Inside the World of Corporate Clean Energy Procurement

Energy

Jun 3

Christina Yagjian leads global renewable energy strategy and origination at Cargill. According to Forbes, Cargill is the largest private company in the USA by revenue with $177 billion in the fiscal year ending in May, 2023. Before Cargill, Christina managed the renewable energy footprint at Meta, the parent company to Facebook and Instagram and one of the world's largest corporate clean power purchasers.

Our topic today is all about clean power purchasing, why large companies have started buying power directly, how they prioritize their needs across factors like cost and emissions, and how they structure their agreements. This is one of the more complex topics in the climate space, combining carbon accounting with power grid economics and a whole lot of wonk. Cody and Christina keep the conversation accessible to folks who are just trying to understand the role of power consumption, emissions and large companies in the first place. Special thanks to Christina for balancing the need to help explain the overall landscape along with articulating some of Cargill's specific initiatives and focus areas.

Recorded May 15, 2024 (Published June 3, 2024)

In this episode, we cover:

[2:41] Christina's background and journey in renewables
[9:53] Reasons behind corporate power purchases
[11:19] The difference between renewable energy certificates (RECs) and power purchase agreements
[16:08] The role of additionality in power purchase agreements
[22:32] Balancing emissions footprints with the cost of power
[26:07] Role of storage in balancing intermittent renewable resources
[30:12] Challenges and barriers to clean power procurement, such as cost, timing, and market uncertainties
[33:24] Considerations in choosing power generators and negotiating PPAs
[36:51] An overview of virtual power purchase agreements
[43:29] Managing clean power procurement and the need for robust data systems
[45:52] Definition of success in clean power procurement for Cargill

Cody Simms (00:00):
Today on My Climate Journey, our guest is Christina Yagjian, who leads global renewable energy strategy and origination at Cargill. Cargill is the largest private company in the USA by revenue with 177 billion of revenue in the fiscal year ending in May, 2023, according to Forbes. Prior to Cargill, Christina managed the renewable energy footprint at Meta, the parent company to Facebook and Instagram and one of the largest corporate clean power purchasers in the world. Our topic today is all about clean power purchasing, why large companies have started buying power directly, how they prioritize their needs across factors like cost and emissions, and how they structure their agreements. This is one of the more complex topics in the climate space, combining carbon accounting with power grid economics and a whole lot of wonk. I'm sure we delivered on adequate wonkiness for those of you who are deep in this space, but I tried my best to keep the conversation accessible to folks who are just trying to understand the role of power consumption, emissions and large companies in the first place. I appreciate Christina for balancing the need to help explain the overall landscape along with articulating some of Cargill's specific initiatives and focus areas. But before we start...
(01:23):
I'm Cody Simms.
Yin Lu (01:25):
I'm Yin Lu.
Jason Jacobs (01:26):
And I'm Jason Jacobs, and welcome to my Climate Journey.
Yin Lu (01:32):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:37):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help. Christina, welcome to the show.
Christina Yagjian (01:52):
Thanks so much. Excited to be here.
Cody Simms (01:54):
Well, I'm excited too because looking at your background, you have charted a fascinating course through the last decade or so as really the entire corporate world has started paying attention to what is their energy mix, how do they buy clean power, and you've built your career along that same curve currently at one of us' largest privately held companies, and before that, at a giant hyperscaler, you've worked at a major power utility and of course it seems like you started your career in environmental organizing with the Sierra Club, so I can't wait to dive in. We're going to talk all about power purchase agreements and how companies are buying power today and what they want, but maybe let's hear from you about your own path and journey.
Christina Yagjian (02:41):
Thanks so much for having me. It's really such a pleasure to be able to be here and have this conversation today. Cody, I would start with a story that I don't often tell, which is how I would say my climate journey really began, which was, well, I think first spent a lot of time outside as a kid adventuring in a number different locations, Texas, Pennsylvania and Massachusetts when I was growing up. But my climate journey really started in college. So in college I was often sitting in contemplative prayer and meditation. I had a regular practice and when I would sit, I would feel this very deep interconnectedness to the ecological world and also to a shared sense of humanity, so something that was very impactful for me. This was all happening as I was an international studies major at Southwestern University in Georgetown, Texas, and I was struck by the fact that communities who were most disproportionately impacted by the impacts of climate change, communities of color and low income communities were those who were at least contributing to the problem.
(03:43):
So that really moved me to want to make a difference and go into the climate field and in college some internships directly in international development. But then I took my first full-time job with the Sierra Club, and my very first job was working for their environmental partnerships team. We were building relationships, working on campaigns together with communities of color, diverse communities, environmental justice communities, and for me it was a total dream job. How I ended up in renewables was actually a bit happenstance because in the oh eight recession we lost funding for those programs. As often happens when nonprofits lose funding, it's often the diversity, equity, inclusion, environmental justice work that goes first. And so I took the first job I could see within the organization and that was in renewables advocating for clean energy and climate legislation at the federal level.
Cody Simms (04:35):
Do you want to continue on and chart the second part of your career arc?
Christina Yagjian (04:38):
Absolutely. So the next four years, I should say, we're spent advocating on the hill for clean energy and climate legislation at the federal level. Got to see the Waxman Markey bill move through the house, which was first cap and trade legislation that we'd seen here actually move through the House of Representatives and then didn't get taken up in the Senate. And so that for me was really devastating as a 20 something who was very excited about the space, and so I decided it was time to go back to school. I did my MBA and an environmental management degree at Duke University and in school I interned with General Electric in their wind business. My project was a strategic project focused on looking at the additional opportunity for wind offtake in the southeastern United States. I think this would've been the 2013 timeframe, and so if you remember at the time it was primarily large utilities who were buying renewable electricity in the us.
(05:33):
What struck me was that it was buyers who were really setting the tone for what the renewable energy space would look like. It really wasn't happening in the policy space as much as I had hoped. It was really on the buy side. And so I took a job with Pacific Gas and Electric coming out of school. I spent one year in their asset management group and then moved over to their structured transactions team where our team was responsible for sourcing, structuring and negotiating long-term power purchase agreements, wind, solar, biomass, energy storage in front of and behind the meter for the electric utility in Northern California. Really enjoyed that work, but my husband had a chance to move home to his hometown of Minneapolis, Minnesota, and so we decided to move to Minneapolis.
Cody Simms (06:16):
And you really were on the vanguard of clean power buying at that time. I suppose this was really before large corporates were starting to structure their own power agreements, so really as you said, it was the utilities somewhat leading the charge there.
Christina Yagjian (06:32):
That's right, absolutely, and I would say a few interesting points about that. So when I got to Pacific and Electric to their structured transactions team, the immediate work that was given to me was looking at some of their existing contracts, so particularly wind and thinking about how we could amend existing contracts to manage things like negative pricing. So when they had originally executed these deals, they hadn't thought that we'd ever have a need to curtail a wind asset, and so we were opening up existing contracts and trying to amend them to start to adapt to some of the changing aspects of the marketplace that are now very commonplace today. Another primary component of that job was looking at battery energy storage. So similarly something that is very common in the market today, but at the time for California, they were really on the cutting edge of determining how would companies contract for battery energy storage
Cody Simms (07:26):
And that timeframe, which was the mid 20 teens I guess, was sort of the tail end of the shale boom. What were the reasons that these large utilities, specifically pg EI suppose, were leaning in on renewables? Was it more exploratory still or were they starting to look to replace larger swaths of their overall power generation
Christina Yagjian (07:49):
Utilities? There were some different reasons that they were making these decisions, but in large part it was related to compliance obligations that they had in relation to renewable portfolio standards that states had passed. And so it's a great point, and when I sort of go back to the GE project that I had looking at potential additional wind offtake in the southeastern us, there were more nuances to the results of what we found that summer, but what we found was that investor owned utilities in the Southeast really had no incentive to buy renewable power, and as a result, that really wasn't the place that GE should focus on trying to sell more turbines.
Cody Simms (08:25):
Then let's fast forward in your career to where you started actually buying power on behalf of larger corporate entities. How did you see that path emerging to where you decided, Hey, it's time to go in-house somewhere and actually help purchase power and had confidence that these companies were serious about wanting to do this?
Christina Yagjian (08:47):
I spent two years working for Edison Energy, which is now trio. They're a renewable energy advisory group. I was engagements helping companies set science-based targets and then implement their scope to emission reduction plans. And so that was again sourcing, structuring and negotiating corporate renewable energy power purchase agreements, and it was a very fun time. I think for corporates. We had begun to see some of the large tech companies execute power purchase agreements and corporations were trying to get their hands around how do we make good on these decarbonization targets when ultimately the tools that corporations are using to transact in this marketplace are these highly technical swaps and they're exposing our companies to a significant amount of risk. And so you would end up with sustainability teams needing to reach out to their technical accounting group and their tax group and work as a very cross-functional collaborative team to try to understand what were these very new and what continued to be very complex contracting structures.
Cody Simms (09:53):
How have you seen power purchasing evolve inside corporates? I mean, it feels like the initial pass at it was through primarily renewable energy credits where you weren't actually buying electrons, you were essentially buying offsets and it was sustainability motivated. Do you still see the sustainability and emissions reduction motivation driving this or is it moving to become much more of a financial asset financial leverage type of decision? Internally?
Christina Yagjian (10:23):
This kind of plays into the sort of arc of corporate procurement in the sense that there was a point in time for renewable energy procurement where there was a chance that by executing a power purchase agreement that your implied rec value or the value when you look at what you anticipate the cash flows from that contract will be over time, could potentially be positive. And so you might expect that instead of buying a unbundled REC that you could buy this bundled product, commit to this long-term revenue stream for the developer, and that you might actually make money per megawatt hour of energy generated from that facility. From the corporate perspective,
Cody Simms (11:05):
And maybe before we get too far into acronym soup with everybody, just to hit the high points, maybe define what is a REC or renewable energy credit and how is that different than a power purchase agreement?
Christina Yagjian (11:19):
To take a step back, so energy attributes, certificates, also known as EACs are certificates that are created when a renewable energy facility generates. So think when the wind blows, when the sun shines, a megawatt hour of electricity is created and put onto the grid, so is a REC. RECs can be thought of or energy attribute certificates. Energy attribute certificates are called different things in different markets. In the US they're called renewable energy certificates, and in places like Europe, they're called guarantees of origin or regos. In the uk, in Asia, they're called tigers or geck, so lots of different names for these attributes.
Cody Simms (11:57):
I even had the acronym incorrect. So there we go. Renewable energy certificate, not credit. Fantastic.
Christina Yagjian (12:02):
That's right. So these attributes can be bundled or unbundled. These terms mean you can buy the attributes by themselves. So if you think about that underlying megawatt hour that was created at the same time that the certificate was created for physics reasons, you can't actually trace the electrons that were put on the grid to be sure that you did in fact take that electron off of the grid. So a bundled product is that you would be buying or have right to the underlying electricity that was generated at the same point in time and an unbundled product is you were only buying the rights to that certificate.
Cody Simms (12:36):
The way I think about it, please correct me, is if you're buying a REC or renewable energy certificate, you're essentially buying the climate or carbon benefit of that project. You're able to say, Hey, we helped generate this amount of wind power or solar power or what have you. If you're engaging in a power purchase agreement, you get that benefit presumably, but in addition, you're locking in on a price of the electricity that you are getting for that same purchase, and so you're actually entering into a long-term pricing contract around the electricity that you get from this project that you've essentially sponsored.
Christina Yagjian (13:14):
Absolutely. There are a few different ways to create building blocks from. You have this easy acs, they can be bundled or unbundled. There are multiple different methods through which you could procure them, so you could put solar on your rooftop for example. You might not technically have an EAC that's created, but this is a way to retain the ability to point to carbon dioxide emissions from a renewable energy project. A second category would be you have some way to procure through your utility, so you have a green tariff or you have a community solar project that in this example comes with the bundle, the ac, some of them don't. Then you've got what you had articulated a long-term contract for these attributes. Power purchase agreements can be physically or financially settled, but to your point, what sets them apart from these other contracting structures is that they are long-term and that you are procuring the underlying energy and certificate. And then I'm happy to talk through Cody as well how those financial structures work.
Cody Simms (14:17):
Lemme try to spit that back at you. So there's a number of ways you can buy clean power. You can literally buy solar panels and put them on your roof, so that would be onsite power generation where you're having to figure out the cost benefit of the CapEx that you're acquiring for your buildings. There are these green tariffs or other ways renewable energy credits where you're essentially trying to buy the environmental benefit but you care less about the power that you're using necessarily, if I follow correctly. And then there are these long-term structured power purchase agreements where you are acquiring the environmental benefit and the power together and defining a price for the power.
Christina Yagjian (14:57):
That's right.
Cody Simms (14:58):
Let me unpack that even further. When you buy those, you're generally not buying them from a utility, you're buying them from an actual solar farm or a wind farm. You're helping to buy electrons that they are soon have available, or in some cases you're actually sponsoring the project and helping it get interconnected into the grid. There's an additionality difference there I think between whether this power plant is already generating power and they're just looking for a new buyer of their power relative to you are actually contributing dollars that are helping a new clean power plant get built in the first place.
Christina Yagjian (15:30):
That's right. There are a few things happening from a sustainability claims perspective. On one end you have your unbundled EAC. On another end you have a power purchase agreement by which you are buying that bundled product. You can also have additionality claim. So an additionality claim would be we have executed a long-term contract prior to this project coming online and beginning to generate electrons and these certificates. And in so doing, we have allowed that project developer to go to financing parties and seek debt and tax equity in the US financing
Cody Simms (16:08):
The idea of additionality or, Hey, this project has an environmental benefit and it would not have happened if not for your dollars. To what extent does that start to compete with the fact that these PPAs are actually getting competitive just on a pure, I need power as cheaply as possible and solar and wind are the cheapest ways of generating it perspective. There's market competitiveness now happening with these projects as far as I understand it.
Christina Yagjian (16:34):
That's correct. It's tough for those of us in the corporate procurement world. We're trying to balance a number of different things as we think about procurement, similar to how grid operators are thinking about it, we want clean energy, we want it in a safe, reliable, and affordable way. And some of these projects, for example, you might find that a project that has had a 15 year power purchase agreement and maybe with a utility in Europe or even with a corporate buyer who is early to the stage here in the United States is rolling that power purchase agreement off and they're looking for additional offtake and that contract may come at a significantly reduced price to a new build asset that would be coming online today
Cody Simms (17:16):
When it comes to power purchase agreements, those of us who work in the climate or energy space use this phrase all the time, it seems like it's happening everywhere. It's this huge thing and it's growing like crazy, but it's still a relatively niche thing. I think there are a total of 200 companies or something I've seen that have actually entered into a power purchase agreement, so growing, but still not massively mainstream from a corporate procurement perspective. In fact, when I googled to prep for our conversation, how many companies have bought A PPA, there were more results on the first page of Google about a recent merger between Major league pickleball and the Professional Pickleball Association, which is the PPA than there were articles about energy, power consumption.
Christina Yagjian (18:03):
Oh, this is good.
Cody Simms (18:05):
I'm curious what you view your role is in helping other large companies understand how they should be doing this and what you think that evolution looks like.
Christina Yagjian (18:18):
Well, I think this brings up some really interesting points, which is that in the case of Cargill, we recently announced that we executed a power purchase agreement in Germany with one of our large customers. Mars. What we're seeing in the corporate procurement space is that typically companies within the same supply chain, food and beverage, for example, are working together to try to help each other figure out my scope two emissions are your scope three emissions. So from a Cargill and Mars perspective example, there is an interest from our customers for us to reduce our scope to emissions and to the extent that we can bring those down and ultimately help them decarbonize their supply chain, there's a lot of benefits to working together. And also to your point, these are very complex contracts. It's a very complex marketplace to the extent that you can go together hand in hand with another corporation to be able to navigate can really be helpful.
Cody Simms (19:14):
So let's actually take that contract you entered into with Mars in, I think you said Germany. Let's run that through a lifecycle to help all of us understand how these projects come to be. So at some point you all looked at your footprint of power needs and said, we need more clean power in Germany. A how did you know that? And then B, how did you ultimately decide on this particular energy partner to enter into an agreement with in terms of the actual wind provider as well as the actual partnership with Mars?
Christina Yagjian (19:52):
The way that we think about renewable energy procurement at Cargill is we have standards that we set for ourselves in terms of how we buy renewable electricity. And so an aspect of that is that we have market-based boundaries, and so we look to provide clean electricity for our facilities that is sourced on the same grids where our load, so our consumption of electricity is located. So in the example of Germany, that was part of what led us to be looking at procuring in that location. To take a step back, how do corporates get their hands around how they can decarbonize their electricity emissions? We end up in a place where we're looking at carbon accounting. So what we have done is we have looked at all of our facilities globally. We have got 1200 facilities across the globe within the carbon go footprint, and we've determined what are the greenhouse gas emissions that each of these facilities are putting into the atmosphere both from our operations as well as from our purchase electricity. And so in the case of Germany, we looked at that need, we looked at that in terms of megawatt hours and then we sized the size and type of project that we might want to solicit from the market at that point in time. There was also an understanding that based on the load that we had, we might have some economic advantages entering the market with a customer and other corporate because that might from an economies of scale perspective, allow us to access some larger projects
Cody Simms (21:24):
And larger projects presumably could mean better pricing leverage.
Christina Yagjian (21:30):
That's right.
Yin Lu (21:31):
Hey everyone, I'm yin a partner at MCJ Collective here to take a quick minute to tell you about our MCJ membership community. We're just born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcj collective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (22:32):
You mentioned that you start with carbon accounting, you understand the carbon emissions of one of your areas of operation and go from there, and yet we also know that many of these projects from a price competitiveness, I keep coming back to that are also now cheaper than fossil fuel based power. How do you balance the emissions footprint of power you need relative to the straight up cost of power that you need?
Christina Yagjian (22:58):
We have two primary climate commitments that are science-based. One is for our operations that we will reduce our greenhouse gas emissions from our operations by 10% using a 2017 baseline year in 2025. The second is for our supply chain that we would reduce our greenhouse gas emissions from our supply chain by 30% per ton of product sold in 2030. So for that operational emission reduction target, we are looking at both scope one and two emissions. And so scope one being we have a natural gas burner, it's emissions from that activity. Scope two would be from purchased electricity. And so the way that we levelize in order to ensure we are incentivizing the best bang for our buck from an affordability and carbon emission standpoint is we think about all of our potential projects on a dollar per metric ton basis. For example, from my perspective in the renewable procurement space, I lead our global renewable energy strategy and origination work. If I'm looking at where should my team spend their time next, I'm likely going to prioritize a country like Poland that has a very dirty grid as opposed to a country like Brazil where you're pulling much cleaner energy from the grid.
Cody Simms (24:15):
How does timescale factor into the types of purchasing you do? As I understand it, historically, power purchase agreements were done on an annual basis. So over the course of this year, I am purchasing this many megawatt hours of clean power, and yet we all know operations fluctuate up and down in terms of their power needs and the grid fluctuates up and down on an hourly basis in terms of its power need. It's one thing to say for this entire year, we use this much clean power, we use this much dirty power or whatever, fossil fuel power and here's what our emissions are. But it's another to actually compare on a relative timescale basis, maybe you are using a lot more power during times when the grid was much more eid. How you're managing that in your decision making too, because that seems really complicated.
Christina Yagjian (25:08):
So there are a number of corporates who have set targets that are, to your point, hourly matching, and so they're looking on a 24 7 basis at every hour and ensuring that if they were to have consumed 10 megawatts of electricity in a given hour that there was 10 megawatts of clean and renewable electricity put onto the grid. At that same point in time, what procurement standards companies set for themselves I think has a lot to do with this concept of clean, reliable, affordable, safe, and how companies are thinking about balancing those in some instances. At the end of the day, somebody needs to be thinking about how we balance intermittent resources, whether that job should sit with the grid operator, they're the transmission system operator or the corporate buyer, I think is something that we're all working through. As we think about how do you balance all of those different aspects
Cody Simms (26:07):
When it comes to purchasing power, do you start to also think about purchasing storage as a result of that so you can store your power at times when you have excess clean power?
Christina Yagjian (26:17):
Absolutely. So storage is going to play a very key role in helping to ensure that as we introduce all of these intermittent resources to the grid, that we're able to do so in a reliable way. And there are many different ways that that can happen in terms of whether that resource is managed by the utility, whether the market sends a signal that corporates and others should begin to engage in that space through say, capacity markets for ancillary services or energy arbitrage. There's absolutely a role for storage to play in the solution.
Cody Simms (26:50):
We haven't even talked about what Cargill is or what you do yet, so maybe we should do a quick thing there and then I have some specific questions about some of the priorities you have right now in your current role.
Christina Yagjian (27:00):
So Cargill is a large agricultural company. It is one of the largest privately held companies in the world. We have more than 160,000 employees globally and we have employees in 70 different countries. I think in our CDP report last year we reported on greenhouse gas emissions from our operations in 43 different countries. So within Cargill, I lead our global renewable energy strategy and origination work. So I lead a team that is sourcing renewable energy for our global operations. For us, sustainability is very core to who we are, so our purpose as a company is to nourish the world in a safe, reliable and sustainable way. At Cargill, we think about sustainability in three primary pillars, people land and water and climate. And as I mentioned earlier, we have climate commitments for both our operations as well as our supply chain.
Cody Simms (27:52):
Cargill's a big, as you said, giant company with lots of different business lines, but as I understand it from a primary perspective, Cargill, a large business is commodities trading. You don't own many of the farms that Cargill ultimately produces grain out of, but you're driving a lot of the trading activity of this at a global level. Am I following correctly?
Christina Yagjian (28:13):
That's absolutely correct. When I came to Cargill, I didn't quite have my arms around how significant we are in terms of the number of types of businesses that we are in, and then again, to your point, what a significant role we play in the commodity trading space.
Cody Simms (28:47):
It's a big responsibility as we're trying to ensure that this growing population in the world continues to have food to eat, but also is looking at having food that is produced in a sustainable way and isn't destroying topsoil and doing all the things that mechanized agriculture has in many cases created some problems with. I know that's not what you're specifically focused on, but I think it's just good to point out that the power procurement side of Cargill is but one piece of where Cargill has to think about large environmental problems.
Christina Yagjian (29:22):
That's right. I would say my job is seen internally as the easy work in terms of the types of solutions that we're working to come up with across our value chain.
Cody Simms (29:32):
So when it comes to your job and buying power for these 160,000 employees around the world, what are currently the big barriers to running on totally clean power all the time? We talked about this 24 7 matching or whatever, whether it's that or just thinking about continuing to increase your clean power mix, is it cost? Is it speed to getting these projects up and running because of backlog, transmission interconnection queues? Is it just having enough people around the world who understand how this works in all the different locations that Cargill operates? What's holding Cargill back as an example?
Christina Yagjian (30:12):
If we look at the renewable energy space in general currently, there are a number of challenges that we see that can be seen across on a global scale. So we see upward pressure on cost, and so you mentioned interconnection queues, but also interconnection costs, sort of every cost component that goes into the price of renewables. There's been pressure in recent years if you think about the cost of capital, high interest rates, existing solar tariffs, threats of solar tariffs, the cost to permit these projects, and again, that transcends many different markets globally. Additionally, you see increased demand for these types of projects. So you've got more corporate buyers, more utilities entering the space, which is also putting pressure from a supply and demand perspective, and then you have uncertainties in the marketplace. So in the us, will we continue to benefit from tax credits in the renewable energy space if our administration changes similar questions across other markets as well? Those are some of the key impediments to success in this space. In addition, of course, there's timing. We can't move fast enough to help curb the impacts of climate change and to decarbonize our operations. And particularly what keeps me up at night is thinking about how do we do that across the global footprint across some markets that are more open than others, some markets that are more heavily coal dependent than others, and sort of navigating the diversity that you see spanning across these different marketplaces.
Cody Simms (31:47):
You earlier used that example of Poland saying, "Hey, they have a really dirty grid. This is an area we should be looking at as a next frontier for us as we're thinking about where we might buy power next." How do you balance thinking about, I know I can go to this market and get it more cheaply. I know I can go to this market and drive more emissions out of the grid. I know I can go to this market and get it up and running faster. I know I can go to this market and the regulatory structure is such that if I generate some tax credits, I know I can trade 'em to somebody else and make some money that way. These are all very challenging factors to have to think about at a global complex business level.
Christina Yagjian (32:25):
So the way that we think about which countries to prioritize first is we look at market accessibility and cost. There are markets globally where you cannot buy not only a bundled EAC, but an unbundled EAC. And so we have standards that we've set for us in terms of our procurement. So we buy when possible bundled energy attribute certificates we buy within the grids where our consumption is located. When we can, we prioritize additionality. We need to have the ability as a corporate to be able to procure. If we do, then we take a look at what is the cost to procure, and we begin in the countries where we see those two factors overlapping.
Cody Simms (33:05):
And then you go into this market, you say, Hey, we know we want roughly this number of megawatt hours of access. Are you putting out an RFP? Are you looking at what projects already exist that might have leftover capacity in them? How do you determine what power generators to even approach?
Christina Yagjian (33:24):
Both. So it's a combination of first ensuring that we have that number right as we decarbonize our electricity footprint. We have a team of people within Cargill who are also working to decarbonize our operational footprint. So understanding demand. So are we going to be switching from a gas fired boiler to an electric boiler and how might that impact the quantity of megawatt hours that would need to procure from renewables? So the process looks like first we work to understand the exact quantity of megawatt hours that we'll need to procure by ensuring that we understand if there's any significant change in demand from those who are managing our operations. Second, it is an art, not a science. So in large part is it's do I know companies who exist in this marketplace who I've had a strong track record of working with in the past, in which case we might hold a small bilateral competitive process. We talked to a few companies, we identified the right one. In other markets, it might make more sense to host a more formal competitive RFP for procurement.
Cody Simms (34:30):
So if you have a relationship and hey, I trust this person, I trust the timelines they're going to give me, I trust that they're going to be able to generate the amount of power I want. Maybe you're able to kind of go direct, Hey, it's business. Business is all built on personal relationships, but to the extent you have a high priority market where that's not the case, you may come in a little bit more market blind and see who shows up and then do all the diligence you need to ultimately make the decision to enter into an agreement.
Christina Yagjian (34:56):
That's right, and I would say a few points. So that makes me think about the fact that many people who are not in the renewable procurement space don't appreciate how much of an art or how complex these contracts are. And so I would be very curious to hear what other buyers say, but I think the average PPA negotiation time is six to nine months. And so knowing that you're working with a partner who is sophisticated, thoughtful, looking at expanding, thinking about the whole pie and the negotiation and how to collaborate with a buyer are really important aspects. I would say very fundamental aspects that hold a lot of weight in the determination of what project to work with. So for example, if we host an RFP, we're looking at both quantitative and qualitative aspects, and I would say those qualitative aspects they have to do with both the counterparty. They also have to do with because these contracts are being executed prior to the projects actually being constructed and coming online, what are some of the key development risks that are still outstanding on these projects? Because at the end of the day, as a buyer, if you're signing up this project early on, you're agreeing to take on some of the risks that that project may or may not actually come online and generate at the volume that you're expecting it to when it's supposed to.
Cody Simms (36:15):
So you mentioned six to nine months to negotiate the deal. What's the typical timescale from when a deal is negotiated to when the power plant's actually generating power that you're able to use, that you are experiencing today?
Christina Yagjian (36:27):
I would say between two and three years out, and again, this of course depends on the market. It depends if you're doing a physical versus a virtual agreement, but typically in large part because we're seeing, let's say for example in the US long lead times on these interconnection queues, typically four years from when they enter the queue to when they actually might have that interconnection agreement, we would budget two to three years to see a project come online.
Cody Simms (36:51):
And you mentioned virtual power purchase agreements. Are you seeing those growing in execution or are you seeing those becoming fewer
Christina Yagjian (37:02):
Typically in a market where a corporate can execute a physical power purchase agreement? That would be my preference. There's a lot less risk that comes with it in terms of the way that the contract itself is structured, but there are many markets where that is not the case and that is not possible. And so as we see more and more corporations entering the space, we are going to continue to see a significant number of virtual power purchase agreements, particularly in the United States, where in many markets it's the only way that they can access renewables.
Cody Simms (37:35):
Can you describe one for us?
Christina Yagjian (37:37):
Happy to. So in a virtual power purchase agreement, a buyer would commit to pay a fixed price in exchange for the wholesale market electricity price in a given hour. These contracts are fixed for floating swaps. So let's say I'm the buyer, you are the seller. I agree to pay Cody $50 per megawatt hour of generation as available from a wind or solar asset, and I receive in exchange the floating market price. So let's just say the market settled at $45 in a given hour. I've committed to pay you 50, I owe you $5 per megawatt hour generated in that hour under our contract.
Cody Simms (38:22):
So you're basically not purchasing electrons at a dedicated solar farm or wind farm. The stuff generated here I can claim are my electrons. You're instead buying 'em almost from an exchange saying, Hey, I know I'm getting this amount of clean power. I don't necessarily know where they're coming from, but it is for sure coming from a clean power and the person selling it to me is certifying as such.
Christina Yagjian (38:45):
That's why you'll often hear these described as virtual power purchase agreements or financially settled power purchase agreements because that's right. In this instance, you're not taking physical delivery of those electrons.
Cody Simms (38:56):
Okay. I want to go a little bit more into your past and then we'll start to wrap things up. Today. You're at Cargill, you're buying these power purchase agreements all around the world. You mentioned they're starting to become supply constrained because there is this increasing amount of demand. A lot of the demand that at least I understand is coming from big tech companies who because of their growing footprint for data center needs driven by AI and cloud computes are needing a lot more power and many of them have made these very large clean energy power commitments. And you worked at Meta before your current role at Cargill. I'm curious to hear how working inside a large tech company might be different than the work you're doing today at Cargill. The different kind of considerations that you maybe had in your past role at Meta
Christina Yagjian (39:50):
In some ways very similar and in some ways very different. So if you think about the consumption of electricity from a data center, you have to your point, very significant consumption, but you also have very standard consumption. So most data centers are going to look to be fairly standardized in terms of what their load looks like, what their load profile looks like, and they're also typically, and let's just say in the case of Meta, they have a 100% volumetric target, so they would be covering their annual consumption 100% by clean and renewable energy. They achieved that in 2020 for the first time one of the years that I was there. So they're able to come in to a fully regulated utility in the United States and say, in order for us to cite a data center here, you need to ensure that there is a way for us to be able to procure clean and renewable energy.
(40:46):
And we also know exactly what our need is going to look like and maybe not exactly, but we have a fairly good sense of what that need is going to look like. For a company like Cargill where we have 1200 facilities across the globe, across many different types of business and processes and our load is existing, we don't have quite the same leverage from an existing load perspective. We also don't have a one size fits all solution in the sense that no two of our facilities are the same. And so the types of renewable energy solutions for each of these different facilities, each of these different markets is going to be very unique and require a very different type of sourcing strategy.
Cody Simms (41:31):
Got it. So hearing that for these large tech companies who are buying huge amounts of power right now, they're able to show up and say, Hey, if you want my data center in your geo, and presumably they're pulling in local congress people and local governors and whatnot and saying, we'd like to set up operations here, but here are our requirements. Let's bring the utility together. Let's bring the local power generators together and figure out how we may solve this. Otherwise, this state over here also looks pretty good. Whereas you're saying, Hey, we already have this footprint. We know relatively what our needs are, and now we're in the process of swapping it out as we go.
Christina Yagjian (42:06):
By no means are either of the jobs easy. I think I make it sound easier than it might be. As you think about the type of proliferation that we hear we'll be seeing from data centers, the proliferation of artificial intelligence, they are going to need to be citing data centers in many different markets regardless of the renewable energy access. And so I think their jobs are getting increasingly more difficult. The other way that that touches our work at Cargill is all energy consumers are watching the tech space to understand what the impact from a demand perspective is going to have on the grid. For example, if you asked me a few years ago about whether or not a corporate should buy renewable energy in the Southwest power pool, so think sort of Oklahoma in the United States, I would say I think that there's not going to be a lot of demand growth there, and so I don't know how confident I feel in the wholesale market pricing and taking a bet on as we see more renewable coming online, coming online at incremental cost, I should say that is zero, and coming online in a place where we don't have a lot of demand growth, I don't want to take a bet on those wholesale market prices.
(43:17):
Well, that has changed as we look at different markets and what a significant impact the uptick in the data center growth will have from a demand perspective on power pricing,
Cody Simms (43:29):
How do you manage all of this? Do you have software? Is it an insane, crazy amount of spreadsheets? What does your actual internal operations look like for navigating the different agreements you have in different geos and how that matches the power consumption that your companies are actually doing in real time, et cetera.
Christina Yagjian (43:50):
Something I was very impressed with when I came to Cargill was what a good job we do of managing our carbon data, and I should say our greenhouse gas accounting system. So we have a very robust system for understanding our greenhouse gas emissions across our entire global footprint, data related to our power purchase agreements or our contracts. We're newer in that space, and so our systems are currently in the process of evolving to be more and more robust, particularly as we expand from executing power purchase agreements in the US and Europe and expanding more broadly to be sure that we can have real time data feedback loops from some of these different projects, but that's continuing to evolve.
Cody Simms (44:38):
Are there areas where you see room for software innovators to come in and help you out with some stuff, tax credit, transferability, understanding, forecasted demand need? I don't know, I'm making stuff up, but I'd love to hear from you what it might be.
Christina Yagjian (44:53):
There are a lot of really great software development companies out there in this space. I've been impressed with, particularly companies that are looking at how to better understand wholesale market pricing, looking at the correlation between weather data and price forecasts. I am less worried about data management from a understanding my contracts than I am understanding how to better wrap my head around long-term forecasts for power market
Cody Simms (45:27):
Pricing. And it sounds like based on your earlier comments, any technologies that can help speed up interconnection timelines are also probably a good thing.
Christina Yagjian (45:34):
I completely agree.
Cody Simms (45:36):
I know we're up against time. I have one other question for you, which is based on all this, what does success look like for you? How are you judging whether or not ultimately a few years down the line? Yeah, I feel like we did our job here.
Christina Yagjian (45:52):
It feels really great to have achieved our 10% reduction in our operational emissions a few years early. That's a 2025 target that we have and we've achieved it. Success moving forward will be when Cargill sets our next standard, which we are in the process of setting and I believe will be a stringent standard that our team is able to contribute in a very significant way to that standard. I would imagine that as we look across our scope one and two emissions scope two through renewable energy procurement is going to play a very significant role in ensuring that we can meet at least the near term aspects of that target. And so I think we'll have our work cut out for us over the next few years.
Cody Simms (46:36):
Christina, thanks for putting up with my questions. This is such a complicated topic. I know we didn't necessarily flow through it in a perfect flow chart, but I feel like we hit on a lot of it, and so I appreciate you taking the time to share your incredibly deep knowledge in all of this with us.
Christina Yagjian (46:54):
My pleasure. Thank you so much, Cody.
Jason Jacobs (46:56):
Thanks again for joining us on My Climate Journey podcast. At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. If you'd like to learn more about mcj Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter @mcjpod
Yin Lu (47:22):
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Cody Simms (47:32):
Thanks, and see you next episode.