This text is sponsored by Coho. 

Digital energy buy agreements (VPPAs) are one of the vital economical methods for big organizations to obtain renewable power. However usually, VPPAs are solely appropriate for electrical energy calls for of 100,000 MWh a 12 months or extra, which excludes small consumers.

The answer: Smaller entities can be a part of forces and pursue an aggregated VPPA. On this association, they negotiate with a renewable power venture developer as one entity, and their mixed electrical masses obtain the dimensions wanted to qualify.

How aggregations work

The method begins when a gaggle of organizations determine to pool their clear power demand and attain a sum giant sufficient to qualify for a VPPA, usually at the very least 100,000 MWh per 12 months.

That group then enters negotiations with a renewable power venture developer. They negotiate for a similar venture underneath the identical phrases, however every purchaser will get their very own slice of the venture “pie.” The dimensions of every purchaser’s slice relies on their want.

(You will need to observe that builders have totally different appetites for aggregations. Some won’t take into account aggregations in any respect, and others have limitations on the variety of counterparties.)

As soon as the deal is last, the developer indicators contracts with every purchaser individually, who don’t have any authorized obligation to 1 one other. From that time ahead, the developer communicates venture updates with every purchaser and, as soon as the venture is operational, invoices every purchaser individually for the quantity for which they contracted.

It’s useful to think about aggregations as a mechanism to allow entry and streamline negotiations solely. When the contracts are signed, the aggregation is full — it isn’t an ongoing association.

For instance, think about that a big company and 5 of its smaller suppliers method the developer of a 250,000 MWh photo voltaic farm. The massive purchaser agrees to take 180,000 MWh and every provider takes 16,000 MWh on the identical price and phrases. The developer indicators contracts with every purchaser for the quantity they’re every taking and companies every contract individually.

Who ought to pursue an aggregation

Aggregations can unlock doorways for small corporations searching for a cost-effective entry level to renewables and huge corporations searching for optimistic influence on provide chain emissions.

For instance, McDonald’s introduced in December that it signed a VPPA with 5 logistics suppliers in North America for a complete of 189 MW of photo voltaic electrical energy (Coho served as McDonald’s adviser on this transaction). With this one transaction, one hundred pc of McDonald’s logistics provide chain for all its U.S. eating places might be powered by renewable power.

You will need to observe that McDonald’s is just not shopping for power for its suppliers. It merely included its suppliers in its renewable power procurement technique, to everybody’s profit.

Ideas for a profitable aggregation

As we speak’s renewable power market could be difficult to navigate. Provide chain points, lengthy grid interconnection queues and excessive demand have lowered availability and raised costs for VPPA initiatives. Good negotiation is as essential as ever.

Firms pursuing an aggregated PPA ought to comply with these tips to current a gorgeous provide to renewable power venture builders.

1. Select companions who’ve comparable priorities. There are lots of components to think about when evaluating VPPAs, together with danger tolerance, environmental influence, location and timeline. Be part of forces with different organizations that share your priorities in order that negotiations can keep centered on what issues most to everyone. Now we have discovered that aggregations work effectively for teams of organizations that share traits or a convening physique, similar to universities in the identical state or corporations that belong to the identical commerce affiliation.
2. Go as massive as you possibly can with a manageable variety of consumers. Scale issues so much. The larger the procurement, the higher the deal. Nevertheless, bringing too many consumers into the deal could make the deal much less enticing to builders, as a result of builders should service contracts with every particular person purchaser. Now we have discovered that it helps to have at the very least one anchor purchaser contracting for a big quantity of electrical energy. For instance, a deal involving one giant purchaser and three small consumers might be extra enticing to a developer than one involving small consumers.
3. Be agile, versatile and fast. As talked about, right this moment’s market is hard. All consumers, whether or not working inside an aggregation or flying solo, have to be able to act rapidly when a superb VPPA venture presents itself — and be open-minded about some phrases. This implies aligning inner stakeholders on priorities and having clear strains of decision-making from the beginning.
4. Negotiate as one. Retain one exterior counsel to characterize all consumers within the aggregation to maintain the negotiation operating easily and builders .

Profitable execution could be tough, however the suggestions described above and having an skilled procurement adviser will enhance your probabilities of success.

For extra recommendations on navigating the renewable power market and making swift progress in your local weather targets, be a part of our webinar Could 22.

Coho, an ERM group firm, is registered with the U.S. Commodity Futures Buying and selling Fee as a commodity buying and selling adviser and is a member of the Nationwide Futures Affiliation (NFA ID: 0542152). Info on this article is supplied for common informational functions solely and shouldn’t be thought of authorized or commodity buying and selling recommendation or as forming the premise of any advisory relationship with Coho. Buying and selling in commodity pursuits and financially settled power contracts, similar to digital energy buy agreements, could be complicated and entails danger of loss that may be substantial.  At a minimal, you need to seek the advice of with your personal authorized and accounting advisors in contemplating whether or not to enter into any such contract.