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The second annual Solar + Wind Finance and Investment Summit was held in Phoenix from March 12 to 15.
Below are soundbites addressing the corporate offtake and M&A markets from various panel discussions. This is the third blog post of soundbites from this conference. The first post on the tax equity and transferability panel discussions at the conference is available here and the second on the debt and equity markets is available here. The soundbites are organized by topic, rather than chronologically. They are edited for clarity. You can click on the links below to go to the topic of interest to you.
- Corporate PPA Pricing
- Duration of Corporate PPAs
- Technology Preferences of Corporate Offtakers
- Geographic Preferences of Corporate Offtakers
- Risk Sharing Between Corporate Offtakers and Project Owners
- Corporate Offtakers’ Interest in New Financial Products
- Offtakers and the IRA
- M&A Market
Corporate PPA Pricing
“Interest rates and inflation are a headwind that make it difficult to value projects. It feeds into how power purchase agreements (PPAs) are priced.”
Custom Power Developer, Chief Investment Officer
"Property and casualty insurance “is driving PPA pricing higher, but insurance is not the largest cost increase we have seen in the last year.”
US Subsidiary of Japanese Energy Company, Senior Director
“Corporate offtakers need to address today is that the earliest you can reach COD [(i.e., when the project starts to sell power under its PPA)] for a utility scale solar project is 2026, so you cannot lock in a PPA price today. People are adding in a ratchet or an index to address price changes between now and 2026.”
Big 4, Senior Managing Director
Duration of Corporate PPAs
“I don’t think you can finance a project with a five year PPA.”
UK Based Renewable Energy Investor, US Head
“For many corporates a 12 or 15 year PPA is the longest the contract they have entered into, other than leasing a building. That is a very hard sell to CFOs and CEOs of corporates.”
Big 4, Senior Managing Director
Technology Preferences of Corporate Offtakers
“The past few years we saw corporate offtakers shift towards solar over wind, but recently they have been more interested in wind to diversify their risk.”
Development and Operations Business, Origination Manager
“Diversification is a great enabler. I have seen many buyers do what seemed like out of the fairway transaction because they are trying to diversify after buying where their load is.”
Development and Operations Business, Origination Manager
“We are seeing offtakers be technology agnostic in terms of which type of green power. Most requests for proposal just say green power without specifying a technology. We are seeing less interest in stand-alone storage as storage does not generally generate RECs” (renewable energy certificates).
US Subsidiary of Japanese Energy Company, Senior Director
“The bigger the better for corporate offtakers in terms of projects. No one has said that project is too big. Haven’t seen anyone want to buy less than a project’s full output.”
US Subsidiary of Japanese Energy Company, Senior Director
“There has been some pressure in our company to look at non-intermittent resources like nuclear or large scale hydro. Until the batteries catch-up, [intermittency] is a risk we would like to avoid, but right now it is tough.”
Information Technology Consulting Firm, Energy Manager
“The question is how do you move the hydrogen. It is hard to transport. What do you do after you connect the electrolyzer up to a wind farm?”
US Subsidiary of Japanese Energy Company, Senior Director
Geographic Preferences of Corporate Offtakers
“Buyers used to be concerned about matching load on a national basis. Now, they are much more location focused.”
US Subsidiary of Japanese Energy Company, Senior Director
“We are still seeing a lot of interest in ERCOT. Over half of the corporate offtakers in ERCOT last year were new buyers. There is a lot of demand for PJM projects.”
Utility Scale Developer, Vice President Originations
“The big issue issue in ERCOT-West is curtailment. Basis risk is just price. Curtailment is a killer.”
Development and Operations Business, Origination Manager
“We are seeing projects getting done in ERCOT-West but settling at the North Hub. It matters whether the project is on a 138 or a 345 kV transmission line.”
Consulting Firm, Partner
“We are seeing people move away from zero price floors at the hub. A lot of deals are hub settled unless the basis risk exceeds a certain band in which case it becomes node settled for a certain number of hours.”
Big 4, Senior Managing Director
“We have seen some customers [(i.e., corporate offtakers)] take Northern Virginia off the map [(i.e., decline to consider projects there)] . We’ve seen them look at other areas.”
Information Technology Consulting Firm, Energy Manager
Risk Sharing Between Corporate Offtakers and Project Owners
“The balance of power has shifted from the corporate offtaker to the developer. That has changed risk sharing.”
Big 4, Senior Managing Director
“Price risk sharing with corporate offtakers is highly negotiated and extremely specific to the project, down to the node.”
US Subsidiary of Japanese Energy Company, Senior Director
“I have heard rumors of corporate offtakers accepting basis risk, but I haven’t seen it.”
US Subsidiary of Japanese Energy Company, Senior Director
Corporate Offtakers’ Interest in New Financial Products
“We are seeing an interest in physical delivery PPAs.”
Utility Scale Developer, Vice President Originations
“We are seeing a lot more interest in corporates doing tax equity and pairing RECs with tax equity.”
Utility Scale Developer, Vice President Originations
“We are seeing a fair amount of interest from corporate investors in transferability [(i.e., the sale of tax credits as allowed under the IRA)] and hope to transition them to actual tax equity.”
Money Center Bank, Managing Director Tax Equity Desk
Offtakers and the Inflation Reduction Act of 2022 (IRA)
“We are seeing a lot of questions around the IRA. Buyers want to know what adders the project qualifies for [(e.g., the 10 percent adder for the project being sited in an energy community)].”
Utility Scale Developer, Vice President Originations
“It is still too early to price in adders. It is a case by case situation, project specific and buyer specific as to how those conversations are going until we have more guidance on the adders.”
US Subsidiary of Japanese Energy Company, Senior Director
“We see questions about adjusters [(i.e., a reduction in the PPA price the corporate offtaker must pay)] if the project is able to qualify for adders, but we have not transacted on that basis yet.”
Utility Scale Developer, Vice President Originations
“If [the parties agree to] do a project internal rate of return look-back taking into account the various adders, I think that will help corporates and developers get projects contracted and built.”
US Branch of French Bank, Managing Director
M&A Market
“2021 and 2022 were the years of the platform. The next couple of years will be the digesting of those platforms.”
Alternative Asset Manager, Partner
“The public market should have capacity to support a lot more issuances from clean energy companies. It is a great time to be a clean energy company.”
Investment Bank, Managing Director
“We are towards the tail end of utilities pursuing anti-diversification strategies after the pursued diversification strategies. RWE paid a huge premium to get ConEd’s renewables business. Utility investors are focused on utility companies being pure play. Investors have been very clear they want [utility] companies to focus on their base business.”
Global Financial Advisor, Managing Director
“For many years, the oil majors were the unicorns on the horizon who were going to pay big prices. We’ve seen a little bit of that with Total, Shell and bp leaning into [the renewables] thesis in a big way. Several of those companies are pulling back because they can make a s**t ton of money by investing in their base businesses, and renewables do not make the same returns. We’ve seen oil majors lean into aviation fuels, carbon capture and hydrogen, which have closer ties to their base business.”
Global Financial Advisor, Managing Director
“We like M&A financing. We back M&A all of the time.”
Japanese Lender, Managing Director
