the permitting regulations for renewable energy projects and reducing the time it takes to connect projects to the grid, which would reduce costs and speed development. It could mean funding much-needed upgrades to grid infrastructure to reduce transmission bottlenecks and increase resiliency. It might also mean more subsidy programs like Feed in Tariffs and Contract-for-Difference Auctions, which prop up the price of the renewable energy to cover the cost of project development.
From a corporate perspective, that could mean entering into a power purchase agreement (PPA) with one or more new renewable energy projects. LevelTen is the leading marketplace for corporate PPAs in North America, where 80% of all corporate renewable energy deals take the form of a PPA. Last year we expanded to Europe because our customers were demanding it; after having success with PPAs in North America, they were ready to do it in Europe, and needed a better solution for finding a PPA that would meet their needs.
4. Power Purchase Agreements Are Gaining Popularity
PPAs have become so popular among corporations because they can provide financial benefits in addition providing a direct and measurable environmental benefit. When a corporation enters into a PPA with the developer of a renewable energy project that hasn’t been built yet, they are guaranteeing that the developer will receive a fixed price for the energy that will be generated from the project, for 10+ years. With that guarantee in hand, the developer can secure financing to build the project. In exchange, the corporation receives one Guarantee of Origin (GO) for every megawatt hour of energy that the project sells to the grid (for everyone to use, not just the corporation).
That means that as a direct result of the PPA, a new clean energy project will be added to the grid, and the corporation will receive the GOs it needs to reach its greenhouse gas emission targets and renewable energy usage goals. LevelTen routinely works with companies that are interested in signing stand-alone PPAs, and with retail electric providers who can “sleeve” the output from new renewable energy facilities to a company’s retail meter(s). In addition, corporate PPAs support the broader economy by stimulating jobs: Over 11 million people are already employed in the renewable energy sector, and that number grows each year according to IRENA.
5. Technology Will Further Accelerate the Market
Historically, to find a PPA, a corporation would go to an energy consultant, who would gather proposals from a handful of developers. The data came in spreadsheets that were formatted and calculated in a dozen different ways, making an apples-to-apples comparison of PPAs extremely challenging, especially across regions with different markets and data sets. In addition to being an incredibly slow process, unfortunately, this led to some corporations getting into costly deals.
LevelTen is bringing technology to the table that ensures corporations will find the best PPA for their business. We work directly with project developers to upload fresh PPA offers onto the LevelTen Marketplace, which now features more than 3,500 PPA offers across North America and Europe. In addition, we’ve built a sophisticated analytics engine that calculates over a billion data points daily to estimate the value and risk of nearly every PPA available, across nearly 20 countries. Now, a buyer can instantly compare a solar project in Spain to a wind project in Sweden, and even design a global portfolio of PPAs that are matched to the company’s regional consumption profile, and tailored to maximize diversification benefits.
Given the potentially risky nature of long-term energy contracts, a key hurdle to entering into a PPA is getting internal approval all the way up to the C-suite. LevelTen’s advanced analytics – combined with its team of PPA advisors – help corporations overcome that, and confidently choose a PPA that will help them reach their sustainability goals. Now that it’s safer, more corporations are prepared to enter into these contracts.
There’s Hope on the Horizon
We’ve seen how quickly the environment can recover when we give it a break. Governments are now facing more pressure than ever to stimulate the economy in a sustainable way. Corporations remain committed to their sustainability goals. The market for corporate power purchase agreements in Europe is maturing, and technology is accelerating it.
Through all this, there is hope that we can emerge from the depths of COVID-19 with more clarity and conviction to tackle the next big challenge coming our way: climate change.
About Jason Tundermann
Jason is the Vice President of Business Development at LevelTen Energy. He primarily focuses on market expansion, strategic partnerships, product development, and PPA structuring for renewable energy buyers. Prior to joining LevelTen, Jason spent 7.5 years at Lincoln Clean Energy, where his experience included origination (utility, corporate and institutional, and financial/hedge), project development, mergers and acquisitions, and strategy.