Google, in collaboration with LevelTen Energy, has piloted a new approach it says will significantly reduce the time to negotiate and execute a clean energy power purchase agreement (PPA), according to a new blog from Google.
Key to its plan: rethinking the request for proposal (RFP) and PPA negotiation process, the most common method buyers use to find clean energy projects. Today, potential buyers issue RFPs with desired criteria, then enter negotiations that can be lengthy, complex and unique in every case.
Google and LevelTen’s innovation is a small tweak that could have meaningful impacts. Sellers would respond to RFPs with terms for a power purchase agreement (PPA), spelling out and committing to terms before negotiations begin. The hope, according to the Google blog, is to create more upfront transparency to quickly suss out if a project is a good fit for both parties.
If successful, this change could reduce the time needed to execute a PPA by 80 percent, enabling contracting for new “additional” clean energy in just two months, compared with traditional deals that can take more than a year, according to Google.
Starting negotiations in the middle
The classic structure of negotiations is as follows: Buyer starts low, seller starts high, haggling begins, they meet in the middle.
This strategy starts in the middle. Instead of each party crafting terms favorable to themselves then spending months finding the middle ground, this approach would start with terms that are already risk-balanced between the buyer and seller.
For the seller’s part, this new process would provide them with the flexibility to customize the ways in which they offset risk and require them to agree to those terms when submitting a proposal. This creates a transparent and reliable way for sellers to verify how their offers are evaluated in real time, reducing the risk of protracted negotiations.
Additionally, the new process enables sellers to create pricing based on the final contractual details, instead of speculating on future terms that are likely to change during the negotiations.
Google, which has been inking PPAs for over a decade, says it drew from its own experience and market feedback from sellers and the LevelTen platform to create this simplified process that starts in a place that should be close to acceptable by all parties.
Accelerating clean energy deployments
Shortening the process will certainly reduce soft costs associated with clean energy procurements. But more important, it could accelerate the speed at which new clean energy projects can come online.
For Google’s part, this new process could help it meet its goal of reaching 24/7 carbon-free energy by 2030. More broadly, it could help make renewable procurements more accessible to more buyers, meaning faster decarbonization of the power sector writ large.
According to its blog post, this new tool will be available to energy buyers by the end of the year. Of course, these tools are only as valuable as the strength of the network that uses them. Hopefully the solution will live up to its promise, opening up PPAs to new offtakers of all shapes and sizes.