July 19, 2016

Choose the Right Energy Advisor by Asking the Right Questions

By Edison Energy

In a recent post, we talked about the emergence of third-party energy advisors who are helping organizations with the design and implementation of renewable energy strategies. Before entering into this very important relationship, it is critical to vet a potential energy advisor to ensure they are the right fit for your organization. This process requires asking very pointed questions about a variety topics:

Track record. Ask how many power purchase agreements (PPAs) a prospective partner has helped clients execute, and be sure to ask for specifics. For example, some energy advisors will claim credit for PPAs related to former clients or for PPAs related to services other than the one you’re interested in. The energy advisor you work with should be able to share information regarding the number, size and scope of transactions they’ve completed and in which markets and industries these projects have been completed, and whether they’ve done offsite transactions, onsite deployments or both. It’s also critical to understand whether or not they’ve worked with companies similar to yours.

Market access. A quality third-party energy advisor should be able to tell you the number of projects on which comprehensive economic and developmental intelligence is maintained — and how frequently it’s refreshed. Learn how quickly they can share a short list of projects based on your specific criteria, and how they develop these criteria. Your organization needs to find the best deal(s) possible in the market and that’s hard to do if an advisor can’t provide comprehensive market access and intelligence.

Analytics. The economic- and risk-analytics required to properly arm senior corporate decision-makers are one of the most critical capabilities an energy advisor needs to provide. Developer-supplied project data need to be reviewed and normalized. An advisor should be able to tell you how they evaluate and contextualize future energy prices, how they take weather variations into account, and how developer and project risk are evaluated and ranked. Ask for a detailed explanation of an advisor’s analytical capabilities and their approach to forward energy prices.

Developer relationships. An energy advisor needs to be fully independent and working on behalf of the customer’s best interests, not the developer’s. Inquire about their compensation structure with developers and whether or not it is subject to negotiation. It’s also important to know if the energy advisor accepts compensation from developers to influence project inclusion or selection. If your organization engages an energy advisor, but you ultimately choose not to execute a PPA, ask about your organization’s financial responsibilities. Finally, it’s critical to understand what PPA the advisor typically uses for commercial and industrial (C&I) transactions, and why.

The team. Renewable energy analysis and execution require a team with multidisciplinary knowledge and experience. Ask about how many renewable energy transactions staff have executed before joining the firm, and their experience. It’s also important to know how the team handles accounting treatments of PPAs.

By asking a few simple questions, an energy manager or sustainability leader can quickly identify providers with the right experience, accomplishments, structural and analytical capabilities to successfully execute an offsite renewable PPA that their goals of reducing energy costs and risks.