Colleges buying solar or wind power: Limit your financial risk

Colleges “going solar” should be aware of the financial risk involved, and take steps to limit their risk.

More than 40 colleges and universities now obtain 100 percent or more of their electricity from renewable energy, typically buying offsite renewable power through a power purchase agreement (PPA).

PPA agreements involve risk, because the buyer contracts to pay a fixed price for solar or wind power, and then sells the power at a variable wholesale price, which will fall below the contracted price at times, and can even go below zero.  But the risk can be managed, as outlined in this pv magazine story: Corporate buyers of solar electricity face price risk.

Readers new to this topic may appreciate the following news stories on colleges and universities that are now buying off-site renewable power (before reviewing more technical resources further below):

Technical information, and service providers

Those ready for technical information may consider these resources before launching a competitive bid process for an offsite renewable power purchase agreement (PPA):

  • The Renewable Energy Buyers’ Alliance (REBA) offers resources to paying members: a Corporate Purchaser’s Guide to Risk Mitigation, five primers, three guides, case studies, plus opportunities to meet with solar developers.
    • The primers cover accounting, economic analysis, deal structure, risk allocation, and finance; the guides cover internal support, “deal dream team,” and deal process.
    • RMI charges colleges and other nonprofits $2500 per year for access to its reports and conference invitations, and may offer nonprofits a lower-priced option to access its reports only.
  • LevelTen Energy serves as a marketplace for buyers and sellers of offsite solar and wind power.
  • Two academic researchers have written an abstract on “Mapping the wholesale market value of solar power across the United States.”
  • Ascend Analytics offers its BatterySimm model to estimate the optimal amount of battery storage to pair with a solar or wind farm, as discussed in this pv magazine USA article; the firm’s web page also lists solar and wind developers that have used the model.
  • Three service providers—including REBA and LevelTen—supported five companies in reaching agreement on a standard contract to purchase the power from a single solar farm, as described in a pv magazine story.  The companies decided to jointly sign a single contract with the developer of the solar installation, and apparently did not form a legal entity known as an LLC.
  • Customer First Renewables advised Brown University on “going solar”
  • The National Renewable Energy Laboratory (NREL) offers a solar project financing report (15 pages): https://www.nrel.gov/docs/fy19osti/72037.pdf.
  • Some law firms have a specialty in renewable energy developments, such as Norton Rose Fulbright, which has published a post on renewable project financial hedging.
  • Some financial advisory firms and investment banks give advice and/or offer financial hedges.  For example, two Goldman Sachs staff members could describe the firm’s solar price hedging offerings: Cindy Quan and Harry Singh (both are listed in the executive summary of an RMI report).
  • Solar and wind development firms and EPC firms (which provide engineering, procurement, and construction) may be willing to respond to a request for information, in advance of a formal request for proposals; there are dozens of such firms.

Selling grid services

  • Before soliciting PPA offers or entering a PPA contract, it may be worthwhile to learn of grid services that could be sold, to better understand the financial gains that may accrue to one party of any PPA agreement:  Solar, wind and storage can provide 7 key grid services.