Structured Retail: A New Flexible Solution for Buyers in Deregulated Markets
The renewable energy market is dynamic and changing quickly. Suppliers have responded to historic demand in the voluntary renewable energy (RE) market with an array of innovative new RE products at record-low prices. But while the market is as attractive as ever for large energy users looking to decarbonize, a clear path forward on RE procurement can remain elusive even for the most sophisticated buyers.
There is a lot at stake in getting energy purchasing right, even before layering in renewables. To fully understand their business-as-usual (BAU) purchasing scenario, end-users must consider opaque on-bill charges, complex local, state, regional and national regulatory dynamics as well as the inherent volatility in energy pricing and the factors that influence it. Examining how one or more RE transactions would impact a buyer’s existing purchasing scenario – or how outcomes would vary by solution – can be especially challenging, given the amount of new solutions now available in the market.
One increasingly popular option for buyers with loads in deregulated markets is the Structured Retail transaction, under which buyers purchase RE and project-specific Renewable Energy Credits (RECs) directly from a third-party retail supplier, often without a premium to BAU. The electricity is sourced by the retailer from a new-build RE asset and delivered directly to the buyer, replacing the buyer’s BAU electricity supply. 2019 saw a number of Structured Retail transactions announced by high-profile buyers, including Johns Hopkins University in Maryland and Starbucks in Illinois.
The rapid emergence of Structured Retail solutions reflects the market’s responsiveness to growing buyer demand for more flexible large-scale RE options. Structured Retail contracts differ from traditional (Virtual) Power Purchase Agreements ((V)PPAs) across several dimensions—see chart at left. However, Structured Retail transactions should not be viewed strictly as an alternative to VPPAs, but rather as one of many supply options available to buyers. CFR encourages clients to thoughtfully consider every option before recommending a diversified portfolio. Structured Retail solutions do offer a number of important benefits that may be particularly attractive to certain buyers, some of which are listed in the chart.
The value proposition of a Structured Retail transaction can vary widely depending on each buyer’s individual situation. In general, the key value drivers of Structured Retail solutions are reduced wholesale market volatility, simplified accounting treatment, lower regulatory complexity, and price certainty. But it would be a mistake to view Structured Retail solutions as a straightforward product, though it is often pitched as such by suppliers. Given the novelty of the transaction in a market that has not yet coalesced sufficiently around buyer-friendly terms, Structured Retail buyers may face more contracting risk than those implementing a now relatively standard solution such as a (V)PPA.
CFR has now served several Fortune 500 companies on Structured Retail transactions, noting significant variance between supply options on pricing and on critical contract terms. Our service method emphasizes apples-to-apples comparisons between supply options and analyzing precisely how each offer stacks up to the client’s BAU and against one another. We conduct deep supplier due diligence to understand how each supplier approaches market and development risk, and to ensure offerings are in line with the rest of the industry along critical terms. Ultimately, our team has been able to leverage supplier flexibility to secure optimal terms for our clients during negotiations, resulting in material economic savings and risk mitigation benefits in the final contract.
As the market evolves and these new products proliferate, a trusted advisor can help you maximize their value and avoid potential pitfalls. If you are interested in learning more about how Structured Retail solutions might help your organization meet its sustainability goals, please reach out: firstname.lastname@example.org
About the Authors:
Matthew Hickman is an Analyst at CFR who supports client engagements with respect to both large-scale and distributed renewable energy solutions. Prior to CFR, he worked with a German aid organization, GIZ, promoting the use of geothermal energy throughout Latin America and the Caribbean. Before his career in the energy space, he worked as a screenwriter in Los Angeles for six years. Matthew holds a BA in International Affairs from the University of Georgia and a Masters in International Economics from the School of International Studies (SAIS) at John’s Hopkins University.
Joseff Kolman is an Associate at CFR, focusing on data and policy analysis on the Client Solutions team. Prior to joining CFR, Joseff modeled the cost of improved grid reliability with a focus on ease of model communication and wrote a bachelor's thesis discussing the effect of political polarization on the Federal Energy Regulatory Commission. He has BS degrees in Physics and Political Science from MIT.