AUTHOR: Peter MaloneyPUBLISHED July 16, 2018
A lack of transparency and reliance on bilateral deals could mean corporations are leaving money on the table.
Prices for renewable energy are coming down, and the number of renewable corporate power purchases is going up.
Those trends should be working in concert for the benefit of corporate power purchasers, but it is hard to know if corporate buyers are getting the full benefit of the low prices because of a lack of visibility into the pricing of corporate power purchase agreements (PPAs). Regulated utilities do not divulge all the details of PPAs with private companies, but they have to file rates that give an indication of pricing levels in broad terms. Corporations are under no such obligations and usually do not divulge pricing for competitive reasons.
“For a developer to get the price down takes work; it is not just taking less profit. “Jon Summerville Project Manager, Burns & McDonnell Often, corporations looking for renewable PPAs will work in a one-to-one relationship with the renewable energy developer. That puts pricing on a cost-plus basis, Jon Summerville, project manager at construction and consulting firm Burns & McDonnell, told Utility Dive. Those contracts are easier to negotiate than a competitive process, but they usually yield a higher price, he said. One firm that’s working to bring lower prices to corporate PPAs by increasing contract transparency through their web-based marketplace is LevelTen, a wholesale energy consulting group.
Cost-plus basis pricing
Using cost-plus contracts could mean “a lot of money is being left on the table,” Summerville said.
Summerville cited a competitive solicitation Burns & McDonnell recently completed for Tri-County Electric Cooperative (TCEC) of Oklahoma that resulted in a very competitive $/MWh price and what he said “is probably the lowest current contracted PPA $/MWh price for renewable energy in the country.”
Enel Green Power North America has contracted to sell 84 MW of the output of its 300 MW Diamond Vista wind farm in Kansas to TCEC, 100 MW to City Utilities of Springfield and 100 MW to the large manufacturer Kohler.
Summerville declined to reveal the exact number, but said the TCEC wind PPA price was “much cheaper” than the $23.76/MWh solar PPA signed by NV Energy in Nevada in June. NV Energy had filed for approval of a 300 MW solar PPA for 25 years at a rate that beat the lowest-cost solar contract in the nation.
Prices for renewable PPAs have been declining in general.
In January, Xcel Energy received a median bid price of $21/MWh for wind-plus-storage projects and $36/MWh for solar-plus-storage projects, beating the $45/MWh price for a solar-plus-storage project hit last year in a PPA between Tucson Electric Power and NextEra Energy.
“For a developer to get the price down takes work; it is not just taking less profit,” Summerville said. The key, he said, is a competitive procurement process followed by several rounds of negotiations. “Often, it is the very last step that gets the results,” Summerville said.
That was the case with the TCEC deal. One final phone call dropped the price by $1.10/MWh, Summerville said. In the end, the final price was $4.45/MWh less than the first price received in the competitive solicitation, which translated into $1.6 million in annual savings from the original price over the life of the 20 year contract.
Low prices stir demand
Declining prices for renewable energy are enabling “quite a bit of demand in all parts of the country, not only from utilities, but from corporate and industrial purchasers, as well,” John Hensley, senior director of industry data and analysis at the American Wind Energy Association (AWEA), told Utility Dive.
“The first quarter of this year was the most active we’ve seen since we started tracking corporate PPAs in 2013,” comprising about one-third of all PPAs signed, Hensley said.
AWEA expects between 8 GW and 13 GW of wind power capacity will be deployed on an annual basis between now and 2020.
