Companies need a faster way to buy clean energy. Here’s a new solution

Corporations have become a major driver of clean energy growth in the U.S., responsible for buying tens of gigawatts of wind and solar power and targeting much more in the years to come. But to decarbonize the U.S. power grid at the scale needed to combat climate change, we’ll need a lot more corporate clean power deals to get done over the next decade, at even greater speed.

Last month, Google and clean energy marketplace provider LevelTen Energy unveiled a new model for significantly simplifying and speeding up corporate purchases of clean energy. The streamlined structure they’ve developed could offer other companies and clean-energy developers a way to get these deals from inception to delivery within a few months, instead of the year or more it usually takes today, they say.

Streamlined and standardized contracts could be a boon for U.S. companies looking to power their operations and meet carbon-reduction targets with increasingly low-cost wind and solar energy. Corporations have outpaced U.S. utilities in buying wind power for years now, and fast-growing corporate solar procurements made up 14 percent of all U.S. solar capacity to date.

Whether the approach can work for companies that aren’t as sophisticated as Google and the big clean-energy developers it buys from remains to be seen. But LevelTen, which runs a marketplace serving hundreds of project developers and major clean-energy buyers, says it plans to make the process available to its customer base by the end of the year, though it hasn’t set a firm date yet.

Innovations like these could play a critical role in allowing corporate power-purchase agreements (PPAs) to scale up to match the need for carbon-free energy, said Kyle Harrison, head of sustainability research for BloombergNEF. Last year saw a record-setting 36.7 gigawatts of corporate clean-energy procurement, even amid a global energy crisis and supply-chain bottlenecks, he said.

“The problem is that to get from here to where we need to get is just not scalable” with today’s methods, he said. These methods ​“work at 36 gigawatts a year — barely. If we start to get to 100 gigawatts a year, 200 gigawatts a year — which we need to get to — it’s not sustainable with this bilateral contract model we have today.”

That’s why Google and LevelTen have ​“flipped the PPA process on its head,” said Amanda Peterson Corio, head of power procurement and energy infrastructure development for Google’s global data center fleets. A first round of tests trying out the new model led to closing deals with as-yet-undisclosed project developers within two months, she said — about 80 percent faster than Google’s typical process.

The issue with the status quo isn’t just that it slows down the pace of clean energy development, said Jason Tundermann, LevelTen’s chief operating officer. It’s also that key underlying factors and deal inputs can change dramatically over the year or more that this process can take.

Most critically, the cost of clean power, and the prices that buyers are willing to pay and project developers are willing to offer, can change dramatically — and ​“if prices change underneath you, it really kills deals,” he said.

The past two years offer plentiful examples of this dynamic, he added. Supply-chain disruptions, rising raw materials costs and U.S. tariff policies have pushed up the cost of U.S. wind and solar projects by more than 30 percent between the third quarter of 2021 and the third quarter of 2022, according to LevelTen data. At the same time, the passage of the Inflation Reduction Act last summer promises to significantly bolster the economics of new clean energy projects, driving expectations of lower prices in the coming years.

The longer the purchase process drags on, the greater the likelihood that changing circumstances can undermine deals in progress, he said. ​“Those are all things that can…cause one party or another to move in another direction or to bail completely.”

Streamlined, automated and structured to start ​“in the middle”

Google has been a pioneer in corporate clean-power procurement, from contracting for some of the country’s first corporate PPAs to pledging to secure round-the-clock clean energy for its data centers. But those deals have ​“always been more or less done via the same process,” Peterson Corio said.

It usually starts with companies issuing a request for proposal laying out their clean energy goals, receiving proposals from project developers and then picking a finalist. From there, the parties slog through painstaking negotiations over key deal terms before the actual PPA is put together — and then comes yet another round of negotiations before contracts are signed.

Google and LevelTen’s new approach does things differently. Instead of starting with buyers and sellers dancing around contract terms, price points and other key factors, it condenses the tech giant’s decade of experience with clean energy purchases into a standardized and transparent set of upfront terms.

Peterson Corio described a few key modifications that cut time and uncertainty out of the equation. First, instead of asking project developers to propose their preferred deal terms first and negotiating over prices later, the new structure bundles a buyer’s price expectations into the initial offer. For developers, ​“that provides a great amount of transparency that historically they’ve never had and allows them to price projects more accurately,” she said.

That leads to a second key concept — the idea of ​“starting with the middle in mind,” she said. In a typical negotiation, buyers and sellers begin by lowballing and highballing their pricing proposals, respectively, even though they both know they’ll eventually meet somewhere in between.

“We’ve negotiated over 60 PPAs at Google,” Peterson Corio said. ​“What we found is that the terms always end up in a very similar narrow band in the middle.” LevelTen has plenty of data from the PPAs negotiated on its platform to inform what that eventual price band is likely to be, which ​“allows both parties to be much more upfront about what price risk they’re willing to take and what they aren’t,” she said.

Tundermann conceded that in order for this model to take off, companies and developers will need to be willing to abandon long-standing negotiating norms and forgo the prospect of getting a better deal for themselves. ​“But you’re comparing getting a dollar or two dollars higher or lower PPA prices, compared to a much higher risk that the deal will just fall apart” if negotiations drag on too long.

Finally, LevelTen has automated much of the process for drafting and completing what could be thought of as the boilerplate portions of a PPA contract, Peterson Corio said. ​“LevelTen created a new user interface, which we like to refer to as ​‘click-through PPA contracting,’” she said. ​“There’s no back and forth of redlining contracts between lawyers. It’s just a simple back and forth between seller and buyer on terms important to them.”

Lawyers leery of software that automates part of the process of drafting, revising and confirming final changes to contracts they used to do by hand can still read through the resulting documents line by line, she noted. But ​“everyone in the industry knows what the major terms are.” Automating the process simply streamlines the exchange of contracts between parties, she said.

Beyond increasing the risks of deals falling through, lengthy contract-negotiation processes are inefficient, BNEF’s Harrison said. Clean-energy project developers measure their profitability by how quickly they can move projects to completion and put that money into the next round of projects. And companies such as Google, Microsoft, Amazon, Meta, Walmart and others with aggressive carbon-cutting goals have a limited number of years to achieve them.

What’s more, the cost and expertise required to negotiate these deals prevent many companies from taking part in them, he said. Standardizing and simplifying the process could ​“open the door to let a lot more corporations enter the market,” he said.

“The LevelTen-Google partnership is kind of the first step at normalizing and expediting this for the common buyer,” Harrison said. ​“We’re not fully there yet. There’s some nuance to what Google has done here” that will take work to make it suitable for a broader group of corporate clean-energy buyers.

Tundermann agreed that LevelTen is ​“still essentially in the pilot phase with Google.”

LevelTen isn’t the only company working on expanding options for corporate buyers to procure clean energy. Competitors such as Swiss-based Pexapark, California-based Edison Energy and the clean-energy procurement business that French energy giant Schneider built on its 2017 acquisition of Colorado-based Renewable Choice Energy are all significant players in the field.

“One of the directions we really want this industry to go is increasingly toward standardization,” Tundermann said. ​“That can be a scary term if used in the wrong context.” But it’s also a ​“very significant incremental step forward in that arc of moving from long, bespoke agreements to one-click trades.”