Opening the Corporate Renewable Energy Floodgates
On Monday and Tuesday this week, more than 75 Fortune 500 companies, NGOs, renewable energy project developers, utilities, and other organizations are gathered in San Francisco for a corporate renewable energy workshop. Co-hosted by Rocky Mountain Institute, World Wildlife Fund (WWF), World Resources Institute (WRI), and BSR, the event aims to collaboratively advance the corporate renewable energy market on several fronts. One of those fronts is corporate purchasing of off-site renewables, particularly wind and utility-scale solar, which is the focus of RMI’s Business Renewables Center.
That focus on off-site renewables is an important piece of the puzzle. Though many corporations have sustainability targets—including metrics for percent renewable energy—efficiency and on-site renewables generally aren’t enough to meet corporate targets, according to RMI managing director Hervé Touati. Successfully hitting corporate clean energy and climate targets essentially requires companies to contract for off-site renewables through power purchase agreements (PPAs).
And there are encouraging signs that the corporate off-site renewables market—full of opportunity—is in fact starting to take off.
The market is scaling but not yet broadening
Data from 2014 and 2015 show major recent signs that the market is scaling—fast—but not yet broadening. Corporations’ role in U.S. renewable energy growth is undoubtedly expanding, but that role remains the purview of a small number of big actors.
According to the American Wind Energy Association’s recently released U.S. Wind Industry Annual Market Report 2014, last year corporations and other institutional buyers—including IKEA, Facebook, Microsoft, Walmart, and Yahoo—signed PPAs accounting for over 23 percent of the wind power contracts.
This year is shaping up for even greater corporate influence in new U.S. wind capacity. “We’ve seen that trend continue heading into 2015 as more than half of the 750 MW of wind power contracted in the first quarter of 2015 was by companies,” says Tom Kiernan, CEO of AWEA. That number could be as high as 63 percent of new wind contracts for Q1, according to BRC analysis of publicly announced deals. Yet all that wind comes through just four or five companies.
This year looks to be promising too for corporate solar energy purchases. “In just the first quarter of 2015 there were about 1.2 GW of wind and solar signed through corporate PPAs,” says Jacqueline Lilinshtein, clean energy economics analyst at Bloomberg New Energy Finance. That number includes at least 760 MW of off-site wind and utility-scale solar, according to RMI associate Kevin Brehm. Corporate PPAs thus appear to playing a growing role in utility-scale solar, which remains the biggest driver of U.S. solar PV capacity additions, according to the Solar Energy Industries Association.
“That is on track to be 25 percent of all large solar and wind purchases for 2015,” adds Lilinshtein. “And it looks like this may be the first year where solar corporate PPAs will actually surpass wind.”
Opening the floodgates with resources to unlock the market
“Major U.S. companies and other non-utility purchasers are increasingly buying wind energy because it’s a smart investment that helps their bottom-line,” says AWEA’s Kiernan. “PPAs allow companies to directly contribute to a more sustainable electricity supply as many of them have set internal environmental and clean power targets.” The 2014 report Power Forward 2.0 confirms Kiernan’s perspective. Some two-thirds of Fortune 100 and almost one-half of Fortune 500 companies have clean energy or climate targets. “Undoubtedly, sustainability goals are an important driver,” says RMI senior associate Stephen Abbott. “And off-site wind and solar are crucial pieces of the puzzle for corporations serious about meeting those targets.”
The focus at this week’s event in San Francisco will be unlocking the market for the many more corporations that could be part of the renewable energy game but so far aren’t, as well as making renewable energy deals faster and easier to complete for corporations that have already dipped a toe in the waters. Toward that end, the BRC will unveil a set of new products—identified by the BRC membership at a previous event in late 2014 and in development for the past six months—designed to alleviate critical hurdles in the way of corporate pursuit of the opportunity.
Those products include a set of technical resources:
- Deal Structure Primer: The types of deal structures available in both regulated and deregulated wholesale and retail power markets, including a guide to negotiating virtual PPAs.
- Accounting Primer: PPA contracts explained—contracting clauses, terms, and definitions.
- Economic Analysis Primer: How to comprehensively value deals to lock in power prices below electricity market prices and protect against natural-gas price volatility.
The products also include a set of organizational resources:
- Internal Support Guide: How to build internal company support and recruit a C-level sponsor by demonstrating how renewable energy deals help hit targets.
- Deal Process Guide: How to set up a deal team, align its objectives and approach, build support, and obtain a clear mandate for the power-purchase deal.
- Deal Dream-Team Guide: Renewable energy deals require the right team to succeed. How to assemble external consultants, auditors, legal firms, and internal champions.
Accessible to BRC members, the primers and guides are available through a curated wiki-style site that is fully searchable and dynamic, allowing members to contribute and work collaboratively. "The BRC’s guides provide an accurate and insightful introduction to the key issues that companies face when they try to buy off-site renewable power," says Erin Decker, senior manager of sustainability at Salesforce.com, one of the BRC’s founding corporate members.
The contents of BRC guides and primers are gleaned from numerous interviews and case studies that the BRC undertook with corporate buyers, project developers, and third-party service providers with deep experience in off-site renewable energy transactions. The corporate buyers interviewed have already completed deals with a combined capacity of over 1,000 megawatts.
"Working intensely for the past six months with the pioneers in this market we were surprised by three things: 1) the willingness of the pioneers to share their experience with us, 2) the fact that the technical issues were few, common, and well identified, and 3) the fact that most of the time is spent, at least for the first transaction, to reach internal alignment and get internal support,” explains RMI’s Touati. Adds Lily Donge, a principal in RMI’s electricity practice and leader of the Business Renewables Center: “With these guides and primers, companies looking into making these deals will know what the problems might be and how to avoid them. This has the potential to save both money and time on renewable energy transactions.”
“Our observations confirm our initial hypothesis: synthesizing in one place the collective experience and knowledge of the first movers and sharing it with the fast followers will make those fast followers much faster followers," concludes Touati. And with that, the corporate renewable energy market will broaden and the floodgates open.
Images courtesy of Shutterstock.