Corporate energy plans are playing a bigger role in the renewable energy market
Energize Weekly, January 25, 2017
Big companies—from Google to the candy maker Mars—have become big players in the renewable energy market, which has until now been dominated by utilities.
In 2105, large corporate customers contracted for a record 3.2 gigawatts of renewable energy, including the majority of wind power purchase agreements (PPAs) for the year, and another 1.6 gigawatts was contracted in 2016, according to the Rocky Mountain Institute’s (RMI) Business Renewables Center.
The institute estimates there could be as much as 60 gigawatts of corporate renewable energy by 2025.
The trend is yet another challenge for the utility industry as they see some of their major customers developing their own energy plans.
“One of the biggest developments in the renewable energy marketplace in the last 12 to 24 months has been the rapid growth in corporate renewables purchases,” according to a renewable energy procurement survey by the accounting and consulting firm PwC. “Some leading commercial and industrial companies are now playing an increasingly important role in the evolution of the renewable energy sector.”
There are several factors driving the trend, including corporate sustainability and greenhouse gas emission reduction goals, as well as the more basic business aims of cutting cost and hedging the price volatility of fossil fuels.
A survey by Advanced Energy Economy, a business association promoting renewable and clean technologies, found that 71 of the Fortune 100 companies, the largest in the country by revenue, have renewable or sustainability targets, up from 60 companies two years ago.
The survey also found that 22 companies—including General Motors and Wal-Mart—are committed to powering all their operations with renewable energy.
Worldwide 87 companies, such as IKEA, BMW Group and H&M, have committed to the goal of using only renewable energy, according to RE100, an organization composed of international companies and led by The Climate Group, an environmental organization.
“Visible brands are looking at this because their investors want it, their customers want it, even their employees want it,” said Hervé Touati, a managing director at the Rocky Mountain Institute.
RMI’s Business Renewable Center, which provides support for companies looking to add renewable power, started in February 2015 with 28 member companies. It now has 178 members, Touati said.
The continued decline in renewable energy prices has also spurred the corporate market. The cost of a solar panel, for example has fallen to 65 cents a watt compared with $4 a watt in 2008, according to Bloomberg New Energy Finance.
Among the recent corporate renewable energy initiatives are:
- A deal by Amazon for a 253-megawatt (MW) wind farm in Texas with Lincoln Clean Energy. That followed Amazon solar and wind projects in Virginia, Ohio and North Carolina.
- An agreement between Johnson & Johnson and energy developer E.ON for a 100-MW wind farm, also in Texas.
- Microsoft in November announced a commitment to purchase 237 MW of wind power from Wyoming and Kansas projects for its Wyoming data center.
- Wal-Mart, one the largest corporate renewable energy buyers in the U.S., has 370 onsite solar projects.
- Apple and Switch, a data storage company, agreed to power purchase agreements to take electricity from two solar farms with 129-MW capacity under a green tariff developed by NV Energy, Nevada’s largest utility.
“The fundamental change here is that these companies are committing funds. They are making a financial stake in renewable energy,” said Jeff Lyng, a senior adviser at Colorado State University’s Center for the New Energy Economy. “Until now, most renewable energy investments have been made by utilities and paid for by consumers.”
There are three basic ways corporations are obtaining renewable energy. A company can contract with a developer to build renewable projects on a company’s building or land. For example, IKEA has installed solar panels at 44 of its 49 U.S. stores.
Another option is for a company to buy a share in a renewable energy project, such as a solar garden. Companies can receive the Renewable Energy Certificates (RECs) that a renewable energy project creates.
A third option is a power purchase agreement with a third-party developer on the gird. This has been the most popular mechanism, but can only be done in states with deregulated markets. Such markets cover about 60 percent of the country, and 95 percent of the corporate renewable energy deals have been done in those markets, Touati said.
In a traditional PPA, sometimes called a physical PPA, the buyer contracts with a developer of a generating project to take the electricity. There has been limited use of physical PPAs.
The most widely used device has been a so-called virtual PPA, according to Touati. The company purchasing the PPA agrees on a set, long-term price for the electricity. The project operator sells the electricity into the wholesale market. If it is below the agreed-upon per kilowatt-hour price, the purchasing company pays the operator the difference. If the electricity sells for above the contract price, the company gets the cash difference.
“It is a hedging strategy for the company,” Touati said. While a corporate buyer can’t say that it is using electrons from its particular project because they are sold into the wholesale market, the key is “that without the corporate buyer, the project wouldn’t get built and displace coal and natural gas,” Touati said.
Corporate renewable energy plans pose a new challenge for the utility industry. Last October, Wynn Resorts and MGM Resorts International, looking to add more renewable energy, stopped taking electricity from NV Energy.
It took a year for the gaming companies to win state approval for the break, and they had to pay $100 million in impact fees. MGM and Wynn were about 6 percent of NV Energy’s customer base. “When big customer like MGM Grand leaves, it creates ripple effect,” Lyng said.
Utilities are seeking ways to address company demands for more renewable energy, such as green tariffs under which large corporate customers pay a premium for renewable energy from new projects, as well as receiving those project RECs.
In North Carolina, Duke Energy Carolinas used a green tariff to build and sell the output of a 61-MW solar farm to Google. NV Energy is using a green tariff to build to solar farms to supply Apple and Switch.
In June, Edison Electric Institute, the trade association for investor-owned utilities, in cooperation with two environmental groups, the World Wildlife Fund and the World Resources Institute, released a report on creating renewable energy opportunities for companies in cooperation with utilities.
The development of renewable energy generation has largely been pushed by state-mandated renewable energy portfolio standards, which require a certain percentage of electricity to come from renewable sources.
Twenty-nine states and the District of Columbia have portfolio standards ranging from 10 percent to 50 percent renewable energy.
“Renewable portfolio standards have been very successful at driving renewable energy development, but states are going to hit those targets in the next three to eight years,” Lyng said. As that happens, corporate renewable energy targets will play a bigger role in the market.
State public utility commissions and utilities themselves have to rethink how generating resources are built and managed as corporations with their own energy plans take to the field, Lyng said. For example, he asked, how does Google’s international plan to go to 100 percent renewable energy affect resource planning in Colorado or North Carolina?
“There aren’t good precedents for blending private money with ratepayer money for the public interest, but this is something regulators are going to have to think about,” Lyng said.