Early predictions of what is to come for the renewable energy industry resonate clearly today, as wind energy rides the tailwinds of success from 2015 into the new year. Almost 6 months ago to a T, Renewable Choice Energy CEO Quayle Hodek spoke on a panel with Chadbourne about the prospects for corporate PPAs. In hindsight, the market predictions made in this interview have come to fruition with great acuity. Following, are two trends from Chadbourne’s discussion that demonstrate the trajectory that renewables appear to be taking in the market.
1. Financial benefits are quickly becoming the driver for PPAs
Renewable power purchases gained a tremendous amount of credibility in 2015, with the second half of the year beckoning new buyers to the market as a result of rapidly falling prices. While there are still many incentives that push corporations to consider long-term renewable energy, the business case is being primarily driven by the potential for strong financial returns. As Hodek explained to Chadbourne last summer, “There are a lot of different drivers for corporates to be doing long-term renewable energy purchases. There is a sustainability driver and a price hedge driver, and it is rapidly becoming a simple financial decision.”
We witnessed organizations going full steam ahead with renewables purchasing in the final quarter of 2015, with extension of the renewable energy Production Tax Credit (PTC) providing new market stability for low electricity rates. Hodek’s market predictions were confirmed by the fact that 75% of PPAs signed during this period were executed by non-utility customers. This means that corporations single-handedly supported the production of over 1,300 megawatts of renewable energy! Hundreds of companies, including many Fortune 500’s “either have a 100% renewable energy goal or a carbon reduction goal. The pressure may be coming from the board. It may be coming from customers”, Hodek noted. Whatever the motivator — businesses are bought in.
2. Virtual PPAs are the direction the market is heading
In the early stages of corporate renewable purchasing, long-term direct energy deals were restricted to markets with more lenient energy policy. With the advent of virtual (or synthetic) PPAs, deals are no longer exclusively tied to the market in which the energy is being produced. Translation: the floodgates have opened for corporations in regions across the country to engage in this type of strategic purchasing. As Hodek pointed out, corporations now have the ability to select projects best suited to their particular goals by taking a “look at its load within North America or within the United States to find the best priced renewable asset”. Virtual deal structures put the choice back into the hands of the corporation to personalize its energy purchases, and achieve both internal sustainability goals and publicly reported emission reduction targets.
In addition to opening up new markets, virtual deal structures ease the friction when a company is considering a deal of such long-term nature for the first time. While “these deals are not an easy lift for corporates”, Hodek notes, “they are absolutely where the market is headed.” Many companies, including leading corporations like Apple and Google, were not accustomed to signing 10-20 year energy contracts. However, when presented with such competitively priced deals, they find reason to reconsider. Seeing that wind energy prices have dropped 66% since 2008, and are predicted to continue on this path, the business case for investing in clean energy is likely to become an even easier proposition.
Excerpts from this piece originally appeared on Chadbourne Insight. To access the original interview, click here.