AEP Energy’s Solution Supports the Continued Growth of Corporate Renewable Energy Procurement

As subsidies for renewables disappear, the growth of renewable energy needs to expand beyond current mandates to solve the climate crisis. Thankfully, corporations outside the energy space have been willing to take the lead from governments by reinforcing growth within the renewable industry through long-term power purchase agreements (PPAs).

Corporate PPAs have grown at a rapid pace. The Business Renewables Center, which tracks corporate PPAs in the US, estimates that 15.96 GW of deployed renewables capacity are now backed through corporate PPAs. But corporate PPA procurement models are not without problems. Corporations do not always have internal expertise in energy markets and are fearful of the risks that come with renewable generation contracts. These risks, such as electricity price fluctuations, wind and solar generation balancing risk, shape (profile) risk, and volume risk, are complex and require energy market expertise to be properly managed.

Several products have been developed to mitigate these risks. For example, Microsoft, REsurety, and Allianz developed a solution called a volume firming agreement that mitigates volume and shape risks. Another alternative is the Solar Revenue Put developed by KWh Analytics. This is an all-risk insurance policy that guarantees up to 95% of forecast P50 energy production, including losses due to weather risk, panel failure, inverter failure, and construction flaws. 
While these are good products, they are expensive to implement. The sheer complexity of these strategies make corporate PPAs less attractive to many energy consumers without extensive power market expertise.

Portfolio Bundling as an Alternative

American Electric Power (AEP) subsidiary, AEP Energy, has come up with an alternative. AEP Energy offers at-scale renewable energy supply procurement options from a portfolio of new renewable assets to corporate buyers. This framework has allowed AEP Energy to offer a customer-centric product that simplifies corporate PPAs as an integrated renewable energy (IRE) supply product. 

AEP Energy’s IRE supply agreement is already providing an attractive proposition to corporations. AEP Energy signed a contract with John Glenn Columbus International airport to provide 100% renewable energy to its facility, allowing the airport to save about $13 million over the lifetime of the contract. 

Another interesting customer using AEP Energy’s new integrated energy solution is Google. Like John Glenn Airport, Google will receive 100% renewable energy from new wind and solar facilities in PJM. The AEP Energy-Google deal foresees a build out of wind and solar projects to generate up to 1,000 MW to support Google’s data center load, coming online over time as the data center demand grows. 

AEP Energy’s IRE is structured as a PJM-based energy supply agreement with a single energy price that does not need a separate settlement from the customer energy bill. Volume and shape risk are managed within the contract for the energy buyer, and basis risk is eliminated. This setup offers something close to traditional energy supply contracts with one important difference—a requirement that forces suppliers to ensure the electricity comes from newly built renewable projects, not from assets already in operation. This kind of simplified supply contract mechanism for at-scale renewable energy procurement is a welcome addition to the options that corporations now have to meet their renewable energy and price mitigation goals.