LevelTen Aims to Satisfy Surging Corporate Renewable Energy Demand
Large technology companies have driven demand for renewable energy in the U.S. over the last few years as they seek lower, more predictable electricity bills, and pursue climate goals.
Companies are buying wind and solar power the traditional way—from utilities—but some of the richest, most sophisticated corporations, such as Google, Microsoft, and Amazon, are building their own projects or buying electricity in bulk directly from project developers.
Now, a Seattle startup is extending that direct purchasing opportunity to smaller corporations. Many of them covet clean energy for the same economic and environmental reasons as their larger peers. But the smaller companies often don’t need all the energy from an entire large-scale solar or wind project, or they may lack the expertise to execute a long-term, bulk power purchase contract.
Bryce Smith, founder and CEO of LevelTen Energy, which just completed the Techstars Seattle startup accelerator, says the company is what you’d get “if Match.com and [mutual fund giant] Vanguard had a baby that really cared about renewable energy.”
Smith, who previously co-founded and led Seattle-based solar power project developer OneEnergy Renewables, says the emergence of the corporate customer has been a welcome development for the renewable energy industry, providing a creditworthy power buyer that banks require before they finance project development. But the industry has yet to overcome a series of challenges inherent in the traditional contracting and financing practices for power projects to tap the potential of a broader pool of corporate power buyers, he says.
“It was a great idea,” Smith says. “Companies want to buy renewables and developers want to sell renewables, but the challenge was how do you bring them together in a way that actually gets transactions done? That wasn’t happening. It was more aspirational.”
There are a host of roadblocks: Power purchase agreements are complex and bespoke. Wholesale electricity markets are esoteric. Most corporate power buyers don’t have the in-house expertise to shop for power on a project-by-project basis. And even if they did, their companies may not have enough energy demand to consume the output of the big projects that offer the most competitive prices. Then there’s the risk inherent in putting all your energy eggs into one basket.
LevelTen’s bet is that many of the risks and shortcomings inherent in the old one-to-one model can be overcome by selling the output of many projects to many corporate buyers.
Smith says the corporate market has been primed by tech giants such as Google, Microsoft, and Amazon, which have watched their electricity use grow as they open data centers around the globe to provide cloud computing services.
At the same time, they’ve committed to aggressive renewable energy targets. Google, for example, says it will operate on 100 percent renewable energy this year. Amazon Web Services set a target of 50 percent renewable energy by the end of the year, halfway to its eventual goal of being entirely powered by renewable energy. Microsoft already counts itself as fully carbon free, thanks to renewable energy power purchase agreements and the purchase of carbon offsets.
Environmental motivations remain a strong driver. Nearly half of the companies in the Fortune 500 have a clean energy or climate-related target, according to a report issued last week by the World Wildlife Fund.
But the economics of renewable energy have become even more compelling.
Smith notes that utility-scale solar power projects are already competing with fossil-fuel power plants, a threshold that the Department of Energy’s SunShot initiative sought to achieve by 2020. The wind industry, which has been the go-to power source for corporate renewable energy purchasers, has seen a steady reduction in its power contract prices since 2009.
Those cost reductions are in large part the result of state-level renewable energy mandates, which created demand among utilities over the last two decades. While still important, the mandates are not driving corporate interest.
Likewise, a reversal of federal climate policy under the Trump administration is unlikely to dissuade corporate renewable energy purchasers, Smith says.
“The climate issue is settled science and companies know that,” he says. “But it’s not just an environmental issue. It’s an economic issue.”
Wind and solar power projects can already compete with electricity from coal and natural-gas fueled power plants in many U.S. electricity markets.
But renewables have another advantage over fossil fuels: long-term price stability. Since wind and sun are free, renewable power producers can offer fixed-price electricity contracts with terms from 10 to 25 years, allowing energy-hungry corporations to manage a large expense with more certainty, Smith says.
The median price of 24 wind power contracts signed from 2014 to 2016 is below the low-end estimates of the cost of power from natural gas power plants through 2040, according to the latest Wind Technologies Market Report from the Department of Energy (PDF).
Smith says corporations are expected to commit $100 billion to renewable energy by 2025.
To tap into this corporate demand, LevelTen is creating what Smith likens to a “mutual fund” of renewable energy projects. LevelTen is selling custom-sized slices of a portfolio of renewable energy projects it selects with the input of a risk-and-value algorithm based on millions of daily power prices and project attributes. It’s first portfolio will include four new wind and solar projects with the capacity to produce 400 megawatts of electricity. Those projects are expected to generate $700 million in electricity revenue over the 15-year life of the portfolio, Smith says.
LevelTen, which raised a seed round in 2016 from Seattle-based investors Founders’ Co-op and cleantech focused angel group Element 8, makes money by charging corporate customers a management fee—a small percentage of the cost of the electricity contracted.
LevelTen’s model is designed for deregulated electricity markets, which now cover most of the country (though not the Pacific Northwest). Without getting too deep into the workings of wholesale electricity markets, LevelTen is contracting for the renewable attributes of each project in its portfolio. The electrons produced by a given solar panel or wind turbine pour into a regional grid, displacing power generated from other sources.
“What matters is what you cause to be dumped into the grid,” Smith says. “There are no brown or green electrons. They’re just electrons. If you cause renewable electrons to be dumped onto the grid, you are by definition backing out whatever else comes on at the margin. You’re backing fossil-based generation.”
Transmission and distribution utilities still deliver the electricity to the corporate customers, and get paid for that service. That’s important, because as demand for electricity surges in areas where companies concentrate data centers, utilities need to continue investing in transmission infrastructure.
(See the recent case of Prineville, OR, where Apple and Facebook server farms are overloading existing substations, prompting the Bonneville Power Administration to add new capacity.)
Utilities are awake to the renewable energy demand among their corporate customers. Earlier this month, Washington’s largest investor-owned utility, Puget Sound Energy, unveiled a program called Green Direct.
It bears many similarities to LevelTen’s approach, providing large customers the option of a long-term, fixed-price contract for electricity from renewable sources within PSE’s portfolio. Some 60 percent of PSE’s electricity is generated by coal- and natural gas-fueled power plants.
The costs associated with the renewable slice of the portfolio are passed on to the Green Direct customers, who are also insulated from price fluctuations that may impact PSE’s broader customer base over time. Initial Green Direct customers include REI, Sound Transit, Starbucks, King County, and other municipalities and corporations.
Smith says programs like Green Direct validate what LevelTen is doing. “It’s good to see the utilities and [regulators] be responsive to that desire to have broader choice,” he says.