The biggest barrier to building the massive amount of renewable energy the world needs isn’t a lack of money. It’s the disconnect between how quickly solar and wind power must be added to the grid — roughly triple or more the already record-setting pace of growth now being set in the U.S., experts say — and how long it takes for these projects to move from inception to completion.
Bryce Smith, CEO and founder of LevelTen Energy, believes that an expanding marketplace for power-purchase agreements and clean-energy transactions can dramatically increase the pace and scope of this deal flow. Since its 2016 founding, his Seattle-based startup has made some significant strides toward proving out this concept in North America. In that time, its marketplace platform has handled more than $5 billion in renewable energy transactions, adding up to about 3.3 gigawatts of generating capacity.
About nine in 10 major U.S. renewable energy developers now share data via LevelTen’s platform, alongside major corporate and retail energy providers on the buyer side of the equation. In the past year, LevelTen has expanded to European markets. It has also added products to monitor the performance of and enable the buying and selling of wind and solar farms and other physical assets, in addition to the power-purchase agreements (PPAs) and other energy transactions that make up its core business.
On Wednesday, LevelTen raised a $35 million Series C round, aimed at scaling up its data collection and transaction software platform. The round was led by NGP Energy Capital and joined by a host of previous investors. Another participant was Google, a major clean energy buyer that’s moving beyond standard PPAs in search of products that can support its goal of 24/7 clean energy by 2030.
The new investment more than doubles the startup's total funding raised to $62.3 million. It will help in the firm's efforts to get “these products in the hands of newer and smaller buyers, not just the Googles of the world,” Smith told Canary Media.
From spreadsheets and handshake deals to data-driven, transparent markets
“Wind and solar are incredibly cost-competitive today,” said Smith, a 20-year renewable energy development veteran, in an interview this week. “The most significant barriers to scaling aren’t technological — they’re transactional.”
These include the challenges faced by would-be clean energy buyers, such as corporations with sustainability goals or energy retailers offering green power plans, according to Smith:
How do you transact quickly and efficiently when you don’t know what your options are, when you can’t see every PPA available in the market, when you don’t understand the development risk status of all of those assets? How do you project cash flow from a PPA when you’re not an energy trader or wholesale market expert? Price doesn’t equal value in this market.
Project developers on the other side of the equation can find it “very difficult to reach the universe of target customers efficiently,” he said. And when buyers and sellers do come together, “each contract is bespoke — it’s a bilateral negotiation.”
This traditional approach isn’t suited to the vast scale-up needed to decarbonize the power grid at the pace needed to combat climate change, as laid out in the latest report from the United Nations’ Intergovernmental Panel on Climate Change, recent reports from the International Energy Agency and a plethora of independent studies.
LevelTen’s periodic market updates highlight the time and money costs that stem from these opaque and nonstandardized processes. Each party involved must dedicate teams of specialists to spend months searching for counterparties, conducting due diligence on project risk and crafting complex contracts. The cost difference between the most and least efficient approaches to these tasks can add up to tens of millions of dollars per project, he said. He continued:
How can we scale the industry when every deal takes 15 months? We need to simplify the transactions and commodify the products. That’s what brings more buyers to the table, gets more projects built and allows us to decarbonize more quickly.
LevelTen’s platform has been able to speed up the typical transaction timeline to about three to four months today, compared to 12 to 18 months when it was launched, he said.
Getting there took quite a bit of work to demonstrate the platform’s trustworthiness and value to its participants, as well as the fidelity of its data, he said.
At the outset, industry insiders cautioned that the startup would never be able to “get developers to give [up] their information,” he said. “We demonstrated that was not true if you’re respectful with that information and you connect those developers to customers.” LevelTen earns money from sellers for every successfully completed transaction.
Building up the project-development risk assessments from a bewildering range of real-world factors was another challenge. “Each county and each state has a slightly or quite different permitting environment. You’ve got interconnection-queue challenges. We demonstrated that we were able to synthesize all that information and account for regional variation, and still produce a development risk score.”
Those scores may not be perfect — no attempt to quantify future outcomes can be. But “the platform runs a billion calculations a day to estimate risk and value, and you can’t do that in Excel [spreadsheets],” which many project developers and buyers continue to use today.
Opening up clean energy investment to a wider audience
Greg Lyons, vice president of NGP Energy Capital, the lead investor in LevelTen’s new funding round, says this kind of transparency is vital to speeding up clean energy development and granting access to investment opportunities to more participants.
“We have to quadruple renewable energy additions in the next 10 years to hit our goals,” he said. “Facilitating transactions in this way is critically important.”
Corporate clean energy deals made up about one-fifth of U.S. renewable energy additions in 2020 and are expected to drive between 50 and 80 gigawatts of growth through 2030. Major buyers including Google, Amazon, Apple, Microsoft, Walmart, AT&T, Salesforce and other global companies are driving the investments that are leading to new solar and wind farms being built.
But outside these top-tier buyers, most corporate clean energy purchases come in the form of unbundled renewable energy certificates. Most of these are claims on generation from projects that are already built, rather than purchases that are directed at financing new projects.
“The pool of corporates that have been able to participate, beyond just buying unbundled [renewable energy credits], is really shallow because it’s taken so much work for them to [even] do that,” Lyons said. LevelTen’s automation of much of the more onerous work that goes into seeking out and vetting new-build projects can democratize the process and attract a wider range of would-be energy buyers, he said.
That applies to individual companies, as well as corporate clean energy consultants such as 3Degrees, Sage Energy Consulting, South Pole and others that have partnered with LevelTen. Utilities and retail energy providers in competitive energy markets are also using its platform to build renewable project portfolios to supply their “green tariff” or “green sleeve” programs, he said.
This kind of bundling of projects to meet buyers’ needs is also happening in reverse, with developers selling off tranches of their output to multiple buyers, Smith said. LevelTen publicized an early iteration of this in a 2019 deal that saw Bloomberg, Gap, Salesforce, Workday and Cox Enterprises take a combined 42.5-megawatt portion of a larger 100 MW solar project in North Carolina.
While these types of multiparty projects have been carried out before, they’ve almost always featured a central buyer bringing in others, he said. By contrast, “the majority of transactions executed on the marketplace are now for slices of power — and that means the buyers don’t know the other buyers.”
What Google wants: Energy storage and 24/7 clean energy
More complex contract structures are on LevelTen’s radar, Smith said. Energy storage is a growing part of clean energy portfolios, for example. LevelTen launched a storage energy agreement product late last year, structured around the value that batteries can play in absorbing and storing a wind or solar plant’s output for sale at other times when wholesale energy prices are higher.
The operating characteristics of batteries, and the values they can provide to renewable energy projects, utilities and offtakers like Starbucks — the first customer to use the new storage product — are much more complex and varied than the renewable energy flowing from solar and wind farms, to be sure.
“We’ve created some really novel storage contracts for customers, more akin to these virtual PPA products,” he said. These deals offer renewable buyers and sellers a hedge between the contracted price for purchased power and energy market fluctuations.
Google’s investment also points to its interest in supporting more complex structures for the round-the-clock carbon-free energy it and other corporate vanguards are pursuing.
“Storage is going to be so central to that 24/7 load-matching challenge that is also part of our product roadmap here,” he said. While he wouldn’t provide details on what LevelTen is developing on that front, “that’s obviously a high priority for Google, and it’s one of the reasons they’re invested. We’re eager to productize that and get it out to the world through our channel partners, so that more than just Google can participate.”
(Lead image: Antonio Garcia)