10 June 2022 | Climate Tech
21st-century renewable energy procurement
By
Two-sided marketplaces are integral across climate tech. This year, we’ve spent lots of time talking about carbon removal and carbon markets. Considering how fractured and opaque the voluntary carbon market is, it’s an excellent example to appreciate the value of a marketplace that matches buyers and sellers easily and transparently.
Several other markets within climate and energy are cumbersome and inefficient. Renewable energy procurement is one.
What happens when a company, perhaps a data center operator or a major manufacturer y, wants to buy wholesale renewable energy to offset their energy consumption? That’s a question I recently asked Noam Yaffe, the CEO and founder of RenewaFi. Large-scale renewable energy buyers might start by preparing an RFP for well-known renewable energy project developers, which is not entirely dissimilar to what happens in carbon markets. Preparing the RFP alone could take 4-6 weeks. By the time developers fill out their proposals and the buyer reviews them, months may have transpired. Then a significant policy change might happen, making them start the whole process from scratch.
Noam recognized a significant opportunity to save companies time, money, and human capital by automating large chunks of this process and building a more efficient marketplace for buyers and sellers to transact. Making the end-to-end process more efficient could also drive emissions reductions and help renewable energy developers scale, making this an impact story, too.
Still, automating processes ranging from compliance to insurance and finance for multi-million dollar deals is no small feat. Nor is building trust with companies that have been doing the RFP rodeo for decades. To learn more about what Noam and RenewaFi have planned, I’ve compiled Q&A from our convo below 👇.
We’ll also get an idea of where they’re headed next after a successful seed round. Hint, they recently hired the former Director of Energy and Environmental Products from one of the largest commodity exchanges in the world.
The wholesale renewable energy market
Where do deals in the wholesale renewable energy market usually happen? Who ‘has’ the deals, so to speak?
Both sides of the marketplace bring one element. Sellers bring existing projects or projects under development to the market. And they need demand signals for their project to be bankable. But before RenewaFi, the market was led mainly by buyers, who would send RFPs to sellers. Sellers had to sit around and twiddle their thumbs until new RFPs came along.
One of the many benefits of RenewaFi is that our market can go ‘from seller to buyer’ as well. Sellers can say, ‘let me tell you about my projects in development, or let me tell you what I’m willing to do.’ Our participants tell the marketplace what they want, whether buying or selling, and the technology gives you data on what’s available.
Talk to me about market dynamics in the U.S. right now. Is the market more supply or demand constrained?
Historically, this is a demand-led market. Large energy buyers would initiate RFPs. Now, with the supply chain crunch and geopolitical issues this year, supply has gotten very limited and demand has skyrocketed. So the market is still demand driven, but sellers have a lot of power right now. Unfortunately, they’re struggling to meet milestones at times. For instance, if you can’t get steel, it’s hard to develop.
Revving up RenewaFi
How did you land your *first* customers? Going from 0 to 5 and getting that credibility is much harder than 50 to 100.
One of the first auctions we facilitated was for a Fortune 200 client. We launched the auction in 15 minutes. At the end, their global director of renewable energy procurement started laughing. He said, ‘this usually takes me 4-6 weeks.’
After that first auction, he introduced RenewaFi to all of his U.S. supply chain partners and said, ‘We want all of you to go green, and we’d love it if you used this technology.’ Customers would also write us letters of recommendation, which was super helpful. Also, when sellers see that their top 15 competitors are on the site, that’s helpful. They don’t want to miss out.
What does onboarding new market participants look like practically? Who are some of your first customers?
Our marketplace participants are all pre-vetted. We ensure they’re reputable, meaning they’ve done deals before, have access to credit, and fit all sorts of other criteria. Everyone also agrees to a standard set of marketplace rules, e.g., confidentiality. From there, we teach them how to use the tool.
We have over 50 market participants already, including almost all major U.S. wholesale energy traders. On the sell-side, we have most of the key renewable energy developers. On the buy-side, we have a range from Fortune 500 companies to smaller factories. Two of our first clients were Anheuser Busch and Energy Transfer Partners. For them to start using this technology and see how it could be accretive for their business was validating.
What drives the business model? A fee on transactions?
Success fees. We take a small cut at the end of deals when both parties are satisfied with transactions. The average advisory fee on the sell-side outside our marketplace is normally around $1M. We are significantly lower than that. We make it dramatically more accessible for parties to make a market and automate admin tasks, logistics, and analytics.
Looking ahead
What’s the most important thing to know on the policy and regulatory front?
It’s critical for sellers to have direction on where the market is headed. Clear guidance, rules, incentives, and a willingness to listen to all stakeholders is critical for any administration. Uncertainty destroys projects. Policy changes and uncertainty can turn projects from investable to uninvestable.
Congrats on the successful seed. What’s next for you all post-raise?
Product, go-to-market, and hiring. Building out the team is the core purpose of this raise. We brought in the former Director of Energy and Environmental Products from the CME Group to help us build the marketplace and explain our story to the market. We’ve also expanded our technical coding capacity to serve customers.
Which markets in the U.S. are you most excited about renewable energy development?
I’m still excited about Texas renewables. It’s possible to make investment cases there, there’s still a lot of activity, and it’s a liquid market. Also, in the future, when renewable energy becomes ‘in-the-money’ in PJM, you’ll see a *flood* of new deals happening. I don’t know when that’s going to happen, but that market has the potential to be designed well for renewables activity.
In closing
There are lots of things that are critical for the development of renewables. As we’ve explored, a transparent, consistent policy environment is one of them. This year has seen severe challenges arise on that front. Infrastructure, better energy storage, and transmission are also critical.
Noam mentioned PJM, a regional transmission organization (“RTO”) that coordinates wholesale energy transmission across 13 U.S. states and D.C. Looking at recent events in Texas helps appreciate how RTOs like PJM can help scale renewable energy. About a month ago, Houston electricity prices skyrocketed as several power plants shut down for maintenance amidst a heatwave.
Less than a hundred miles away, however? You could buy electricity at 1/
Tying it back to RenewaFi, as the policy environment becomes more friendly and infrastructure and other technologies advance, renewable energy development should accelerate significantly. In this future scenario, RenewaFi’s business becomes even more important. As the market ramps up and people start doing deals hand over fist, RenewaFi can help make sure those deals get done in a 21st-century manner, i.e., quickly, efficiently, and with transparency.