This week, The Interchange was recorded at General Motors' world headquarters, where some of the top buyers and sellers of renewables in corporate America were assembled. We talked about one of the most promising (and complicated) sectors: corporate renewables procurement.
We were joined by two experts: Hervé Touati, the managing director of the Rocky Mountain Institute, who also co-runs the Business Renewables Center; and Rob Threlkeld, the general manager of renewable energy at General Motors
Stephen Lacey: Before we hear from these two gentlemen, I want to turn it over to Shayle who maybe can give an outsider perspective of why we at GTM think this is such an interesting space, and how you may be approaching it from a data-gathering and market-intelligence perspective.
Shayle Kann: Sure. What we're talking about here is corporate procurement of renewable energy, largely offsite procurement. It's a relatively new sector from the perspective of renewable energy more broadly in the U.S. that's been around for a few years, and it's gaining a lot of steam. We think it's very important, even in the broader context of renewable energy generally, for a few reasons.
One is that if you step back and look at what's happening with utility-scale renewables in the U.S. right now, we're in a really weird spot, which is that we are in this construction boom the likes of which we've never seen before. There was a huge buildup of new procurement largely from utilities in 2014, but in particular in 2015, under the expectation that the Investment Tax Credit and the Production Tax Credit would expire. We built up this big pipeline, which we are now constructing. We'll see more solar and more wind constructed in the U.S. and in aggregate this year than we've ever seen in the past. We may also see almost just as much installed next year for the same reason. We're just working through this big pipeline.
But while the construction is way up, procurement is actually down. Utilities have signed fewer new power-purchase agreements for solar and wind this year than they have in previous years, and that's for a couple of reasons. Part of it is just this hangover from all the buildup they were doing, all these new contracts they were signing in previous years. Part of it is also that in some of the major markets, California in particular, utilities don't really have a regulatory need to procure a whole lot more in the near term. They've basically met their RPS target for the near, and in some cases, medium term.
Utility procurement is in a bit of a trough right now. It'll come out of it, probably, because the economics are good, but right now if you're a renewable energy developer, you're looking for new sources, new homes for your projects. Corporate procurement is the top of every list because the total addressable market, the potential is obviously enormous, almost limitless by today's standards, and we're just starting to see it really pick up steam, thanks in no small part to early adopters like GM and facilitators like RMI. It's really important in that context.
I would also say the other thing that I think about when I think about corporate procurement is, I put it in the same league as this more general conversation being had in electricity in the U.S. around customer choice. A lot of the time when we talk about customer choice, mostly we're talking about residential. There're all these battles in the residential market between solar advocates and utilities as it pertains to things like rate structures and net energy metering, where customers are saying, "Well, we want more choice. We want to be able to put solar on our roof or a battery in our basement." There's sort of a push and pull there about how much customer choice we should allow, and how we should enable the customer to interact with the grid as a result.
I would put corporate procurement to some extent in a similar category, because I think simultaneously with all these residential customers saying that they've got something new going on and they're interested in a new type of energy landscape, you have large customers saying the same thing via procurement of renewable energy. Also via, in some cases, more drastic measures like defecting from their regulated utility, which we've started to see happen in places like Nevada and which is a big trend. Even when customers are doing it and it's not defecting from the utility, they're also sending a signal to regulators and to their utilities, saying, "Look, you should be accommodating my desire to have my energy look in a particular way," in this case, renewable. Customers have a big role to play there as well, as being an important component of the overall renewable energy market in the U.S.
Stephen Lacey: Yeah. There's a lot to unpack there. One is the impact of the ITC and the PTC, and worries about expiration and how that elevated the project pipeline last year, and what that means for projects this year. Another is customer motivations, how much of this has to do with sustainability goals and how much of it has to do with just straight-up economics and customer choice.
Hervé, help us all understand why companies are investing in these projects. You put up a slide yesterday that showed the number of 100% renewable energy commitments, of which GM is a member. [...] The number of commitments has skyrocketed over the last few years. That of course is playing an important role, but Shayle mentioned this customer choice element that really goes outside of sustainability in general. What's the breakdown in terms of customer motivations?
Hervé Touati: I think sustainability is, of course, a major factor. I think WWF two years ago ran a poll on the Fortune 500, and from that, 45% of large corporations had sustainability targets. If you ask why, there are essentially three reasons. The first is their customers want that; the second is that their employees want that; and third is that if you look at Wall Street, more and more investors are looking for companies that care about sustainability. Some investors do it because they want to do good for the planet, they would say, but many investors do it simply because they understand the sustainable business is in the long run going to be more profitable.
Stephen Lacey: We heard some case studies from companies that early on were invested heavily in energy efficiency and eventually renewable energy, and in the 2006-2011 time frame, people were very skeptical of the value of these projects. I mean, you had a lot of internal champions, but today I think we take for granted that there's a solid business case. When you look at five years ago, it wasn't very clear that there was a solid business case. Would you say that that's correct for many companies?
Hervé Touati: I think once you get sustainability targets, the next step is you need to execute on all targets. It's clear for most, if not all, businesses that the first thing to do is energy efficiency, because that is the most cost-effective way of going toward executing on your targets. You cannot run GM with zero electricity consumption, so once you have done energy efficiency, and of course you would continue with that, the next step typically businesses follow is to do onsite generation. Again, it is limited in volume. In the data center, you can cover the roof of a data center with solar PV panels, maybe you cover 5% of the electricity needs. If you want to reach your...100% renewable target, the only option you have today is actually to source electricity from offsite projects.
Now, back to your question. Are those projects profitable? The way most corporations look at it is to say, "Well, I don't want to have an exposure on gas prices for my business." I am not a business focused on commodity pricing. I'm trying to sell cars, I use [this particular] type of equipment. It's a better approach for the business to lock in at least part of my electricity prices over the long run. It provides stability, it reduce my needs of equity in the business, it reduce my cost of capital, so it is a good way to move forward.
Now, of course, when you sign a contract and you fix prices for 15 years, it may well be that during that period of time, some years, the fixed price will be lower or higher than prevailing stock market prices. In a long time period, like 15 years, some years you will earn money, some years you will lose money, but that's normal, and most businesses understand that.
Stephen Lacey: I'm curious, Rob. You mentioned when we were talking earlier that you've been...in charge of renewable energy for GM for since 2011. Is that right?
Rob Threlkeld: Yes.
Shayle Kann: And you've been working on energy projects for 17 years?
Rob Threlkeld: Yeah, I've been at GM going on 17 years, all on the energy side of the business, whether it's been procuring, doing energy efficiency projects, or building power plants for our manufacturing sites. In 2011 they formed a sustainability team to really focus on a lot of our sustainability efforts, landfill-free activities, wildlife habitat certification and renewable energy. My role at that point became a global manager of renewable energy at GM, which basically took what I was doing 10% of the time as my full-time job.
I'm looking at what we'd done, and a lot of success in our areas of landfill gas. Back when we signed some of these contracts in the mid-'90s for landfill gas, they were very similar to the deals you're doing for PPAs offsite. These were landfill gas coming offsite to onsite. We're burning it in our boilers. It was taking a lot of that history, but also educating our internal leadership. They saw these long-term contracts -- what do the natural gas prices do, and how are we saving on the landfill gas contracts over this lengthy term? It was amazing because you could see dramatic fluctuations in our savings every year, but we did see savings. There were other times that we actually did pay a little bit more for the landfill gas because of the way the pricing structure in natural gas was, but I think it's building on that history.
Getting into some of our initial solar contracts we did in 2005 and 2006, some of these onsite PPAs. As Hervé and as you've noted, Shayle, that we're not going to get there with onsite projects. Even if we plastered an entire assembly plant with 20 megawatts, which you could with solar, it's not going to get us there. It was really taking a lot of what we'd done internally with landfill gas and solar and taking it to the next level. As I looked at my new role really focusing on that [in 2011], [the solution] was going offsite.
As Hervé noted too, it was September 2013 September when [WWF] got some of the corporations that were part of looking at how do we scale this up, that we came up with the buyer's principles that led to the development of the Business Renewables Center, of which we were founding members, and just continuing that trajectory of moving renewables. At the same time, the costs have come down. A lot of the initial projects were done in states that had an appetite, tax incentives and support for renewables, but the costs were coming down. We did our first project at our site in California at Rancho Cucamonga in 2005. The price for solar was over $9 a watt when we did that project. If you think about that, that was just about 10 years ago.
Stephen Lacey: What are costs now?
Shayle Kann: Dollar a watt, approaching a dollar a watt.
Rob Threlkeld: There you have it. Tenfold decrease in costs. Then [we really started to] look internally. Renewables are becoming a way to really provide price stability in our contracts of our electricity pricing going forward.
Stephen Lacey: OK. You've got a 50-megawatt deal that...you announced last week. It is part of a 150-megawatt project in Texas. Why not buy the whole project, first of all?
Shayle Kann: This is wind, by the way. It's a wind project.
Stephen Lacey: This is wind, yeah.
Rob Threlkeld: When we did some of our first deals, I was kind of taking a pragmatic approach to understanding what our sensitivity was as a company to these offsite deals. Our first deal we did in Mexico was 30 megawatts, then we did another deal for 34 MW. We've moved up to 50.
Stephen Lacey: And these are where you have plants. It's geography-specific.
Rob Threlkeld: Where we've really got plants. Exactly. It's kind of increasing the size, but really focusing our efforts in where we've got our load regions. I think that's an important component for us, because from a risk exposure standpoint, as the PPA floats, obviously these are virtual PPAs, contracts for difference, other types of arrangements, if the power prices do crash, great for everyone, great for the plant because it's still buying electricity for the same...reduced rates that we're doing.
We may have to take some of that financial risk and make up for it, but we're gaining it on the other side. Looking at the whole basis risk model is an important component of our strategy as we go forward with that. The deal in Texas, the 50-megawatt deal, basically takes all of our Texas operations to 100% [renewables], and some of our other ancillary warehouses that are around, at least on the east side of the Mississippi, they have very small loads.
Stephen Lacey: So this is as much a hedging strategy as it is a sustainability strategy then.
Rob Threlkeld: It's really focused on price stability which is an important component of our strategy. Sustainability's another key component of that as well. We're a manufacturer of electric vehicles. We saw yesterday the Bolt being launched right now, and being rolled out. Driving a sustainable grid -- our manufacturing of electric vehicles is an important component of that.
Shayle Kann: I'm curious, Hervé, you mentioned yesterday, and this relates, Rob, you just signed a 50-megawatt wind deal and GM was one of the early adopters of onsite solar and offsite solar as well. You put up some data yesterday, Hervé, showing that solar was actually a bigger component of new procurement from corporates, offsite procurement from corporates, in 2015 than it has been thus far in 2016. It's almost all wind this year. Is that purely an economic question? Is it just that a wind PPA is cheaper and thus wind has been winning, or do you feel like there's something else to it?
Hervé Touati: Talking with a couple of buyers, indeed, there is not a big distinction between wind and solar in term of preferences. As you know, in 2016, we experienced really low wholesale electricity prices, so I believe...that's the main reason behind the lower market share -- if I can use that term for solar -- it is largely driven by economics.
Shayle Kann: Rob, do you have any preference in any direction when you're considering a particular facility or procurement or particular place between wind and solar?
Rob Threlkeld: No. I mean, really, what's most price-competitive for us in those spaces, is [the determining factor] for us.
Shayle Kann: Got it.
Stephen Lacey: Very large corporations are making some of the boldest investments in renewables, energy efficiency, broader carbon reductions. What about Fortune 1000 companies, or some of the smaller companies? I think many of the people in this room are trying to tap that customer class, but we haven't really seen as much activity among those type of potential corporate buyers. Why not, Hervé?
Hervé Touati: First, let me share with you some data. If you look at Fortune 100, roughly 12% of them have signed corporate PPAs. If you look at Fortune 101 to 500, I don't have the data for the other ones, but the next 400 companies, only 1% of them have signed PPAs. It's a very clear difference. I think there's a variety of reasons. First, there is more public pressure to act on sustainability when you are a bigger company. That's one important element.
Second, of course, if you are a bigger company, you are more likely to have a bigger load. If you look at the average size of deals that've been signed since this movement started, we're talking about roughly 100 megawatts. Companies that are more on the second tier in term of of size, it's more difficult for them to find 100 megawatts.
When we look now at deals at the 10-megawatt range, the problem they have is that they do not fit the natural size of a utility-scale solar or wind farm; 100 megawatts is a natural size for the seller, 10 megawatts is natural size for the buyer, so you need to aggregate between the two. We are still looking within the community at the most effective way to aggregate demand so that 10-megawatt buyers can benefit from the economics of large-scale, utility-scale solar and wind.
Stephen Lacey: One thing that I've been trying to make sense of the past couple of days, we've been talking a lot about the average deal size is 100 megawatts and it's hard to get a deal done that's a lot smaller, but there's obviously a huge amount of potential for 5-, 10-, 20-megawatt deals. The assumption seems to be that you can't get that financed as easily or that the seller wouldn't be as interested in that. On the other hand, there's actually a pretty vibrant market for solar projects of that size with utility offtake. You have feed-in tariff programs in California, you have some rooftop projects in places like New Jersey, that hit that scale.
Is it just that the nature of these offsite deals are so much more complex, the transaction cost so much higher, that you need larger scale, or is there something else that's distinct about these offsite deals that makes it more difficult to get a 10-megawatt project done than it would be for an onsite?
Hervé Touati: Well, if you look at if from a developer perspective, you have a portfolio of large projects, and you want to go at that scale because you reach better economics. Now the question is, how are you going to market these better economics to 10 offtakers that can take 10 megawatts each? Simply put, the industry has not matured to provide an effective solution to that problem.
I think it's going to. As you have seen....this is a topic of the highest possible importance. We voted yesterday collectively, and it came out No. 1, so I am very optimistic we are going to find solutions. So far, there was enough demand for the very large corporate buyers, for the industry not to focus so much on aggregation, but it is clearly our next priority.
Stephen Lacey: Well, I don't think we can have this conversation without talking about what's in the news, and that is the post-election environment for climate commitments, for clean energy, and what a change in the administration means for the long-term evolution of energy markets, and eventually corporate procurement. We saw a really telling slide yesterday when this room voted on whether or not deals continue to move forward under a Trump administration, where there is a lot of uncertainty around renewable energy policy.
The vast majority of people said that deal flow stays the same, and I think a number of people said that deal flow actually increases, but there are a number of risks. Namely, that we see a potential early phase-out or repeal of the ITC and the PTC, which I think a lot of people thus far think is very unlikely, but certainly something that could get on the table if we see comprehensive tax reform, and they need to find pay-fors anywhere they can.
Inevitably we're going to see a rollback in regulations that potentially impact the marginal economics of coal, and if you continue burning coal and doing less natural-gas switching, maybe you have more natural gas supply and natural gas prices remain low here in this country. There are, I think, certainly some factors that could impact the economics of this industry long-term, but everyone in this room seems to believe, or a lot of people in this room seem to believe ,the deals continue to go forward. Rob, I'll turn it over to you. Do you believe that...it doesn't really matter, we're going to continue moving forward on your commitments, and that inevitably, the economics are going to work out for you, and what could change that?
Rob Threlkeld: I think yeah, we're going to continue to go forward with our commitment. Our RE100 commitment really focuses around four pillars. Energy efficiency -- I mean, that's always going to make business sense. We're going to continue to do that. We're going to continue to source renewable energy projects. Price stability's important to us. When you look at our long-term energy costs, what we're doing in manufacturing, we still spend roughly a billion dollars in our energy on an annual basis. We're going to do what we can to continue to trim those costs.
Energy storage, I think as we look at our advanced propulsion systems we're designing for EVs as mentioned, fuel cells, those are good ways to look at potentially addressing the intermittency question that comes up down the road. We're investing, as car companies, billions into those systems that could have a dramatic impact going forward on the grid, and reducing some of that risk and exposure on the PPA side.
Then it's policy and scale. We're committed to sustainable measures that make business sense, continuing to operate in the right manner in our communities that we operate in, and continuing to address the larger energy and environmental issues that world is seeing. Financially, it's the direction, and I don't really see much of a change in that area. We're going to continue that effort.
As mentioned, we just did the 50-megawatt deal, and we're going to continue that path going forward. If anything, I'm going to say we're going to try to scale that up faster. We've got a 2020 vision as a company that we host with a lot of the employees. It kind of focuses around these efforts. Think big, start small, scale fast, listen intently, ask why, find a friend, follow the energy, lean into conflict because there's going to be conflict within the organizations, and be bold. Those measures are what we're going to be really focused on as a company.
Shayle Kann: I think though, just to be frank, right? It's easy to say and it's probably true, if you've made this commitment or you intend to make this commitment, that you intend to follow through with it regardless, and that change of administration shouldn't change that, I think that makes perfect sense. Everybody should continue to do what they're doing. The reality, though, is that the reason that this market has been picking up, which was true of rooftop solar when that market started to pick up, is that the economics have gotten good enough that there is a pure economic case to make these decisions in addition to a sustainability case.
Obviously, if the economics continue to be good, we're hoping there's going to be floodgates that open up and everybody's going to pour in, everybody who already has commitments will keep doing it. What happens if the economics start to look a little bit worse? If the ITC or PTC are repealed -- again, unlikely, shouldn't happen -- but if it did, or if natural gas prices were to go even lower and the hedge value looked a little bit more difficult, the question would be then, are buyers committed to this to the extent that they will make a decision that is not in their necessarily pure economic best interests immediately? Is the commitment that strong? Otherwise, of course, everything is going to continue.
Stephen Lacey: Yeah. Hervé, what's your opinion on that?
Hervé Touati: I mean, we are talking about businesses, so it's clear that if contracts are completely out of the money and we don't see a possibility of an economic benefit, most of the market would disappear. There is no doubt about this. Corporate buyers indeed act because of sustainability reasons. That doesn't mean they forget the economics. One of the very important messages I think to your audience I would say, our audience today, is that we don't see such a large development as we have seen up to today because only sustainability was a driver. The economics have always had to be solved. It's a very important message, because many people believe that wind and solar are still too expensive. It's not the case in many situations.
Now...in the scenario where gas prices go below the marginal cost of production for gas, and the PTC and ITC disappear, that would be really difficult for the industry to move forward, but I don't think this scenario is actually realistic. Last year, a Republican-led Congress voted for the extension of PTC and ITC. The technology improvements of wind and solar continue to be strong, which is not the case by any measure in coal-fired power generation, nuclear or even gas, so the advantage of renewable energy is increasing over time. Those two factors with an increasing awareness of the business community of the gap widening in favor of renewable energy to me are fundamental trends that are going to sustain this market going forward.
Stephen Lacey: Yeah. I think a lot of people are skeptical that an ITC and PTC get repealed because we have such strong Republican support for both of those credits, because well over 80% of wind projects are now installed in Republican districts. In California, a study recently came out showing that the majority of solar installations are actually in Republican districts in that state, which is the solar leader. There have been a lot of bipartisan alliances formed around renewable energy on Capitol Hill, and those, I think, will stay strong.
As I've talked to people post-election, whatever you think about the change in presidency, there is clearly a lot of uncertainty. People generally fall into two camps. One is if you're really concerned about climate change, you're very worried, and if you care about the business of renewables, you may have some uncertainty, but you think that things move forward as-is, and maybe you get less of a boost from the long-term impact of the Clean Power Plan and so forth, but largely federal investments stay. You have a lot of allies on Capitol Hill, and because a lot of regulation happens on the state level, you're going to continue to have business as usual there.
As I've thought about this, the message coming out of this room is that much more important. Right? You have the biggest corporate players, Fortune 100 companies, who are saying, "Nope, this does not slow down. We are going to continue to build these projects because it makes economic sense, and because we care about sustainability." That has a one-two climate and economic punch that I think makes the message coming out of this room that much more important in the next administration.
Shayle Kann: I think in particular, in the international community, in the international context, right? Whether we with it's likely or not that particular US tax policy gets changed, what seems more likely to change in the next administration, though we don't know anything for sure, is lack of action on climate change. Right? Not enacting anything to do with the Paris Climate Accord, maybe backing out of the Clean Power Plan. Those send a message to the international community which is just as important if not more important on climate action.
I do think that this is where there's an opportunity for corporates based in the U.S. or within the U.S. to have a very loud voice in the international context and say, regardless of what we're doing from a federal administration perspective, here's what we're doing in the private sector in the U.S. There is still action being taken. There is still a commitment here, and thus everyone else in the rest of the global community shouldn't back out of what they're currently planning to do in terms of climate change mitigation, because the U.S. is not going to bail on our commitments. We're just going to do it through the private sector and the states.
Stephen Lacey: Rob or Hervé, do you want to comment on that in particular? The influence of corporates in pushing the economic and environmental message of this sector?
Rob Threlkeld: Yeah. I think it's important. Most of us are global companies, so we got global constituents in other countries we operate in and manufacture in as well. We're going to continue that path. I think having announcements, you know, the Microsoft announcement that came out Tuesday, I saw several ones that linked in other corporations that are signing onto 100% commitments. They had GM in the message, they had Amazon in the message. The more that you link the common theme that the corporations are doing this because it makes sense, and then a consistent message with the press releases coming out, you know, that's what we're doing. We're going to continue to do that. We're all praying merrily, operating on a global basis.
Stephen Lacey: You guys have done some international deals, in Mexico. [...] Anywhere else besides Mexico?
Rob Threlkeld: We've done about 30 megawatts of onsite PPAs in China. We're continuing those efforts and looking at our international markets. We're going to continue doing that regardless.
Stephen Lacey: Generally, have you found those international deals easier to get done, harder to get done, versus the U.S.?
Rob Threlkeld: It's pretty consistent, about the same I would say. I would say in China, for us, a little bit different because we're in automotive companies, we're joint ventures, so we've got kind of both parties that support that and help push that. It can be more difficult too, because then you've got two parties as well, so it depends. I think it's a matter of having top leadership support saying we're going to do this, we've got an RE100 commitment, we've got to focus on energy efficiency in the other efforts, and keeping that consistent message internally, and I think also building and recognizing the internal team, that's important to that. I stress this on some of my other comments in talking with folks.
When you sit down with finance, accounting and treasury, [it's] to really make them understand they're enablers to this goal. They're not sitting there doing spreadsheets supporting it. They're actually supporting the position of the company, signing these deals and commitments. [...] I think I may be the captain of the team, you could say, but in essence there's a whole repertoire of folks that are behind the scene doing this and supporting these efforts within the company and enabling them to be successful at it as well, so that they understand that other corporations that they are signing onto these deals and are doing it in a very consistent manner. I think transparency and consistency are going to be very important.
Stephen Lacey: What is the hardest thing about doing some of these deals? Is it just the contract negotiations themselves? Is it working with partners and getting everyone at the table and working your way through the lead time? Is it identifying geographic areas where you can match projects to load? What is the most complicated part of building these projects and signing these PPAs?
Rob Threlkeld: I think it comes down to the [fact that] there are positions that the company wants to take, there're positions the developers want to take, and kind of coming to a [compromise] ... That takes several months, I think, in regards to that. I think some of our bigger challenges, and we're trying to streamline that internally, is the fact that our finance, accounting and treasury folks change so frequently, so then you get another person who you've got to educate as to what we're doing. I think having that goal is important, because at least they see from a corporate standpoint we're supporting this, and then educating them and putting into place a, I would say policy, or in our states, we've got our GMS system, which is our global manufacturing system, putting those in place so that as people change, the consistency stays there. [...] This is part of your job responsibility, doing that. I think those are probably, I would say, two of the most challenging parts that we go through when we do the deals.
I wouldn't say so much finding the locations is as difficult. We've focused on, obviously, the markets that make the most sense, but as the costs have come down, that's opened up other markets. Then really understanding where your loads are. As you want to meet your goal, you want to look at your largest loads probably first, and then transition down. You may find some small loads make the most sense going forward. It's really understanding your energy consumption use and your mix and locations, and then figuring out what makes the most sense going forward to meet your goal. It may be certain locations, it may be smaller loads. It really comes down to how expeditiously you can get those deals through, and then build that foundation, and then work toward that next level.
Shayle Kann: You're helping to facilitate these transactions. Where is the most common roadblock that you run into that's, like, driving you crazy?
Hervé Touati: That's a good question. What we have noticed, indeed as Rob mentioned, is that most corporations will form a team of highly competent people that understand the energy sector [and put them] in charge of leading the way. The problem is, internally, they have to get approval. Those deals can be very large. We are talking about contracts with a nominal value of perhaps several hundred million dollars. If you want that contract to be signed, it needs to go on the desk of the CFO. As a consequence, you need to talk about accounting, treasury and people that themselves have no experience [in] the electricity sector.
At times you find CFOs that react instinctively about a particular contract. We have seen one or two cases, for example, last year, where a corporate PPA included clauses that made it impossible to finance a project afterward. Why? Because the CFO, not knowing very much about the detail, pushed some things that from his or her perspective, made a lot of business sense, but killed the deal. This part of education is very difficult.
What we are trying to do with the Business Renewables Center is...to provide as much knowledge as possible. We are organizing boot camps for example, and we are welcoming not only deal teams in the boot camp, but also people from the treasury and accounting departments so they can see what it entails to conclude those deals successfully. That part of the process is actually the hardest.
Shayle Kann: Can you give even just a generic example of the type of a clause that a CFO might be interested in including in a deal that might kill it then when they try to finance it?
Hervé Touati: Well, essentially, they are clauses that are protective for the corporate buyer, but if you look at those clauses from a debt provider perspective, it looks as if...the corporate buyer has an option to walk away. As a consequence, as a lender, of course, that's the last thing you want to see in a contract. This is a mechanism that you have seen in a small number, but in some number of situations.
Stephen Lacey: OK. I want to talk about the role of corporates in the energy markets. Apple and Google were the latest to get approval from FERC to sell energy and to bid in grid services. I think in the press, people tend to make a bigger deal of this than it actually is. People say, "Oh, is Google going to be the next utility? Is Apple going to be your next utility?" The question is, how many more large companies are going to do this? Would a company like GM eventually ask FERC to buy and sell energy and to offer grid services? How important is this? How should we read into this trend? Hervé, I'll start with you.
Hervé Touati: I mean, first, it's not new. Companies like Dow Chemical have been trading electricity since the opening of the market. It simply gives them direct assets to the wholesale market so they can optimize their corporate PPAs. At times some of these companies also own physical assets, then they want to optimize how to dispatch them and to generate more economic value for themselves. Who is doing it? Dow Chemical, Apple, I think Wal-Mart and Amazon I believe. I would not see any of these companies perhaps with exception of Wal-Mart with a retailer, becoming a retailer for residential customers. That's not the objective. The objective is simply to optimize their energy position whether they are long-term contracts or physical assets.
Shayle Kann: I could imagine Amazon getting into it at some point. Right? Amazon wants to sell all of us everything that we buy. Why wouldn't they want to sell us electricity? That said, I totally agree. Overblown, not that big a deal today, until Amazon launches Amazon Residential Energy Services.
Stephen Lacey: It's interesting in that it may be an overblown trend, but it actually gets people talking about this stuff too. Rob, do you have any comment on that at all?
Rob Threlkeld: No. I mean, Hervé said it right. We're going to look at ways to optimize it. I don't see us really becoming, you know. [...] It's definitely a different layer of complication on our part, so I think we would stay focused. We're a car company. That's what we're going to manufacture and continue to be, is a car company. We'll look at ways to optimize our manufacturing in a sustainable manner. That's what we're going to focus on.
Stephen Lacey: How are these projects evolving in terms of technology type? We've seen that wind just completely dominates this sector now. We're starting to get more solar deals done. Rob, you said that it doesn't really matter to you as long as the project pencils out. Will storage start to play a role in your procurement? Do the suite of onsite technologies like solar-plus-storage, both onsite and offsite, energy management software, load controllers, like this whole suite of what we call solar-plus, is that interesting to you? Has anybody approached you with projects that actually look attractive, or is it still basically your standard wind and solar deals?
Rob Threlkeld: I'd say right now the market's primarily your wind and solar deals. We've done a couple of the battery storage projects, kind of [trying to] understand...how this can have an impact on the grid. We did one even back into 2011 at our White Marsh facility in Maryland with solar energy storage tied to the electric vehicle, because...you can operate it like a battery because you can just stop the charge, start the charge, slow down the charge. There are things you can do in that manner, so I do see this...driving the battery cost down. The automotive manufacturers are doing that with EVs. I do see that having a dramatic impact on the battery storage side in the utility business. Both sides touch the grid, by the way, because the electric vehicles do from a storage standpoint, and so do renewables. I think there's going to be much more of a complementary, I think, effort in those areas, and it's going to grow.
As we look at potential secondary use of electric vehicle batteries in that market, there just isn't any currently. It may be that the new batteries are the cheaper way to go as you look forward. That's an evolving area ultimately really being driven by the automotive manufacturers in the EV space. Also mention, I think Hervé commented...that's what's driving the technology...into the EVs, and then there could be a whole circular economy support in that area.
Shayle Kann: Let's distinguish between energy storage as an onsite solution, which is largely what you're talking about, to meet a variety of needs, demand charge reduction, resiliency, whatever it might be, versus energy storage as an offsite solution similar to the solar and wind deals we've been talking about, which we haven't seen yet, and maybe seems a little bit more distant because there's just not the same need or economic value necessarily in having a firm, dispatchable solar PPA for offsite if you're a customer.
Stephen Lacey: OK. We only have a couple minutes left here, and we want to stick to time. I guess I'll ask one final question, and Hervé, I'll kick it over to you. What is the role of utilities, either regulated utilities or the unregulated arms of utilities, to offer these deals to corporate buyers? Are we seeing more activity among power suppliers in this market, or is it still largely independent developers?
Hervé Touati: Actually a number of large developers are, apart from utility organizations, they are the unregulated part, but in the room you will find a number of U.S. and European utilities that provide the projects outside their territory. Within the vertically integrated utility territory, the difficulty for all parties is that it's not a negotiation between a buyer and a seller. It's a negotiation between a seller, a buyer, a utility and a public utility commission, or public service commission. There are four parties with different objectives. Obviously, it takes more time. If U.S. buyers...would rather work with a utility than a developer, the question boils down to, would you rather sign a four-page contract or 70-page contract? You know the answer. The problem is simply that the process is too slow today...because it is complex to align four parties with different objectives.
Stephen Lacey: That was Hervé Touati. We also had Rob Threlkeld and Shale Kann, my co-host. I'm Stephen Lacey. You can get all our podcasts at greentechmedia.com or GTM Squared. You can subscribe to our show on iTunes, SoundCloud and Stitcher and everywhere you get your podcasts. Thank you all for a great conversation. This space is really heating up. We're going to pay very close attention to it, and a fabulous conference. Thanks, all, for having us.
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