Solar procurement 101 

Organizations across the country are adopting renewable energy in larger quantities to be part of the solution for environmental initiatives and reduce costs. Organizations are maximizing their approach to include larger volume wholesale procurement to benefit from industry economies of scale. We’ll discuss updated procurement methods and how organizations benefit from their adoption.
 

Leading by example 

Companies such as GM, Google, Apple, Walmart, 3M, Amazon and Goldman Sachs have executed large scale renewable energy deals. For instance, Anheuser-Busch announced a  wholesale power purchase agreements (PPA) for a whopping 152.5 megawatts (MW) of renewable electricity from Enel Green Power, representing 50 percent of the company’s annual electricity consumption. Some companies are   limited by facility, land, or regulatory constraints. Wholesale procurement, through a “physical” or “virtual” power purchase agreement, gives  the opportunity to scale and offset 100% of energy usage.
 

Wholesale structure 

What is a Physical PPA? Some states permit customers to contract their own electricity. This takes place when a customer agrees to purchase a set quantity of electricity over a time span from a third-party provider. The PPA is physical because the electricity is provided to the customer at a specific delivery point. The customer takes title to the energy and associated renewable energy credits (RECs). The independent system operator (ISO) credits the customer’s electricity provider for that generation. The provider credits the customer’s bill at the market-clearing locational marginal pricing (LMP) rate where the energy was delivered. These agreements offer savings and price stability over time.

What is a Virtual PPA? Virtual PPAs (also called a “synthetic PPA”) are a financial instrument that gives RECs and a hedge against electricity price volatility. The customer continues to purchase electricity through its existing provider while also entering into a contract with renewable energy developer. They’re structured as ‘contract for difference’ where the customer and the developer agree on a “strike price” that reflects the projected LMP for a given renewable energy project. The LMP is calculated by the independent system operator based on the hourly value of energy at a location. When the LMP is below the strike price, the customer pays the developer the difference, and when the LMP is above the strike price the developer pays the customer the difference. The customer reduces electricity price volatility and the generator achieves stable revenue. The strike price is an electricity price ceiling for the customer. To fully grasp the influence of the electricity customer, it’s important to understand the fluctuations and volatility of the relevant LMP. For example, the NP15 hub in California had an average hourly day ahead rate of $28.81 per megawatt-hour (MWh) in 2016 with a range from $0.00 to $98.50.

Solar power is here to stay, and the sooner you explore how much you can save, the sooner you can enjoy the benefits of residential solar power. Go to HahaSmart.com and try our price checker tool. It tells you how much solar power you need, and how much you can save. Please visit our solar blog to find out more about the benefits of going solar.