One strategy attracting more interest among local governments is buyer-led aggregated procurement. Through this approach, two or more local governments (or other stakeholders, such as public institutions, non-profits, corporations or schools) form a buyers’ group. This group works together to define their preferred clean energy project and find the right developers with whom the members can contract to bring it to fruition.
While aggregated renewable energy procurements can occur at different scales, the most common projects are for community-scale or larger installations (usually with capacity of at least 500 kilowatts (kW)). The procurements are executed as physical and virtual power purchase agreements (or PPAs, which are renewable energy contracts between a customer and a developer) or contracts with utilities.
Here, we answer five key questions about how local governments can expand clean energy through aggregated purchasing:
1) What Are the Benefits of Aggregated Renewable Procurement Projects?
Aggregated procurement of renewables can bring a host of benefits to buyers.
As is often the case, volume brings discounts, and aggregation can help lower costs for individual group members compared to what they would pay by procuring a smaller project on their own. The administrative costs of procurement — such as hiring an energy consultant — are divided across all group members, which means each member pays less. And by approaching developers with pooled demand for electricity, the group of buyers can secure a better price per megawatt (MW) as they can access economies of scale.
Beyond cost reductions, aggregation enables buyers’ group members to share knowledge and expertise with fellow group members, and to support each other as challenges arise. For smaller buyers (like small towns and municipalities), the ability to pool demand with larger entities (like big cities and corporations) will likely create procurement opportunities that would not otherwise be possible.
These aggregated projects can lead to significant emissions reductions, especially if buyers support projects in areas where electricity is currently supplied from carbon-intensive sources like coal.
Finally, when cities, towns, corporations and other entities band together to make large and innovative renewable power purchases, they create headlines that can attract attention and spur additional action by other local governments across the country.
2) What Are Some Examples of Renewable Aggregation Projects from Local Governments?
To date, some prime examples of local governments involved in aggregated procurement include:
Arlington County, VA in 2020 partnered with Amazon and worked with the utility, Dominion Energy, to execute a virtual PPA for a portion of the generation from a 120 MW solar array developed in Pittsylvania County, VA.
15 local governments, school districts, and local public authorities in Centre County, PA, formed the Centre County Solar Group. The group released an aggregated RFP on September 13, 2022 to procure 32,000 MWh of solar energy per year (~20 MW) through a PPA.
3) What Are Some of the Challenges Local Governments Face with Aggregated Renewable Procurement?
Aggregation deals led by local governments have been limited because they are still a fairly new concept, and most cities don’t have staff with deep expertise on renewable energy procurement mechanisms. As a result, it’s critical that local government practitioners and leaders learn how to execute aggregated procurements and understand the key considerations and challenges associated with them.
In addition, large-scale aggregated deals are often time-intensive and have specific legal, regulatory, accounting and risk considerations that require expert review and broad staff engagement at the local level. Oftentimes local governments lack the resources and staff to navigate these challenges like large corporations can.
Despite these potential barriers, many local governments see the value in aggregated procurement and are actively seeking to broaden their knowledge. With the right education, resources and investments in place, local governments can speed this process up and add aggregated procurement to their toolbox for advancing their clean energy and decarbonization goals.
4) What Are Some Strategies for Successful Aggregated Renewable Procurements?
For local governments considering or pursuing an aggregated procurement opportunity, here are five potential strategies that can increase the likelihood of success:
Enlist a dedicated project manager.
Every successful procurement involves a multi-step process that must be coordinated across all members of a buyers’ group. This complex and multi-faceted process requires dedicated staff time and resources for project management. Having a single person or entity — ideally someone outside of the core group of procurement members — take on this responsibility will ensure the project has appropriate support for facilitation, synthesis and administration, and ultimately set up the group for success.
A council of governments (COG) or regional planning commission (RPC) is perfectly situated to fill this role and support a buyers’ group. The example from Centre County, PA referenced above, as well as the Baltimore Metropolitan Council’s work in Maryland, demonstrate how valuable these entities can be in supporting local government buyers.
Establish strong internal buy-in.
To effectively work with a buyers’ group, a local government must receive buy-in and support from its own leadership. This buy-in may be derived from previously adopted goals or plans related to clean energy and decarbonization. More likely, though, local government staff will have to meet with leadership, as well as budget and legal staff, to pitch the aggregation concept and address specific questions associated with it. By garnering support from leadership at the outset and keeping them apprised throughout a procurement process, local government staff may be able to marshal more resources and face fewer barriers in the final contracting phase.
Bringing multiple independent parties together can lead to complications and challenges. It’s important to develop a buyers’ group that is committed to the aggregated procurement strategy and aligned around important project elements.
Shared timelines, goals and project criteria can create a smoother experience and lead to fewer internal disputes. Further, this alignment will lead to a more robust and thorough Request for Proposal (RFP), which the group will release when looking for project developers.
When possible, leveraging an existing network of partners or engaging stakeholders who have been effective partners in the past can support a better group dynamic and procurement experience. For example, in Pennsylvania, the Delaware Valley Regional Planning Commission (DVRPC) convened a group of local governments and facilitates regular meetings to support the group’s progress toward an aggregated deal.
Ensure a buyers’ group has sufficient demand.
Large-scale PPAs will vary in price based on several factors, one of which is the size of the project. As projects grow in size, developers can better access economies of scale that reduce the price per MW. This cost reduction can be significant when moving from projects sized 1MW-5 MW or 5MW-10MW. But at a certain threshold — about 20MW — the savings for adding additional MWs becomes minimal. Therefore, it can be beneficial for a buyers’ group to consist of members with an aggregated demand of at least 20MW to ensure the best pricing possible.
While a smaller project is feasible, it may not be as attractive to developers and will likely be more expensive. Early in the process, a buyers’ group should discuss each of its members’ loads and the amount of electricity they wish to procure.
Adopt a formalized governance structure.
Whether convening a buyers’ group of long-time collaborators or first-time partners, it is important to develop an agreed-upon governance structure that explicitly defines how decisions will be made, outlines the procurement process and expectations, and addresses shared costs. This structure will serve as the foundation for the buyers’ group and help to settle any disputes among its members.
Further, it will define who can participate and when they need to become involved. Some groups allow “piggybacking,” which allows new parties to join even after the release of an RFP. While agreeing on a governance structure is an important step, it may also be useful for all parties to signa more formal Memorandum of Understanding (MOU).
5) How Can Local Governments Ensure Aggregated Renewable Projects Benefit Communities and Enhance Equity?
While large-scale aggregated procurements can make significant strides toward local governments’ clean energy and decarbonization goals, it is critical for local governments to also consider how these types of deals could support broader community benefits and advance equity.
Local governments should be thoughtful about who to engage when developing a buyers’ group, specifically whether they should invite representatives from housing authorities, school districts, community-based organizations, or other public or private entities. These stakeholders may have clean power goals, but lack access to large-scale deals individually due to their size. Additionally, they may not have the technical or legal expertise, or the staff bandwidth, to advance a deal on their own. Finally, if a procurement leads to lower energy prices, these entities could reduce their operating costs, thereby enabling them to expand their service provision. When local governments are thoughtful about inclusion and composition of their buyers’ groups, they can advance community-wide benefits and equity on top of all the other benefits provided by aggregated procurement.
Beyond establishing an inclusive group, local governments should also consider opportunities to align this group around the elements it can include within a contract to support community-wide benefits and equity. For example, groups may want to require the developer to hold educational workshops or job training programs in the community, or ensure that the developer protects local biodiversity. The group could also add development stipulations around wages or contracting with Minority, Women and Disadvantaged Business Enterprises (MBDWEs).
Moving Forward with Aggregated Renewables Procurement
Large-scale aggregated procurement presents an opportunity for local governments to effectively advance clean energy and decarbonization goals, while simultaneously deepening local partnerships and improving quality of life and economic conditions in their communities. As local governments pursue aggregated deals with greater frequency, more case studies, lessons learned and best practices will emerge. But there is already a field of research that supports aggregation as a valuable procurement strategy. Local governments should explore its benefits and challenges to determine if they can be an early adopter.