Clean Energy Buyers Provide Price Certainty Needed for Renewable Energy Investments
in accelerating clean energy development. Photo from Getty Images
The transition to a decarbonized power system requires significant investments in
clean energy generation, transmission, and storage. However, securing that investment
capital is a key challenge.
For example, many power systems models focus solely on costs and overlook a critical
factor: risk exposure to investors. If unaccounted for, this could ultimately lead
to an overestimate of the actual deployment of renewable energy needed in our power
system.
Corporate investors are increasingly purchasing renewable electricity in the “voluntary
market,” providing the price stability needed for initial project investments. Image by NREL
Alongside compliance buyers such as utilities, corporate investors—known as “offtakers”—are
increasingly buying the electricity from renewables directly as part of a “voluntary
market,” offering the type of price certainty to renewables projects that is needed
for their initial capital investment.
This rapidly growing role of corporates in renewables procurement brings new research questions, including how voluntary market activity drives renewables deployment and how a diversity
of voluntary market approaches (such as hourly matching and emissions matching) impacts
power systems operations.
To address these research gaps, the National Renewable Energy Laboratory (NREL) is
partnering with Meta, one of the largest corporate buyers of renewable energy globally. Together, NREL and Meta are collaborating on a series of reports that will allow
greater insight into corporate renewables procurement and the enabling conditions
for clean energy investment.
In a first research project, NREL—in collaboration with research consultancy Aquilo
Energy GmbH—will investigate the common traits of corporate buyers and their future
role in renewables procurement.
“We hope to inform corporate buyers and regulators about the characteristics of renewables
procurement and its impacts in today’s power markets,” research partner Philipp Beiter
from Aquilo Energy GmbH said. “As corporations’ roles as offtakers grows, a greater
body of research can explore their exact role in mitigating power price risks and
the interaction of corporations’ long-term contracts with other power market features.”
Why Corporate Offtake Matters
NREL has led research on U.S. corporate procurement with its annually published market
report Status and Trends in the U.S. Voluntary Green Power Market. Additionally, a 2023 perspectives article in Nature Energy showed that long-term contracts (so called “contracts for difference”) established
between power producers and offtakers are necessary for renewables financing because
they offer a level of price stability that is largely absent in wholesale electricity
markets. Rather than constituting a subsidy, these long-term contracts—whether offered
by utilities, governments, or corporations—serve the purpose of risk management and
are becoming lasting and fundamental market features.
The 2023 perspectives article was meant to stimulate a timely discussion about the
impact of greater long-term contracts diffusion on electricity market mechanisms and
risk allocation, which this research effort between Meta and NREL builds upon.
“De-risking renewable generation revenue is critical for securing financing for the
construction of renewable projects,” said Jenny Heeter, NREL’s principal investigator
on the project. “We hope to explore how corporations manage these risks and whether
that could limit future renewable energy deployment.”
Through this work, the NREL researchers aim to explain that even when renewable energy
costs are competitive with fossil fuels, long-term offtake agreements are typically
still needed for their deployment. Recognizing this dynamic is crucial for policy
and power systems planning, which often overstates renewable energy demand and underappreciates
the importance of corporate procurement in driving renewable energy deployment.
This research is funded by Meta Inc., one of the world’s largest renewable energy
buyers. Since 2020, Meta has matched 100% of its electricity use with renewable energy.
Read more about NREL’s energy analysis research, and subscribe to NREL’s energy analysis emails to receive updates.
