How Corporate Offsite Renewable Energy Procurement Can Mitigate Power Market Risks

Back in February, I highlighted how the emergence of large C&I energy users procuring renewable energy from utility-scale, offsite renewable energy (ORE) project sits within Guidehouse Insights’ EaaS framework as part of the Offsite Energy Supply solution. Now, Guidehouse Insights has just released a market forecast report highlighting the drivers, barriers, deployment models, and market sizing for this new ORE supply procurement option.

What Does the Market Want?

It’s clear now that large multinational corporations, universities, and municipalities want to go beyond installing onsite renewable energy systems. This is also true of buying voluntary renewable energy tracking instruments from existing projects that are unbundled from the electricity delivered to the grid as part of their sustainability commitments. This driver has led early-mover corporate buyers to engage in innovative transaction models to procure renewable energy from utility-scale ORE projects.

What Can Be Gained?

There has been less focus on the potential risk mitigation benefits that renewable energy project developers and independent power producers (IPPs) can reap by developing a corporate ORE supply procurement option. These developers and IPPs are increasingly required to compete with traditional electricity generation sources, often now with uncertain wholesale power or capacity market prices and reduced or eliminated renewable energy incentives. The resulting uncertainties in long-term income streams can affect the bankability of renewable energy projects.

Flexibility Is Likely to Lead to Success

As corporate buyers become new power market electricity offtake partners, Guidehouse Insights anticipates that that renewable energy project developers and IPPs will increasingly view these energy supply transaction models as a beneficial opportunity. With creditworthy corporate buyers, these models can mitigate the risks developers face when deploying new projects. Guidehouse Insights believes that the developers and IPPs that will see the most success are those that craft flexible contracting mechanisms, such as shorter contracts and transferable commitments that take advantage of the creditworthy benefits of a corporate buyer. Further, the renewable energy developers and IPPs that will be at a competitive advantage are those that equip these flexible contracting mechanisms with terms that mitigate the power market price risk for risk-averse corporate buyers, such as fixed rates and narrow price collars.