March 11, 2018
A Virtual Power Purchase Agreement (VPPA) may be one option your corporate energy team is considering to help reach your organization’s ambitious sustainability goals. It may be tempting to simply chose the contract with the lowest price. However, adopting this strategy may cause a host of problems (including increased costs) down the road.
So, whether you are researching options for renewable energy sources, or are already down the path of reviewing contracts from alternative energy companies, your company must consider a multi-faceted approach that details everything from technology to community impact. This approach improves your chances of a successful project and helps grow buy-in for your company’s sustainable energy plan.
We’ve put together six key tips to help your company evaluate a VPPA contract:
#1 – Look for Demonstrated Experience – As with most industries, experience absolutely matters. Select an experienced developer who has a broad portfolio of renewable energy projects in various sizes. Your organization would not choose a home-builder to build your brand new office skyscraper. Therefore, look for a developer who has completed similar sized projects and has worked with companies similar to your size or industry.
#2 – Consider the Host Community – A successful and sustainable energy project not only benefits your business by helping your company attain sustainability goals, but it also has far reaching implications for the project’s host community. Renewable energy projects can invigorate the local economy via additional tax revenue, job creation, increased local spending and charitable giving. Your assessment of projects should include an evaluation of the developer’s relationships with community members and landowners to ensure smooth public relations throughout the project’s life.
– Community – A good developer-to-community relationship is one of trust. Does the developer have an office in the host community? Has the developer provided an easy way for community members to contact them? Are they open and transparent, and do they truly listen to the needs of the community? Ensure that your developer is investing in their communities as well. What types of charitable activities are they involved within the host community? Have they sponsored or been actively involved with any local organizations, businesses or events?
– Landowners – An experienced developer will work with the landowners’ unique needs and concerns while respecting their property. Are the landowners willing to speak on the behalf of the developer? Does the developer have references from past landowners? How do landowners and community members describe the developer
#3 – Find the Best Location – Before determining which project location is the right fit, your company needs to understand your renewable energy project goals and how location influences them. Here are a few points to consider when choosing your project’s location:
– Price – Is it important to your company that your project is located in the same geographical region in which you consume energy? Or are you willing to consider other locations? Energy prices vary across the United States, and depending upon where your company consumes electricity, projects in your geographical region may be more expensive than projects located elsewhere. The best resource locations, or the least expensive locations, may not always align with your company’s geographical region.
– Community Acceptance – Some areas of the country are less accepting of wind and solar power than others. Is the project’s host community accepting of the project? Has your developer created similar projects in these locations? Your developer should be well-liked and respected in the host communities and be familiar with the geographic region.
– Developer Experience – An experienced developer can find creative solutions and overcome hurdles in host communities. Know what hurdles your developer has overcome in the past with projects of similar size and scope. How many projects has your developer successfully brought forth in your preferred Regional Transmission Organization (RTO)/Independent System Operator (ISO) area? Do they have working relationships with the local and state permitting and regulatory bodies to ensure a smooth development process?
#4 – Financeability – From the developer’s experience to permit achievement, the financeability of a project can be affected in a variety of ways. Financial institutions look at a project’s viability, as well as the developer’s track record. Understanding how finance partners evaluate risk will help you have a better understanding of the key considerations when determining if a project is financeable.
– Permitting – Failure to understand and comply with permitting requirements can result in violations or delays that can cost your company valuable time and money. Ask your developer what experience they have at the local, state, and federal permitting levels. If your developer has experience obtaining the similar permits, this can improve the chances of a getting a project financed, even if the project doesn’t yet have all the permits in place.
– Interconnection Agreements – Does the project have an executed interconnection agreement (IA) in place? If not, what is the path to obtaining one? An experienced developer will know the estimated timeline for obtaining an IA and has experience obtaining IA’s for similar projects.
#5 – Technology – Securing the proper technology for a new project is imperative, and developers must ensure that projects are completed on-time and on-budget. Is your project utilizing technology that is the first of its kind or is it a proven technology? Does your developer have experience using the type of equipment that is being used for your project? Is the manufacturer reputable? Is the technology Tier 1?
#6 – Evaluate Contract Risk – With any project comes risk – it’s unavoidable. However, the aspects above can mitigate that risk. Consider the consequences and probability of each risk. Is your developer experienced and able to understand your business needs? Can your organization risk a project that is not well received by the community? What is the developer’s plan to obtain the required permits and interconnection agreements? Is the technology proven? Take the time to evaluate these risks to determine if a contract will suit your needs.
Evaluating a VPPA contract takes a lot of time and detective work. These six key areas will empower your organization’s sustainable energy team to make an informed and confident decision. By adopting a multi-faceted approach to evaluating a renewable energy contract, you save money in the long run and are able to launch a snag-free project that enhances your company’s bottom line, green energy plans, and public relations efforts.
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