Are Onsite Power Purchase Agreements Right For Your Company?

This is the first in a series of blog posts about renewable energy options for retailers. 
 
As retailers look to reduce their environmental footprint and grow renewable energy investments, we continue to hear from our members that understanding the ever-changing renewables procurement landscape can be challenging. That's why we are developing a new renewable energy guide, which highlights fundamentals of different procurement options and key considerations, specifically for retailers. 

In a series of blog posts, we'll be outlining various topics featured in the guide; the first, onsite PPAs, is outlined below. We are excited to share the chapters one by one, and to work with partners like Schneider Electric in their development. 

What are onsite PPAs? 

Onsite power purchase agreements (PPA) are a contract between a retailer and a project developer, in which the project developer typically owns, operates, and maintains a renewable system for a term of 15-25 years. The retailer pays for all the system production at a fixed price for the life of the agreement. 

While onsite solar PPAs are the most common form of clean onsite generation, there also may be opportunities for retailers to enter into PPAs for fuel cells and battery storage. 

Who uses them/What are the key benefits? 

Onsite PPAs are ideal for retailers that prefer renewable energy projects to be financed externally, rather than allocating company CAPEX. And because the agreement locks in a utility at a fixed price, onsite PPAs provide long-term electricity price stability and provides cost certainty for internal planning.   

In addition, because the developer operates and maintains the installations – and gets paid for the kWh that is produced – the developer is incentivized to ensure the system operates as efficiently as possible. 

Onsite PPAs also offer retailers the reputational benefits of supporting renewable energy. 

A number of retailers have executed onside PPAs, including Walmart, Target, Macy's, The Home Depot, and Whole Foods. 

Are onsite PPAs right for you? 

Advantages: 

• Requires no CAPEX or OPEX 
• Provides long-term electricity price stability 
• Guaranteed system optimization 
• Positions company as a sustainability leader 
• Provides potential to reduce facility emissions 

Downsides: 

• Regulations 
• Contracted PPA electricity rate may be more expensive than the utility's price 
• Renewables onsite does not mean 100% renewable energy 
• Long contract term length 
• Unique contract structure 
• Net metering policies 
• Varying environmental claims rules 
• Administrative complexity 

Ready to move forward with onsite PPAs? 

Like any renewable energy initiative, engaging company stakeholders is crucial to get buy-in and ensure there is a thorough understanding of the deal structure, benefits, risks, and implementation. Stakeholder groups that should be involved include Facilities, Procurement/Energy, Finance/Accounting, and Risk Management. 

Engaging independent consultants familiar with product structures, end-user opportunities, and the financial impact of entering a potentially long-term PPAs can also provide helpful guidance to retailers entering onsite PPAs. 

To learn more about onsite PPAs, if they're a viable option for your company, and next steps for moving forward, access the full chapter in the renewable energy guide here. For more information about RILA's renewable energy management initiatives, contact Erin Hiatt.