The Corporate Renewables Market Is Ready for Smaller Buyers
Akamai’s Texas wind power purchase shows it can be done
This blog post is part of a series from RMI’s Business Renewables Center (BRC), which streamlines and accelerates corporate purchasing of off-site, large-scale renewable energy.
“The era of expensive renewables is over,” declared the executive director of the International Energy Agency (IEA), Fatih Birol, at the release of IEA’s Renewables 2017 report. As economies around the world embrace low-carbon energy in greater quantities than ever before, the number of companies procuring their own wind and solar is helping drive the market forward. To date, most of these companies have been large multinationals. But now, smaller organizations are successfully buying renewable energy, opening the door to exponential growth as clean energy procurement becomes a mainstream business strategy.
Akamai Technologies—a midsize American cloud-delivery-platform company—is setting an example for how relatively small electricity buyers and buyers with smaller distributed operations can get in the renewables game and help grow the market. With more than 240,000 servers running in thousands of locations in over 130 countries, Akamai has a truly global energy footprint. To mitigate the environmental impact of its growing business, the company has set goals to source renewable energy for 50 percent of its total network of servers and to lower greenhouse gas emissions below 2015 levels, all by 2020.
To meet these goals, in May 2017, Akamai signed a virtual power purchase agreement (PPA) with the Seymour Hills wind farm, a Texas project developed by Infinity Renewables. The PPA is for 7 MW of the project’s total 80 MW capacity, sufficient to cover the electricity load of Akamai’s entire network in Texas for 20 years.
Akamai’s network load includes the electricity used by its servers and its share of the electricity consumed by the third-party data centers hosting the servers. By sourcing renewables to offset data center emissions, Akamai is tackling its GHG Protocol Scope 3 emissions—the greenhouse gas emissions produced by its supply chain.
Akamai’s deal—one of the smallest corporate renewable PPAs recorded to date—is noteworthy because it shows that smaller companies can access the benefits of large-scale renewables even if they do not have the appetite for entire projects of that size. Moreover, the structure of the deal negotiated by Akamai can easily be replicated by other buyers that have small, distributed loads, like retail stores or offices.
The Market Shift Toward Smaller Buyers
Thus far, the nonutility buyers’ market has been dominated by a small number of large companies purchasing all, or at least the vast majority, of the output of large projects. This group represents over two-thirds of all renewable capacity contracted by corporations to date.
However, renewables are fast becoming part of mainstream corporate culture and the buyers’ market is becoming more diversified. In the past three years, over 100 companies have made pledges to procure 100 percent of their electricity from renewable sources. During the same period, 34 of the 40 different corporations that signed off-site renewables deals in the U.S. were new to the market. In 2017 alone, first-time buyers signed 12 out of the 16 deals to date.
The new buyers entering the market are more diverse in industry and size. According to Matt Langley, vice president of finance and origination at Infinity Renewables, smaller companies in particular are going to play an increasingly important role in growing the renewables market. “There are only so many companies like Google or Walmart that can buy hundreds of megawatts at a time. Developers need to figure out ways to execute deals with smaller buyers, or they will get left behind,” said Langley.
A Viable Model for Small Buyers
The deal between Akamai and Infinity Renewables represents a viable model for small buyers that typically seek to procure a fraction of the renewable energy produced by a large project. Akamai has contracted for approximately 10 percent of the 80 MW wind project, as the project’s first off-taker. The developer expects a suite of other buyers to take hold and split the remaining part of the project.
Why Infinity’s Project Makes Sense for a Small Buyer
The Seymour Hills deal helps Akamai achieve all of its environmental goals, while also offering flexibility in terms of size and an economic PPA price.
First, thanks to the renewable energy certificates acquired through the virtual PPA, Akamai will make progress toward its renewables and greenhouse gas targets. By contracting with a wind project under development, Akamai is also helping to add new capacity to the local grid. “It is essential that Akamai’s renewables purchases make a real carbon reduction impact by adding new generation capacity on the grid, and that projects be located in the same electricity markets as our operations,” explained Nicola Peill-Moelter, Akamai’s senior director of sustainability. “Our customers, who also have renewables targets, expect this level of performance from us.”
Second, by sharing a large project with other buyers, Akamai is able to customize the size of the deal and match the expected annual, aggregate electricity load of its network operations in Texas. Additionally, since the PPA is for a slice of an 80 MW project, Akamai secured price economies of scale of a large project. “A 7 MW project would not have been economically viable,” Langley explained. “If we had to build a 7 MW wind farm, we would charge a very high price for that energy. When we build an 80 MW project, we can offer its buyers the same price that Facebook or Walmart would get.”
Essentially, any buyer can reap these benefits if the company likes the idea of sharing a project with other buyers, provided it can find a developer that is willing to offer this structure.
What’s in It for Project Developers?
Rocky Mountain Institute’s Business Renewables Center (BRC) expects that project developers will gear up to seize the opportunities arising from smaller buyers entering the market. To start, deal structures where multiple buyers share a single project are more accessible to the segment looking for smaller-scale purchases, and therefore will allow developers to grow and diversify their customer base.
Also, contracting with multiple buyers on a single project has the potential to alleviate some financiers’ credit concerns relating to smaller buyers that may have weaker credit ratings than larger buyers, or no credit rating at all. The probability of a single buyer defaulting on a contract is much higher than the probability of multiple buyers all defaulting on their contracts.
What’s Next for Akamai
The Texas deal with Infinity Renewables was just the first in a series of deals that Akamai is pursuing to meet its renewables target with local projects. To cover its eastern U.S. load, Akamai is now looking for deals in the PJM market—the regional transmission organization covering 13 eastern states and Washington, DC.
For PJM, Akamai has teamed up with three other buyers to jointly negotiate deals with developers, and close out entire projects as a collective off-taker. The four partners are expected to announce the new PJM deals early next year.
This structure, where multiple buyers actively come together to enable the financing of new large-scale renewable projects, and which has been recently gaining traction in the market, is known as aggregation. While each buyer signs its own contract with the developer, ideally the contracts have similar terms that reduce the overall complexity of executing deals with multiple off-takers. “Aggregation is powerful because multiple small buyers come together to enable the financing of new large-scale renewable projects. Akamai is one of the first movers in aggregation, and we believe many others will follow suit,” said Lily Donge, principal of the BRC.
By attempting these innovative deal structures, Akamai is paving the way for other smaller buyers to get involved in this market, and proving that even small companies can make big impacts.
Image courtesy of iStock.
