The role of long-term purchasing in renewable energy deployment

The availability of investment capital for new renewable energy assets is a key challenge for power system evolution. However, the enabling conditions for renewables investments are often overlooked, which could lead to an overestimation of renewables’ deployment potential. Securing financing for renewables depends on stable and predictable revenue. Long-term contracts provide such revenue and thereby enable their deployment. The entities that are equipped to offer long-term contracts are limited to utilities, independent power producers, and large corporations. Here, we explore the extent to which renewables deployment may be constrained by limited demand from energy offtakers. We identify high creditworthiness, demand volume and energy use predictability as common features among offtakers that enable their long-term price commitments in offtake contracts. To assess the potential purchasing demand for renewables in the United States, we combine utility renewable portfolio mandates and climate pledges with electricity consumption estimates from major corporations through 2035. Our findings suggest that the purchasing demand from utility and corporate offtakers could constrain renewables deployment under many scenarios. We further explain that even when renewables are at cost parity with fossil-fueled assets, their relatively high up-front capital expenditure means that long-term offtake agreements are usually needed for their deployment. Such understanding has important implications for policy and power systems planning, which may often overstate renewables demand and omit the critical role of offtakers for renewables deployment.