The concept of energy aggregation is no stranger to anyone researching corporate renewable energy, but it can be somewhat complex if you’ve never heard about it before.
That’s why we created this energy aggregation guide, so you can have all of the information you require in one easily accessible place. Below, we’ll cover what exactly aggregation is, energy aggregation strategy, how it works, the different types, pros and cons and everything else that you need to know about energy aggregation.
When it comes to sustainability and energy procurement options for your business, it can be pretty overwhelming – there’s a multitude of unfamiliar terms as well as resources available, so let’s start answering the basics.
What is energy aggregation?
The definition of energy aggregation is when a group of local institutions, small businesses or companies partner together in order to purchase energy from one or more developers at smaller volumes while still benefitting from the economic advantages of high volume power purchases. Many small companies sign virtual power purchase agreements (VPPAs) through electricity aggregators.
How does energy aggregation work?
In summary, aggregation works by allowing customers to have more buying power as a collective, in which they can secure more competitive energy prices.
Aggregate power also helps customers to gain access to renewable energy sources (such as RECs or even carbon offsets) and options and to be in a better position to receive expert advice on energy purchase decisions.
What is project aggregation?
Project aggregation refers to creating a portfolio of projects, blending a wide range of renewable energy projects together. You can think of it as something similar to investing in an index fund (rather than a single stock) – it allows for buyers to perform transactions with less risk and gain access to higher-value products in a single transaction rather than multiple transactions.
What is buyer aggregation?
Buyer aggregation is where non-utility buyers come together to increase their buying power in order to gain access to a larger range of projects. This allows smaller entities to access a range of projects that’s comparable to the range of projects available to large organizations such as Amazon or Google.
Pros and Cons of energy aggregation
Below are the advantages and disadvantages for energy aggregators:
The benefits of energy aggregation:
- Greater buying power and greater access to large projects and options suited to individual needs.
- Reduced energy pricing.
- Lowered transaction costs.
- Partnering with other companies in investing in a portfolio of energy projects limits exposure to risk.
The risks of energy aggregation:
- Matching supply with demand – project developers often want to sell the full output from their project rather than just a portion.
- Smaller buyers have a less attractive credit rating as compared to larger organizations – some developers will attach a risk premium when selling to smaller buyers.
- Coordination meeting the needs and requirements of every involved small business.
Is energy aggregation better than VPPA for small businesses?
Let’s start with what a VPPA is – a virtual power purchase agreement is a financial contract in which the company that intends to develop a renewable project receives financing for said project via an offtaker or third party. The developer (seller) will receive a fixed price for renewable energy that is set by the VPPA.
According to the Clean Energy Finance Forum, energy aggregation deals can be a better option for small businesses rather than VPPAs – often, the minimum transaction size can be quite large for VPPAS (as much as 50 megawatts (MW) for onshore wind and 30 MW for solar photovoltaics.), something which only large commercial or industrial organizations may be able to handle.
On the other hand, electricity aggregators can:
- Share legal and transaction costs across multiple buyers.
- Have potential for larger deals due to the support of multiple buyers.
- Sharing of best practices between buyers.
- Buyers with small load profiles are able to participate who are unable to sign onto VPPAs.
Energy Aggregation Examples Across the Globe
Wondering about real-life examples of electricity aggregators and aggregation? Read on for a list of current energy aggregation examples:
- Apple, Akamai, Etsy and Swiss Re (coming together to form the PMJ Gang) have committed to buy 290 MWs of electricity capacity from 2 projects, which is enough energy to serve 74,000 homes for a year.
- Bloomberg, Cox Enterprises, Gap Inc., Salesforce, and Workday came together to purchase 42.5 megawatts of a 100-megawatt North Carolina solar project by global renewable energy developer, service provider and wholesaler, BayWa r.e.
What is Community Choice Aggregation?
A community choice aggregation, also known as municipal aggregation, is one out of many energy aggregation programs you may encounter. As defined by the Environmental Protection Agency (EPA), these programs allow for local governments to “procure power on behalf of their residents, businesses, and municipal accounts from an alternative supplier while still receiving transmission and distribution service from their existing utility provider.”
CCAs are a great option for communities that want more control over what kind of energy is being sourced as well as for communities who want more green energy to be available than what is offered by the default utility.
How does Community Choice Aggregation work?
CCAs are currently authorized in the following US States: California, Illinois, Ohio, Massachusetts, New Jersey, New York, and Rhode Island.
Here’s what happens when a local government wants to put a CCA in place:
- The local government must hold a public hearing and pass a law to authorize the CCA.
- Customers will be given advance notice to be able to opt-out of the CCA – CCA participation is voluntary regardless of the state.
- Customers that do not opt-out are automatically enrolled in the program. In some instances, CCAs will be opt-in rather than opt out.
- CAs can also have a tiered structure with a standard option that customers are enrolled in unless they opt-out, and an opt-in “greener” option at a price premium.
- Prices for electricity under CCAs can be as much as 15-20 percent lower than the local residential price of electricity due to the collective buying power of entire communities and current market trends.
- Delivery and maintenance services are still handled by the local utility.
Advantages and Disadvantages of CCAs
Pros of Community Choice Aggregation:
- Enhanced renewable energy development.
- Encourages job creation.
- Local control of electricity generation – alignment with community’s environmental goals.
- Enables quicker shift to cleaner energy sources.
- Potential reduction in retail electric power prices.
Cons of Community Choice Aggregation:
- Implementation relies on enabling state legislation.
- Push back or resistance from utilities that would face competition from CCAs
- Opt-in vs Opt-out clauses can be a source of confusion for customers.
- Administrative costs.
- Requires navigating many CCA regulations and passing the appropriate ordinances.
Do you still have questions on energy aggregators or other corporate sustainability options? Ask our experts for a corporate green energy consultation at 1-780-628-1857 or by contacting [email protected].