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Kyle Harrison

Head of Sustainability Research

Bloomberg New Energy Finance

June 29, 2021
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Ep 33: Kyle Harrison - Head of Sustainability Research, BloombergNEF
00:00 / 01:04

Adam Zuckerman
I'm your host today for the Energy Impact Podcast. I'm Adam Zuckerman, and today we're joined by a fantastic guest, Kyle Harrison, who is the Head of Sustainability Research at Bloomberg New Energy Finance. Kyle, it's great to have you here.

Kyle Harrison
Yeah, Adam, thanks for having me.

Adam Zuckerman
Of course. Bloomberg LP is a privately held financial software data and media company. It's headquartered in midtown Manhattan in New York City. There are 170 odd locations, give or take, and almost 20,000 employees. Now, where does Bloomberg NEF sit in that organization?

Kyle Harrison
We sit within the editorial and research group. BNEF, specifically, for those of you listeners that aren't familiar, we are basically the market research arm of Bloomberg LP, and we're focused on the transition to the low carbon economy. Actually, in 2009, I believe it was, Bloomberg went ahead and acquired New Energy Finance at the time, thinking that there was going to be a global carbon market. That obviously never materialized. But it's actually funny to see that nowadays, carbon's back in the spotlight. But at the same time, BNEF has kind of expanded its remit so much to look at sustainability, transport, like electric vehicles, but also areas like digital industry and advanced materials.

Adam Zuckerman
Clean energy, advanced transport, digital industry, innovative materials, commodities. You've been at Bloomberg for seven plus years. Earlier this year, your team published a report, it's the 1H 2021 Corporate Energy Market Outlook. What is this report? And why is it important?

Kyle Harrison
Yeah, so we started noticing, especially in the United States a couple years ago, that utilities were no longer the biggest driver of clean energy build in the country. What you start to see was more and more private sector companies, where energy is not the core component of their business, going out and basically setting really ambitious sustainability goals. The most effective way for them to go ahead and offset a lot of those emissions is to buy clean energy. And basically, this power purchase agreement mechanism that utilities were using was kind of basically augmented to fit a corporate buyers load profile. Over the years, we started to see more and more corporations signing these contracts. Basically, it's expanded from just the Amazons and the Facebooks and the Googles of the world, to smaller brand names and companies that a lot of us have never even heard of. And that's also expanding beyond the United States, so it's not just companies signing these deals. The typical virtual PPA model, as we call it in the US, they're now signing innovative deals with utilities, installing on-site generation at a large scale, and also using hedging mechanisms in a much more innovative way. And that's happening globally, so not just in the US anymore.

Adam Zuckerman
What's the impetus for them to follow through with these programs of sustainability? Is it being mandated by governments? Is it just what they think the consumer wants and it makes their product and their brand more attractive? Why are companies doing this if it may possibly cost them more money?

Kyle Harrison
It's really a combination of all the above. If you look at a market, for example, if you look at companies in Europe, you now have the EU taxonomy that's being worked on. That's basically going to mandate that certain companies report on the risks and opportunities to their business as a result of climate change. Part of it is government driven, part of it is consumer driven. First of all, we would bake all of these things into a general term that we call transition risk. If you think about it from the standpoint of an oil company, if I'm an investor and I'm looking at an oil company that I own, and they're increasingly facing regulatory pressure to decarbonize, consumer demand for oil products is going down. And at the same time, just the general perception of how an oil company operates is changing. All those things are risks to the bottom line of a large oil company like that. It's a bunch of different pressures from all these different areas that are causing corporations to think a lot more about how they decarbonize. But again, thinking about it from a risk mitigation standpoint, but also from a opportunity creation standpoint as well. The strongest companies that have gone through this low carbon transition, what they're doing is they're creating new products, unlocking new customers, and new revenue streams, as they decarbonize. They're killing two birds with one stone. And that's kind of the the mindset that a lot more companies need to get into in this area.

Adam Zuckerman
So you say a lot more companies need to get into it. Before we focus on tha, can you define what clean energy is? Because there are several terms out there like clean coal, for example. Would that qualify for objectives? Or is there a different taxonomy that that is widely accepted?

Kyle Harrison
When we think of clean energy in terms of something like the corporate energy market outlook, what we generally think about is anything that's zero carbon. Something like small hydro, for example, nuclear, but more prominently, solar and wind and the occasional geothermal deal. I would say, if you look at all the corporate clean energy transactions around the world, 95% or even more are for solar and wind deals. That's just the most prominent way that the companies buy clean energy. You do see the occasional geothermal deal and some of these other zero carbon transactions, especially as the the Googles of the world and the Microsofts start to look at what they call 24/7 renewable energy, which is that they need something that generates power consistently throughout the day, which is something that you can't rely on with a solar or wind project.

Adam Zuckerman
Explain this. If it's not a baseload type energy, which is always on, it's intermittent, why does that matter for a company? How does that impact them?

Kyle Harrison
Right, if you think about it from the standpoint of- we can use the example of Google again, or Amazon. These are companies with large data centers, it's where the majority of their electricity consumption is coming from. And those data centers run at all times. Because we're using the internet, we're talking on Zoom right now, and when we're not talking on Zoom, there are going to be people in other parts of the world that are. They need that consistent, reliable electricity generation over the course of the day. A solar project only generates when the sun shines, a wind project only generates when the wind blows. As a result, you can't really rely on the physical electrons that are coming from a renewable energy project, as a corporation, in order to keep the lights on over the course of the day. Of course, there are technologies that you can use to make this better, something like a battery, for example. But energy storage is not yet at a stage where you can deploy it in a large enough scale to capture all the solar and wind that's needed to kind of spread it out over the course of the day. That's why a lot of corporations have broadened their definition of buying clean energy to all things zero carbon. When you start to look at this on an hourly basis, and actually start to match things on an hourly basis, you need things that are going to generate on the shoulder hours of the day or at nighttime when the sun's not shining, or when the wind's not blowing. That's where something like geothermal or nuclear can come into play.

Adam Zuckerman
Are companies focusing only on specific locations? Or are they trying to aggregate data across? If you're a multinational conglomerate, when the sun is no longer shining in Spain, if you have operations in Brazil, for example, maybe it is, can you offset one to the other? Or can you not offset across international boundaries?

Kyle Harrison
On paper, for any of the greenhouse gas reporting initiatives, for all the sustainability initiatives out there like the RE100, the way you just described is a valid method of meeting a sustainability goal. A lot of corporations, what they'll do is they will tally up their electricity consumption over the course of the year and then basically net that out against the renewable electricity production from their clean energy deals. And basically, if those net out over the course of the year, they're 100% renewable. Whatever that percentage is what they'll report. But increasingly, a lot of companies are starting to think that this is not a viable way of decarbonizing the grid. If all of my operations are located in New York, but I'm just adding more zero marginal cost wind to an already saturated, for example, Texas renewables market, am I really decarbonizing? Am I really combating climate change? Companies are starting to think about this with a bit more scrutiny. I mean, they're starting to look much more locally at buying clean energy where they have operations, but then again, taking it a step further and looking at it on an hourly basis and saying, Well, I can sign that wind deal, but that wind project in Texas might only generate at nighttime when the wind is stronger. What about in the middle of the day when most of my operations are running, this is not a viable means of meeting a clean energy goal. I need to look at an alternative or combine technologies to go ahead and meet that load profile.

Adam Zuckerman
And this is the type of information that goes into the report that you all have created. Can you give us a little bit of information about the report itself? How long is it? What does it focus on? Where are your data sources? How often is released? And most importantly, for our listeners around the world, where can people access it?

Kyle Harrison
It's a beast of a report, we put it out semi-annually, so typically around January and August every year we'll publish the latest iteration of the report. Basically, it has two kind of angles to it. There's a bottom-up kind of view of all the corporate clean energy procurement activity that has happened around the world. Most of that is happening through PPAs. That's the easiest mechanism that we can quantify. What I mean by PPA is that a corporation will lock into a long-term, fixed-price contract for clean energy, but under that deal, they're not actually getting physical ownership of the power. The power is just getting sold into the market where that project is located. Then, again, this absolves companies of all that intermittency risk that we were just talking about. As a result, it's the most popular way that companies are doing this. There is this whole other universe of potential contracting mechanisms that will also track in this market outlook. We'll look at innovative deals, where you'll work with a utility. We'll look at on-site generation, so just putting rooftop solar at your facilities. But then we'll also look at it from a policy and economics lens as well. Generally, the market outlook does a deep dive into 15 or 20 countries around the world, and basically says, there's this policy change that happened over the past couple of months. As a result of that, you might see more or less corporate clean energy procurement activity, here's why. And here's how it's going to impact the economics. That's really beneficial from a corporate buyer standpoint, because they can get an understanding of, we set a clean energy goal work, we go out and sign those deal, but it's also a gold mine of information for investors and developers that want to understand their customers better.

Adam Zuckerman
Now, let's talk about that for a bit. Despite the pandemic, the report says the global PPA market grew by 18% in 2020 and through 2020, corporations announced contracts to purchase 23.7 gigawatts of clean energy globally. Who are these individuals in companies that are managing that process? Are there specific energy buyers? Is it going to a sustainability group? And is there a community where these people get together and help each other understand this rapidly emerging marketplace?

Kyle Harrison
I should add, it's actually now up to 25 gigawatts. We've had some retroactive deals come in, so that growth figures is even higher, actually, which is just even more of a testament of how fast the space is growing, right? It varies between companies. A lot of companies, they now have sustainability teams that are built out and have the ability to go out and sign these clean energy deals. But even with the sustainability team, signing one of these contracts requires so much internal coordination between departments. Even if you have that central sustainability team, they're going ahead and they're working with accounting, because this is a separate line item on your balance sheet, and a lot of time it's a hedging agreement, which requires special types of accounting. You need to go ahead and work with your Treasury Department. You need to work with your facilities team to get an understanding of how much electricity are we actually consuming. Of course, then there's the real estate operations side of it as well. These deals can be quite complicated and even with that centralized group, they can drag in a lot of different people. That is, to your point, Adam, there is that benefit as well of leaning on the expertise of other companies that have done this before. There might be that company that has three people on their sustainability team. But they can lean on the expertise of, again, those big tech companies that have potentially 20 to 30 people specifically focused on buying clean energy. There has become quite a tight knit community for clean energy buying, especially in the US and Europe, where a lot of corporations meet a couple of times a year, typically in person. Hopefully we'll get back to that soon, of course. They'll basically share best practices, and they'll also work with developers and basically determine, what is the best project for my company? Of course, there's also a community that we're building within Bloomberg NEF, as well. We have a lot of clients on the utility side and the developer side, but of course also on the corporate sustainability side. We want to help match those companies, but also use our platforms and events, like our New York summit and our London summit, as venues for these different parties to go ahead and mingle and share best practices.

Adam Zuckerman
Let's talk about that then. As companies are evaluating potential PPAs, and we'll talk about all the different variations of it in a bit, what are some of the trends that you've seen in terms of duration, in terms of price? What are the factors that impact that? Is it a matter if it's baseload versus intermittent, so if somebody was to develop a nuclear facility versus wind, solar, or hydro,

Kyle Harrison
There are definitely a lot of individual nuances that go into deals. By and large, I would say that corporate PPAs, the beauty of a PPA and the reason why it was created in the first place is it allows the developer to secure financing for their project. Basically, a developer can say, I've got this company with a triple A credit rating, they're going to be paying me "X" amount for clean energy for the next 20 years, finance my project. It's a lot easier to go ahead and make that case. The challenge, though, is corporations increasingly want shorter and shorter term lengths. This has become the case as you have more risk averse buyers entering this market. As I mentioned, in the beginning, you now have this kind of second generation of smaller companies - many of whom we don't even know about, these are companies that some of them I've never heard of - that are signing these deals and they really don't have the flexibility to maybe get that first deal wrong. They need to make it count on the first try. As a result, they want to go ahead and basically cover their bases. One of the ways to do that is not locking into a 20, potentially 20-year, 30-year deal for an intermittent source of generation. Increasingly, we've seen the term length for clean energy contracts go down over time. But there's a middle ground, right, because the developer still needs a certain amount of years in order to secure that financing. Generally, a corporate PPA is in that 12 to 15-year range, now. If you go ahead and you work with a utility or retailer as a middleman, those deals can get even shorter, because the utility can actually take on all the risk from that longer term contract, asnd then offer the corporate customers a shorter term deal. That's one of the major factors. The other one is the settlement of the contract. If a corporation signs a PPA, typically, that deal is settled at the hub. What that means is that the power gets sold into the wholesale market and captures the hub price at that time. What that means is that the developer bears will be call basis risk. And that's the difference between selling into the node, which is basically a smaller kind of sub-segment of a wholesale power market, so they, instead of capturing that price, they're actually capturing the hub price. That difference between the two is actually a risk that the developer bears. That's another kind of key defining trait of a corporate deal. And then the last one, I would say, and I mentioned this kind of hedging and risk mitigation angle. There's also the challenge of what if power prices are really high in the middle of the day, but my wind project is not generating? That's a huge missed financial opportunity as a corporate customer. How can I go ahead and reconcile this - they refer to this risk as weather risk - so making sure that the generation profile of a clean energy project lines up with the load profile or the price profile in a wholesale market. Typically, under a corporate PPA, a lot of them now have kind of a third party add-on, where basically, you can go ahead and partner with a reinsurance provider, or a bank, and they'll take on that risk themselves off of the hands of the corporate buyer for an added dollar per megawatt hour fee, or something along those lines. So as a corporate customer, I might be paying a little bit more for my clean energy, but I get more certainty into it. And if I'm trying to convince my CFO to sign a long-term deal, it's a lot easier to do that if I can tell them exactly how much money they're going to be spending over that time period.

Adam Zuckerman
Let's walk through that process a little bit. In the course of different segments of that process, you'd say that the first stage is the match. A developer has to meet with a company that's interested. Then there's a negotiation, so they say, based on this, this is what we want to do - is it a letter of intent, or are PPAs actually signed with contingencies. After that is signed, the project becomes bankable. And once it's bankable, you can get financing, which means you go out to the market as the developer, you get financing, you then develop the project and hopefully everything goes to plan and you start delivering electrons to the grid or to the company that has engaged with you in the process. Now for that, let's take each individual step. How do companies find developer, and vice versa? Are there tender offers? Is there an open market? Because with so many different companies that are pursuing this, it seems like it's almost a wild west?

Kyle Harrison
Yeah, it definitely is. And honestly, the method that we currently use is not scalable. If you think about all the companies that have clean energy goals, and the amount of clean energy they'll need to buy, what we're doing today is not scalable. In our market outlook, we actually forecast clean electricity demand for the RE100 companies, it's those companies that have set a 100% clean energy goal.

Adam Zuckerman
You used that term twice, now. Just for the listener, so they understand, can you define RE100?

Kyle Harrison
Sure. It stands for Renewable Energy 100. Basically, when a company joins the RE100, which is a company-led initiative, they will basically say that at a certain time, at a certain year, at some point in the future, they will offset 100% of their electricity consumption with clean energy on an annual basis. The beauty of that is we get a contained group of companies. We know what their target years are, so if they disclose that type of information, we can do a pretty accurate exercise of how much more investment it's going to take for those companies to achieve their goals. And basically, in our RE100 forecast, which comes in the market outlook, we estimate that for these companies to achieve their goals, they'll need to purchase over 90 additional gigawatts of solar and wind by 2030. That is a lot of power, right? That is not a small amount. That's going to require billions and billions and billions of dollars of investment.

Adam Zuckerman
Let's talk about that process. If I am, I don't know, let's say Kyle Co, and I'm a developer, and you are a company on the RE100. What is that process for that initial match? Do they go to Bloomberg? Do they go to a broker? They just start emailing randomly? What does that process actually look like in literal sense?

Kyle Harrison
A lot of times they'll just put out an RFP and say, We need to sign a solar or wind deal. Sometimes the company knows where they want to sign that contract. Other times, it's more region agnostic, or technology agnostic. And then you have a bunch of companies that will go ahead and submit bids to that RFP saying, We'll offer you this project at this price in this market. And then basically, the next step is to kind of negotiate some of those nuances that we talked about before, like the term length and some of these other risk add-ons.

Adam Zuckerman
What about the duration? I imagine that it would take a different amount of time to build in different locations, for different technologies, for different sizes. Are companies only looking for, I need this to be able to deliver within nine months, or can a company say, I'm going to enter into a tender offer for something that won't deliver for five years from now?

Kyle Harrison
Yeah, I think most of the time, it's sooner rather than later. I have seen a few types of transactions where a company will basically announce a PPA - and granted, this is a little bit further on in the process - but they'll announce a PPA that won't effectively be active for several more years, well beyond the time that that project is commissioned. But those deals are kind of far and few between. Most of the time a company has an idea of we want this project to start generating sooner rather than later on. We need a project that basically is going to kind of commence construction as soon as possible. Generally, there is kind of that timeline in mind. A lot of those kind of nuances can be discussed later on, once you found that partner that you want to work with. But nonetheless, I mean, to my original point that that RFP process can be quite cumbersome. You do have these events, like I mentioned, where corporations will basically get in a room, and then they'll have kind of a revolving door of different developers coming in and pitching projects to them. All these things help the process out. I mean, they make it a bit easier for the corporate buyer. But at the rate that we're trying to get you to hit these goals, this is just not a scalable methodology. There are a couple of companies now that are that are going out there and they're trying to offer technological solutions to solving these challenges. One company that I mentioned is LevelTen Energy. What they've basically done is they've created an online marketplace where they're hoping to more dynamically match corporate buyers with developers that meet the criteria of that corporate buyer. And then you avoid a lot of the paperwork and the actual physical in-person interaction that's required to sign these deals.

Adam Zuckerman
Are those platforms anonymous? What if a developer doesn't want the corporation that they're talking to know who they are until they express interest? So is it a double match? Or how does that work?

Kyle Harrison
That's a really good question. I'm not actually sure. I would imagine, though, given some of the secrecy that goes into press releases in this area, and some of the other disclosure, I'm sure there is some type of anonymous filter that you can add to these transactions. That's a really good point, though. And if any of the folks at LevelTen are listening to this podcast, you've got a new idea there.

Adam Zuckerman
There you go.

Kyle Harrison
The other- kind of one last thing I want to mention on the contracting side. A couple years ago, in the fall of 2019, Google announced that it had signed roughly around two gigawatts of solar and wind deals all around the world. And they used kind of this new innovative contracting process to do that, where they basically went out and they specified all the parameters that they wanted in a clean energy deal in the markets that they wanted. Then there was basically a timed bidding process, where any developer that was interested had to go ahead and bid as low as they possibly could to make the economics work over the period of about an hour. And then the winner who could bid thee offer at he lowest price was the one who got to have that basically in-person discussion with Google, then they move forward with the contract.

Adam Zuckerman
That's fascinating. Unpack this for me. Google goes online, it says thes are the specs. Kyle Co competes - congratulations, you're CEO again - and you have the most attractive package possible. Google says, Come on in let's talk. You haven't yet necessarily secured the land rights, gone through environmental permitting. How can you agree or say this is what we want to do before you've done that process? How does that operate?

Kyle Harrison
There are definitely some kind of early stage costs, operational costs that developers are willing to bear before they go ahead and secure that type of off-take. A lot of times, you can go ahead and purchase the land, get the rights to develop it, you can get the transmission permitting and all that stuff done first and foremost. And that's not too big of a cost on your balance sheet where, basically, if you don't find a corporate off-taker for a few months, you're screwed, right? It gives you that flexibility, where you've kind of done the groundwork, you can go to a corporate customer and say, Look, we've got that land purchased, we know exactly what we're going to do. We've got the project named already, maybe you can change the name if you want to Kyle PV Plant, but we've got all that figured out. Let's talk a deal. It's kind of that next step. And developers typically, that's kind of a little bit further on in the development pipeline, so they've taken all that stuff into account. I would say though, for a big enough corporation - for those, again, those triple A companies that a developer will go completely out of their way to do business with - some of that stuff might be done first and foremost, that contract negotiation, basically, because- I'll give you an example. A couple years ago, Facebook, they were building a new data center. And they were determining whether to build that data center in New Mexico, or I believe Wyoming. Basically, you had two utilities, PNM Resources in New Mexico, and Black Hills Corporation in Wyoming, basically bidding for Facebook's business. And the big factor there was where can Facebook buy more clean energy at a more cost effective and a large scale?

Adam Zuckerman
Let's talk about that, then. Price is clearly something that is extremely important on both sides of the equation. It is how profitable the generator will be. It is how cost-effective the buyer will be. Is pricing information with PPAs typically available? Is that something that you guys are tracking or other entities are tracking?

Kyle Harrison
We do have pricing. The short answer is it's not readily available at all. It's a very opaque market. And that's a huge challenge, right, that's a big issue with scaling up this market to the levels that we need. I do know that companies like LevelTen are trying to bring a little bit more transparency there. But most of the time, right now, the best way to figure out prices is to do developer surveys. For example, in Europe, we put out a semi-annual corporate PPA pricing survey, where we'll go ahead and collect data from dozens of developers across Europe, then we'll basically get a range depending on a number of different parameters on what is a equitable PPA rate for a project. In the United States- go on, sorry.

Adam Zuckerman
No, please finish.

Kyle Harrison
In the United States, it's a little bit harder to come by. If a company has a FERC registered subsidiary - so a subsidiary that is licensed to basically buy and sell power in wholesale markets, as part of the Federal Energy Regulatory Commission - they need to go ahead and report those transactions to FERC. FERC doesn't make your lives, it doesn't make our lives any easier. These usually come in really complicated PDFs that we need to download and scrape and aggregate and all that, but you can effectively back out a price for a very tiny amount of entities that have those subsidiaries in the corporate world that are buying clean energy.

Adam Zuckerman
Okay. Have you seen any correlation between sustainability pledges and PPAs? Are sustainability pledges indicators of a desire to contract? Or is there really a wide range of companies where some people were doing it without seeking publicity? And others say, No, we want to issue so everybody knows what we're doing?

Kyle Harrison
Yeah, I would say the best indicator of future demand in this market, and the reason why we're so bullish on it long term, is because of all the corporate sustainability commitments that are out there. And it goes beyond just the RE100. The sustainability initiative that has the most momentum is the science-based targets initiative. As part of this, a company will pledge to reduce their emissions in line with a well below two degrees scenario, which is outlined in the Paris Agreement. Buying clean energy is very much a viable strategy to achieving a science-based target. If you expand that out even further, you also have net-zero goals. Basically, taking that science-based target a step further in saying, In 2040, we will effectively fully reduce or offset all of our CO2 emissions around the world. And net-zero, I'm sure - this is for all the people listening to this - if you're in the sustainability sector, net-zero is a word that you hear 1000 times a day now. Every company is setting one of these goals. Then I'll just broaden it out one step further and look at the supply chain as well. A lot of these companies, a majority of their emissions are classified as Scope 3. What that means is that they come indirectly, upstream from suppliers, or downstream from the use of their products. One of the most effective ways to reduce those emissions is to get your suppliers to buy clean energy and decarbonize. If you look at a company like Apple, they've said, We want to get all of our suppliers to be 100% renewable. The magnitude of the getting all these, the Foxconn, and the Pegatron, and the Taiwan semiconductors of the world, getting them 100% renewable, that impact is so much greater than anything that Apple can do on its own. When you kind of add in all these different tiers, it really does pave a very bullish outlook for clean energy procurement and it is the strongest indicator that deals in this area are not going to dry up anytime soon.

Adam Zuckerman
Okay, let's talk about frameworks in which the corporate procurement operations take place in one second. Before we go there, let's stay on PPAs. Can you define and explain what a virtual PPA is and what an aggregated PPA is?

Kyle Harrison
Sure. Again, if you think about a corporation that has a facility that needs 24/7 renewable power, you can't rely on that intermittent source of generation to go ahead and meet that goal. The way a virtual power purchase agreement works is that, instead of taking physical ownership of that power that you buy as a corporation, that power is instead sold directly into the wholesale market and it captures the spot price at that time. The way these deals work is that they're effectively financial or synthetic hedges, an additional line item on your balance sheet, where at the end of every month, the developer and the corporation and a broker - if there's a broker involved - will get together and say, Here's how much this project made from the PPA. You basically take the amount of generation that that project had, and you multiply it by that fixed PPA price that a corporation has agreed to pay a developer for that generation. That's the revenue that that project made under a PPA. Separately, you look at the amount of revenue that that project made when it sold into the wholesale market. So you take that same amount of generation, but instead of multiplying it by a fixed PPA price, you multiply it by the spot price that fluctuates over time that that project captures. If that revenue from selling into the wholesale market is higher than the PPA revenue, the developer actually needs to go ahead and compensate the corporate customer the spread between those two prices. Conversely, if the revenue from that project is lower, selling into the wholesale market and through a PPA, it's the corporation's responsibility to make that contract whole, because they've signed an agreement and they said, We will pay you up to $35 a megawatt hour, let's say, for that clean power and the project was only earning say, $30 on the wholesale market. It's our responsibility to pay that extra $5 between those two, and kind of reconcile that spread and make the contract whole.

Adam Zuckerman
Is that a way for corporations to avoid wheeling fees?

Kyle Harrison
Part of it is certainly around wheeling fees, right, because they're not taking physical ownership of the power. It's just going into the wholesale market. But really, the most important thing here is that, as a customer, I can continue to buy electricity - firm, reliable electricity - from my utility, business as usual, and then I can still go ahead and meet a 100% clean energy goal with this financial contract completely on the side. There are certainly drawbacks to this. The biggest one is this phrase additionality. As a corporate customer, am I really driving new added decarbonization that wouldn't have happened by signing one of these deals? Depending on where you sign a contract, and how much you pay and all these other factors, a lot of people would argue that a PPA is not a viable, long-term sustainable strategy to meeting, achieving a net-zero world or a Paris-aligned world. But for right now, it's by far the most prominent mechanism that a company can use, because again, it absolves them of all that physical and operational risk that they would deal with from an intermittent source of generation.

Adam Zuckerman
Let's talk about aggregated PPAs.

Kyle Harrison
That's another- and I think this goes back to your question, Adam, about smaller customers and smaller teams that don't have that expertise on buying clean energy. How can they rely on a more experienced company? The aggregated model, the way it works is typically, a lot of companies don't have the electricity demand to serve as the sole off-taker on a large solar wind project. If I'm a developer, again, we can go back to that scenario of going to the bank, and asking for a loan, if I can only tell the bank that I've got 20% of my project's output contracted, the bank's not going to, they're not going to write me a check. I need to have 70%, 80%, 90%, 100% of that project's output contracted under a PPA, or some other type of mechanism. What that means is that it leaves kind of a lot of smaller corporate buyers in the dark, where they can't sign one of those contracts, because they can't off-take all that power. No one's gonna go ahead and buy significantly more power than they need, unless they have some other additional type of strategy they're trying to achieve. The way an aggregated deal works is you'll have a bunch of buyers with smaller loads, or a couple of smaller load buyers, partnered with a larger corporate customer - which we will refer to as an anchor tenant, similar to what you would see in real estate, for example - and they will approach a developer and say, Individually, we only have this amount of electricity demand, but combined, we can contract for the output of 90% of this project. And as a result, it's a win-win for the developer, and they can go ahead and sign a deal with this aggregated party.

Adam Zuckerman
So there can be aggregated syndicates of buyers, and then on the flip-side, if one large corporation - Google Data Center Netherlands, for example - needed more energy than a single output could supply, they can engage with multiple PPAs from multiple different developers.

Kyle Harrison
Exactly, exactly. And typically, when we think of aggregation in the space, it's mostly from the buyer side. It's a buyer-led initiative. But you're absolutely right that a large corporation can partner with different developers. There are strings attached that. It means more contracts to negotiate. It means different risk profiles for different projects. There's the whole credit element to it as well. But if you kind of think about it from the flip-side, if I may, if I'm a corporate buyer and I'm one of those smaller off-takers and I don't understand how this works from an accounting standpoint, I have a lower credit score, I'm not comfortable signing one of these large deals myself. Going in on a contract with a bunch of other experienced buyers is a phenomenal way to kind of leverage their expertise, and kind of lean on them at the times when you need them.

Adam Zuckerman
There are so many different pieces that come into play here. With aggregated buyers, you have multiple entities coming together to say, Listen, we want to band together to buy one larger, bulk nut, so to speak, from a developer. On the other hand, the developer is saying, I want to lock in as much of my generation capacity as possible for as long as possible to make this project bankable. What if they can get 70% of their capacity generated contracted for, but it's only on a 10-year term, when the lifetime of their facility is expected to be 20, 30, 40, 50 years? Can you still bank that project? Or do you have to have a PPA for now and then have a lead on PPAs later?

Kyle Harrison
Yeah, developers will look at it from a few different angles. One of the ways to do that is say, Okay, maybe 10 years from now I'll lock into another contract for the second half of this project's lifetime. However, there are a lot of companies that are totally comfortable with what we call "going merchant," where they'll just sell their power into the wholesale market and capture that revenue. And of course, there's a huge risk element to this. If you look at a scenario, like what we've seen in Texas in the years past where power prices reach negative, that's a nightmare for a developer that has a basically unlevered merchant project. But on the other end of the spectrum, you have times like right now where it's extremely hot in Texas. Everyone's blaring their air conditioners and demand for natural gas and power is through the roof, and power prices go up. That's a huge opportunity on the other hand, for a developer with a merchant project. A lot of companies will go merchant. You have an increasing number of companies that will sign hedging agreements, developers. So instead of signing a PPA with a corporate off-taker, I can go ahead and sign a proxy revenue swap, or a proxy generation PPA, or some other type of very complicated insurance product, with a reinsurance company or bank. And that could effectively serve as a proxy for a PPA and replace that PPA. Then, of course, the most traditional option - and I would say it's the, the gold standard, if I'm a developer I'm bringing a project to market - is I can just sign a PPA with a utility or retailer. That's always the most desirable, because they'll sign a 25 or 30 year PPA. They're willing to settle that deal at a node rather than at a hub and they'll take on all the intermittency and operational risk that comes with that project.

Adam Zuckerman
Okay. Let's shift over to the procurement process for the individual companies. There are on-site generation, direct investment, corporate PPA, green tariffs. This is Table Five in the report for people that have it in front of you and want to flip over. Why is this relevant? Why is this important?

Kyle Harrison
It really depends on- there are so many factors that a company needs to think about when signing a clean energy deal. For example, if I'm a, if I'm one of those smaller companies that was potentially going to look at an aggregated deal, but I don't have the electricity demand to do that, maybe I can meet all of my electricity demand with on-site generation. And of course, rooftop solar is something that's been around for decades now and, depending on where you're located - if there's a net metering policy or some other scheme where I can sell excess power back to my utility and get a credit on my bill, if those types of things exist - you can actually save a ton of money on these deals and you can actually undercut your retail bill by a significant amount. Companies are constantly evaluating the different types of mechanisms that exist out there to buy clean energy. There's also, again, that phrase additionality that I mentioned before. How can I incentivize new added decarbonisation? That is always in the back of the minds of large corporate buyers. If I were to go ahead and rank all these mechanisms by some of these factors, each of them have their own strengths and weaknesses. That's why there's kind of such an elaborate taxonomy or table of different options. On-site generation, you know it's additional. You're either owning or leasing that system. It's going right on your roof, you're physically consuming the power, and you can save a lot of money, but the challenge has always been scale with that. For all these large corporations that joined the RE100, or set a science-based target, no amount of on-site generation is ever going to allow you to meet that goal. It's just too small. That's always been the setback with on-site renewables. For scale, virtual PPAs are always the best way to do it, because you have those examples of Google, or even Total a couple of months ago, where they can buy several gigawatts of solar and wind in one fell swoop. Of course, it takes months and potentially years to negotiate, but you can buy a significant amount of power that you can never do with on-site generation. When it comes to scale and meeting a large-scale target that potentially is imminent, virtual PPAs are the best way to do that.

Adam Zuckerman
Let's talk about that then. Companies like Google, large data centers, others may be picking up PPAs long term in the gigawatt scale. If Kyle Co wanted to place 50 megawatts or 100 megawatts for a 10-year PPA, how fast could you offload that?

Kyle Harrison
Yeah, it really depends. I mean, right now, it's absolutely a seller's market. You have so many buyers that are out there that want to go ahead and sign deals. If I'm a developer and I'm looking to contract for my project, chances are I can find a lot of willing takers to go ahead and sign that deal, both in the utility space, but also in the corporate space as well.

Adam Zuckerman
Okay. And lastly, we'll talk about the frameworks which we mentioned earlier. There's a table - I believe it's number four for those that have the report in front of you - it talks about retail choice, RECs available, net metering, on-site PPA, off-site, PPA. Can you explain a little bit with the retail choice and what RECs are and what net metering is?

Kyle Harrison
Sure, yeah. If you, again, kind of look at the different traits that go into clean energy buying, each of those traits has their own benefits. If you think about something like certificates, every unit of clean energy generation that is out there, it becomes very difficult to kind of physically account for all those electrons. That's why a certificate system around the world has been created to track each megawatt-hour of clean energy generation. As a developer from Kyle Co, again - I keep forgetting if Kyle Co is a corporate buyer or developer-

Adam Zuckerman
You're a developer at Kyle Co.

Adam Zuckerman
The final question for the day, Kyle, you've been absolutely fantastic. Thank you for the time. What's your outlook on the clean energy transition?

Kyle Harrison
Okay, gotcha. I feel like we keep switching here. Let's say Kyle Co, in this case, is a developer. If I go ahead and generate power for my project, that power is going to come bundled with a certificate, meaning that certificate is going to come attached to that megawatt-hour of generation. However, over time, if that power gets sold to, for example, the wholesale market or it gets sold to a corporate customer, you can unbundle the certificate from the power. And as a corporate customer, I can go ahead and strictly buy unbundled certificates from a project to meet a sustainability goal. This has historically been the most popular way that a company can go ahead and achieve a clean energy goal. There's absolutely no risk to it. It is a sunk cost, but it's a fairly cheap one. If I, for example, buy certificates in Texas or RECs, those can be 50 cents a megawatt-hour. They can be very, very affordable. It's a very easy way to buy or offset a lot of my electricity demand at a large scale. But the challenge is that I can buy a certificate that was issued 10 years ago. There's absolutely no additionality to it. No corporation can, with a straight face, buy certificates and say, I'm incentivizing new clean energy builds that wouldn't have otherwise occurred. That's always been the eternal setback of certificates. But nonetheless, for companies that need to meet an interim goal, or they want to kind of top off - maybe their PPAs generated up to 90% of their electricity consumption when it was supposed to be 100%, maybe they'll top off that extra 10% with certificates. It's still very popular in that regard. Some of the other mechanisms that you mentioned would be something like retail choice. This is kind of an entirely different world that I've hinted at over the course of this discussion, but never really dove into. A lot of times you can work with a retailer or utility who can offer you some type of special retail agreement where they'll guarantee that a certain percentage of it is renewable. They'll say that 40% of our portfolio is from solar and wind projects, but we'll go ahead and buy from the wholesale market an additional 20%, to ensure you that, at all times, you're 60% renewable. That might have an additional premium on top of it. In certain US states, I don't have the choice to do that. If I'm located in a regulated market, I have to buy electricity from the utility that exists in that market. In deregulated states, though, where there's retail choice, that gives me the option to evaluate all the potential retailers and utilities that have these types of programs, and figure out which is the most cost effective and which is the best for me. That's a huge benefit, right? A lot of markets around the world have been fairly stagnant when it comes to clean energy buying. One of the biggest factors there is they don't have retail choice, but then the other one is that they don't have a certificate tracking mechanism. Unless you have those two factors, really it's not a supportive environment for a corporation to go ahead and meet a clean energy goal.

Kyle Harrison
I said before, we're bullish. We are very bullish as a company, not just the sustainability world and corporate procurement. BNEF, every year we do our New Energy Outlook. And for the BNEF subscribers that are listening to this, I think our newest, our latest New Energy Outlook is coming out in a few weeks, which is exciting. But in our previous one, we estimated that by 2050, based purely on economics, over 50% of the global electricity mix would come from solar or wind projects. If you think about how many trillions of dollars of investment that's going to take to decarbonize the power system, it's impossible to not have a bullish outlook there. On the corporate standpoint, going back to all the sustainability commitments that companies are making, all of that is going to create significant amount of demand for clean energy. We're very bullish there. Right now, we're pacing well ahead in corporate PPA volumes where we are this year, ahead of where we were at the same point last year. So we are anticipating another record year as well there.

Adam Zuckerman
Alright, Kyle Harrison, Head of Sustainability Research at Bloomberg New Energy Finance. This is the Energy Impact Podcast. We appreciate you taking the time to join us today.

Kyle Harrison
Thanks, Adam.

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