By Caitlin Marquis
From the October 2017 Issue
With 71 of the Fortune 100 companies pursuing energy related sustainability goals, voluntary utility renewable energy programs are emerging as one of the key solutions for meeting much of the growing corporate demand for cleaner energy. But how these programs are structured matters for the increasingly wide range of companies looking to renewable energy to power their operations.
Right now, it’s not always easy for businesses to buy the renewable energy they want. Most corporate renewable energy procurement has occurred in states with retail electricity choice that allows customers to choose their electricity supplier, or in states with a competitive wholesale market. Only 16% of the off-site deals signed by corporate purchasers since 2012 took place in states that do not have one or both of these options in place, according to data from the Business Renewables Center, even though these areas account for approximately 40% of U.S. electricity production.
On-site renewable energy generation is one alternative available in most places, but that option may not be right for some companies, especially those looking for more renewable energy than they could generate on their own premises.
That makes utility-sponsored programs essential for many businesses that want to buy renewable energy. Recognizing this, some utilities in traditionally regulated markets have started to introduce voluntary purchasing options. However, these programs are not available everywhere, their structures vary significantly, and corporate buyers may not know how to evaluate them.
There are a few different types of utility-offered voluntary purchasing programs, which all fall under an umbrella of “renewable energy tariff,” or “green tariff.” Under subscription-style programs, the utility procures renewable energy for the program and customers can simply subscribe to it. Under a “sleeved-PPA,” the utility essentially passes through to an individual customer a power purchase agreement (PPA) it has made with a renewable energy facility. Another program type that’s gaining popularity is a market-based rate, which allows customers to peg the rate they pay for electricity to wholesale market prices of renewable energy.
Some utilities are pursuing a range of offerings, and details vary state by state, even utility by utility.
Customers are responding favorably to these new offerings, and there is now nearly one gigawatt (GW) of renewable energy installed, in development, or under contract through 13 utility renewable energy tariff programs approved or pending approval across 10 states, according to the World Resources Institute.
However, not all renewable energy tariffs are created equal, and some come much closer to meeting customer needs than others. In a policy brief, entitled Essential Elements for Next-Generation Renewable Energy Tariffs, we at Advanced Energy Economy (AEE) came up with a checklist of elements that utilities, regulators, and corporate purchasers need to consider in developing, approving, and making use of these purchasing programs.
To attract business buyers, utility-offered renewable energy programs should:
1. Avoid impacting nonparticipating customers. Companies that want to express their commitment to sustainability by purchasing renewable energy aren’t asking for a free lunch—the last thing they want is to take the blame for a tariff that is good for them but bad for other customers. AEE Institute considered this principle in more detail in a separate analysis.
2. Make program pricing reflect actual market prices and program costs. When it comes to costs, administrative fees, system costs, and other fees, corporate buyers want to pay what they owe, neither more nor less.
3. Allow for competitive project selection. A competitive process for project selection keeps costs down and supports a healthy market for renewable energy. Under sleeved-PPA programs, the ability to directly seek out a project and negotiate terms is important to many customers.
4. Facilitate development of new, additional renewable energy. Renewable energy that is additional to what is already required of utilities is a threshold requirement for many customers, including the 70 signatories to the Renewable Energy Buyers’ Principles who specifically request “access to new projects that reduce emissions beyond business as usual.”
5. Allow a range of corporate customers to participate. The list of companies committed to renewable energy runs the gamut from big box retailers to main street markets, from manufacturing facilities to hotel chains. These varied customers have different goals, different load profiles and resource preferences, different appetites for risk and capital expenditure, and different needs in terms of contract flexibility, length, and structure. Programs should avoid narrow eligibility parameters that discourage or preclude broad participation.
6. Include varied or flexible offerings to meet the needs of different customers. Given the wide range of customer needs and preferences, a one-size-fits-all solution is almost certainly impossible. Utilities should incorporate flexibility into program offerings, or provide multiple offerings to meet different customer needs.
Through well-structured programs, business of all types and sizes ought to be able to satisfy a preference for renewable energy. But these programs and other regulatory and policy changes to meet the needs of corporate buyers don’t magically appear; they are the result of customer demand and policy leadership.
AEE has recently facilitated the formation of the business-led Advanced Energy Buyers Group, which is dedicated to changing the policy landscape to increase opportunities for purchasing renewable energy and other advanced energy resources. Under the leadership of founding participants Walmart, Salesforce, Microsoft, Lockheed Martin, Amazon, and Aligned Energy, businesses engaged with the Advanced Energy Buyers Group will expand purchasing opportunities for all corporate purchasers.
Marquis is manager, federal and state policy, at the national business group Advanced Energy Economy. She can be reached at [email protected] To support and engage in policy work to improve these programs and other market options, learn more about AEE’s Advanced Energy Buyers Group at this link.
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