Corporations are growing more and more committed to purchasing renewable energy — solar and wind in particular — to meet their business needs. That’s generating more interest in financing of solar and wind projects, and it also created quite a buzz among attendees at the American Council On Renewable Energy (ACORE)’s Renewable Energy Finance Forum-Wall Street (REFF-Wall Street), held in New York in late June.
In fact, probably the greatest excitement at the conference came around the growth in corporate procurement of clean energy, mainly solar and wind.
The phenomenon is being driven in part by the proliferation of new data centers. The biggest cost to running data centers, by far, is energy, which means locking in a predictable cost is a big strategic advantage. Also driving corporate adoption is the increasing number of sustainability goals that large corporations are setting, speakers at the conference noted.
In fact, corporates are now major buyers of offsite utility-scale solar power purchase agreements (PPAs) and of onsite behind-the-meter solar, and are also a growing source of tax equity capital. The number of corporate PPAs doubled in 2015 and, at 3.5GW, exceeded all new PPAs in place, according to a recent report from the Rocky Mountain Institute.
According to a PwC survey on corporate procurement released at the REFF-Wall Street conference, 72 percent of corporate respondents are actively pursuing renewable energy procurement, with the majority having become more inclined to purchase in the last six months. Solar is the most popular choice of clean energy technology, and onsite and offsite PPAs are the most popular types of transactions, PwC found.
Corporates are particularly swayed by the economic case for renewable energy, with many large corporations locking in their energy costs at historically low prices for the next 15 to 20 years.
Corporate PPAs, meanwhile, offer higher tax equity investor returns than utility scale projects, several panelists noted.
“We are not doing this to feel good and be good,” said Rick Needham, sustainability director at Google, the largest corporate procurer of clean energy. “These are economic decisions that happen to be great for the world.”
A major industry development noted during the event was MGM Resorts exiting its contract with public utility NV Energy earlier this year so that it can aggressively pursue renewable energy sources. “It’s a harbinger of things to come,” said Jeff Weiss, managing director at Distributed Sun, a developer of commercial solar projects.
And corporates increasingly want to procure renewables directly from project developers rather than through a utility, said James Hughes, CEO at solar photovoltaic (PV) manufacturer First Solar. He pointed to the landmark 25-year, 130MW power purchase agreement that Apple signed directly with First Solar in Monterey County, California last year — the largest corporate renewable energy deal.
Firms bullish on providing financing to the corporate distributed generation (DG) space, also known as Commercial & Industrial (C&I), include Goldman Sachs, JP Morgan, U.S. Bank, GE Financial Service, and Credit Suisse, according to panelists from those firms.
However, challenges still exist in this space, including issues banks have when it comes to providing long-term financing to corporates that are unrated entities, as well as the relatively small size and complexity of these deals. The latter element causes a lack of standardization, a key ingredient needed to attract further financing to the corporate DG space.
When doing corporate DG deals, financiers need to focus on “prudent underwriting practices that focus on credit of sponsor partners,” said Pooja Goyal, managing director and head of alternative energy investing at Goldman Sachs. And, she said, “sponsor partners must be well-capitalized to fulfill obligations.”
To attract financing for Commercial & Industrial (C&I) deals, the key is to find a corporate, such as Walmart, that has the ability to deploy renewables across multiple locations to spread out the transaction costs. The opportunity to scale solar to more than 30 locations makes it enticing to financiers to do multiple transactions with a single corporate.
In terms of deal size, $50 million is the “sweet spot of the lower end” of where traditional banks want to be in C&I deals, said Christopher Radtke, managing director at Credit Suisse. He said securitization in the C&I market will be necessary to bring down transaction costs and minimize credit risk. He also pointed out that the availability of capital for the C&I space is high from private equity funds backing corporate projects.
“It’s less about individual project size; it’s more about scale to drive down transaction costs,” said Albert Luu, vice president for structured finance at SolarCity. “In order to entice investors, you need to show that it will be repeat business.”
SolarCity, known for its focus on residential solar, is increasingly providing solar PPAs to corporations, Luu said. The company’s corporate clients include Intel, Walmart and Safeway. SolarCity expects to raise $3 billion in tax equity funding this year, he added.
And Panasonic North America focuses on providing a project development “solutions platform” to the commercial DG market that includes engineering, integration, financing and back end service and support, said Jamie Evans, managing director at Panasonic Eco Solutions.
Panasonic is active in solar, energy storage, EV charging and smart building technologies, he said.
While the corporate DG market is growing, it’s also fragmented and inefficient, which presents opportunities for firms that can bring more efficiency in development, customer acquisition, and project financing to corporates, Evans said.
Although the space is challenging, “corporate customers are going to change the industry the most over the next five to 10 years,” said Yuri Horwitz, CEO of Sol Systems, which works with banks and insurance companies to deploy tax equity into the corporate DG market. “Onsite or offsite, these folks are going to take the industry to next level.”