Large Corporations Are Driving America’s Renewable Energy Boom. And They’re Just Getting Started
kets that have a deregulated wholesale market and an RTO, and only 9 percent of the deals are happening in traditionally regulated utility markets,” Terrell said. “I think that shows that we have a long way to go to provide access to renewables in those markets; and if we can find ways to do that, this market can grow that much more.”
Corporations are already taking action. Dozens of companies have joined Rocky Mountain Institute’s Business Renewables Center, and signed on to the Corporate Renewable Energy Buyers’ Principles — a combined effort by RMI, the World Wildlife Fund (WWF) and the World Resources Institute (WRI). Utilities are also taking a more active role. In June, Edison Electric Institute, the nation’s leading trade association for investor-owned utilities, released a report on creating renewable energy opportunities for companies in cooperation with WWF and WRI.
“As large corporate buyers invest in fulfilling their corporate renewable energy goals, state policy and utility planning must also evolve to take advantage of this trend, rather than be challenged by it,” according to a report published in December by the Center for the New Energy Economy. The paper lays out three pathways for factoring corporate renewable energy goals into state energy planning.
A separate report released today by the Retail Industry Leaders Association and the Information Technology Industry Council, ranked all 50 states based on the ease with which companies can procure renewable energy for their operations. Iowa, Illinois, New Jersey, California and Texas were found to be the top five states for clean energy procurement overall. Iowa leads the index ranking primarily because of the opportunity to procure renewable energy through utilities in the state — which has emerged as a preferred route for many corporate customers.
How to buy renewable energy
There are several ways in which companies can procure clean energy. One option is to contract with a third party to build a distributed renewable energy project onsite at the customer’s premises.
Kaiser Permanente, for instance, is installing 70 megawatts of solar at 85 hospitals in partnership with NRG Energy. Speaking at GreenBiz’s Verge conference last fall, Kaiser’s Rame Hemstreet said behind-the-meter deals are attractive because they can also reduce a company’s transmission and distribution costs. The drawback is that onsite projects are usually limited in size due to space constraints.
Another option is for companies to purchase a portion of a renewable energy project. Shared or community renewable energy is a subscription-based model that allows multiple customers to share the output of a single nearby offsite project. Puget Sound Energy, for instance, recently won approval to offer this type of program to business customers in its territory starting on January 1, 2017.
Power-purchase agreements are yet another way for companies to procure renewable energy from offsite facilities, this time by contracting directly with third-party power providers. The vast majority of corporate clean energy purchases to date have been made through PPAs, but these agreements are only available in deregulated states.
Customers in regulated states can contract for clean energy through a third party using a virtual PPA, however. In this case, the customer does not contract for power, but instead pays a fixed price for a project’s renewable energy credits while the renewable energy output is delivered into wholesale markets. Salesforce, for instance, recently signed two virtual PPAs for wind projects, one in Texas and one in West Virginia, for a combined output of 227,000 megawatt-hours per year, which is more than Salesforce’s global electricity use in fiscal year 2015.
Virtual PPAs are not exclusive to third parties. Utilities can also make these deals, although Dominion Virginia (in crafting an 80-megawatt deal with Amazon) is the only utility known to have adopted this structure to date.
“Sleeved” PPAs allow companies in regulated markets to contract with an offsite project through their utility — where the utility shops for the project, takes the power and the passes the cost through to the customer. In these cases, the utility has to create a pathway for the renewable energy transaction through a regulator-approved green tariff program.
Want to learn more about how deals are structured? Listen to our interview with Emily Williams, the director of energy supply for Altenex, about how the sector is evolving:
Various flavors of green tariffs
According to the World Resources Institute (WRI), the number of green tariff programs offered by utilities has doubled from five to 10 over the past year, in response to mounting demand from large customers. Green tariffs offer a competitive, long-term fixed price for generating and delivering renewable energy to a customer, typically bundled with renewable energy credits. The list of utilities offering such arrangements includes Xcel Energy, Rocky Mountain Power, Dominion Virginia and Public Service Company of New Mexico, which took this approach to supply clean energy to Facebook’s new data center.
Green tariffs come in a few variations, according to WRI’s Letha Tawney. Tariff programs are one option, where the standard electricity rate customers pay is replaced with the cost of the renewable energy. Riders are another option, where the cost of the renewable energy and a credit for the replaced fossil-fuel power are added on top of a customer’s standard rate.
Subscriber programs, like the one offered by Puget Sound, are yet another alternative. In this case, the customer is locked into a long-term contract to purchase a small amount of renewable energy from a large renewable project at a predictable rate.
“It’s complicated to get a tariff proposed and approved,” said Tawney, in an interview. Large commercial customers have the pull and resources to negotiate these agreements, but not all members of RE100 or companies signed to the Buyers Principles have the bandwidth to take on a policymaking role.
In crafting a green tariff, public utility commissions are particularly interested in making sure the corporate customer is paying its fair share for the clean energy, and non-participating customers are not bearing costs they shouldn’t bear. For that reason, green tariff programs vary across the country and are still relatively complex to create.
“But the upside is that once it’s approved any company can use it if they fall within defined boundaries,” said Tawney. In contrast, traditional PPAs with third parties have to be renegotiated for each new project.
Where companies can buy renewable energy through the grid
“We recognize that utilities are the experts”
Wal-Mart, one of the largest corporate renewable energy buyers in the U.S. today, currently has 370 on-site solar projects. But given the company’s ambitious 100 percent renewable energy goal, Mark Wyckoff, senior manager of renewable energy at Wal-Mart, said his team is now focusing more on expanding the offsite renewable energy portfolio.
“We believe in [green tariffs] from a market perspective,” Wyckoff said at GTM’s Solar Market Insight conference last fall. “A virtual PPA is a work around to get to the product we want and is a model that probably doesn’t fit most corporate buyers. […] [Smaller companies] don’t necessarily have the load or creditworthiness to do those deals today. So really one thing leading corporations have to do today is leverage our load and credit into doing a utility deal so that others can come along and do this too.”
Salesforce’s Flynn echoed this sentiment. The company cannot currently meet its 100 percent renewable energy target because it cannot currently access renewable energy everywhere that Salesforce operates. “We have and will continue to lend our voice when there’s an opportunity to change that,” he said.
For instance, Salesforce recently signed a letter to key state legislators, the State Corporation Commission, and the governor, asking for more renewable energy purchasing options in Virginia.
“Whenever possible, we look to support local offerings like green tariffs that meet our criteria for environmental impact and financial feasibility,” he said.
“We recognize that utilities are the experts, and it’s our job to help communicate, as their customers, what we want,” Flynn added. “By doing so, we can gain access to clean energy not just for us, but the communities we operate in.”
But not all utility-run programs work out well.
Green tariff gone wrong
In June, the Edison Electric Institute’s (EEI) Institute for Electric Innovation released a book chronicling some of the major changes in the electric industry. In one chapter, Jonathan Weisgall, vice president of government relations at Berkshire Hathaway Energy, described how one of his companies, NV Energy, successfully accommodated a large customer’s request to go 100 percent renewable.
The data storage company Switch (highlighted in the new Greenpeace report) recently sought to leave NV Energy’s service and obtain renewable energy from a third party, invoking a 2001 law that allows companies to buy electricity from other providers to lessen pressure on utilities during an energy crisis. There is no crisis today, but the combination of sustainability goals and dropping technology costs is pushing companies to pursue clean energy options on the competitive market.
Switch filed an application with state utility regulators to change its electricity provider in 2014, but the application was denied in 2015. NV Energy then took action, and the two parties, along with state regulators, negotiated a green rider tariff where the utility would contract for renewable energy from First Solar and Switch would pay the utility a premium for that power.
“The green energy tariff approach that NV Energy used works, and it works for all parties,” Weisgall wrote in the EEI case study.
But the story doesn’t end there.
In May 2016, MGM Resorts International, Nevada’s largest employer, announced it was ending its energy-buying relationship with Nevada Power, a subsidiary of NV Energy. Utility regulators approved the application, but required the hotel and casino company to pay an $87 million exit fee — which is slightly more than MGM pays for electricity each year — in order to leave Nevada Power’s service. MGM stopped purchasing energy from the utility on October 1, and is now contracting with the independent energy company Tenaska to meet its electricity needs.
Wynn Resorts, a smaller, but sizable, hotel and casino Las Vegas, also paid a fee to leave Nevada Power and buy electricity on the free market starting October 1, 2016. In late November, Caesars Entertainment also filed to cut ties with NV Energy.
As the gaming companies prepared to cut ties with the NV Energy subsidiary, the Switch deal went sour. Last July, Switch filed a lawsuit alleging the Public Utilities Commission of Nevada did not treat the company fairly when it denied the application to leave NV Energy in 2015. The suit was launched after a PUC attorney was found to be expressing biased personal opinions about regulatory matters on social media. Switch accuses NV Energy of deceptive trade practices, fraud and negligence among other things. The data storage company is now seeking $30 million in damages and asking again to leave NV Energy and purchase power on the open market.
While praising the Switch deal last year, Weisgall also noted that utilities, even in regulated markets, are not immune to the pressures of competition. “Our monopoly days are coming to an end,” he said. “We are in a competitive market, and we have to recognize that as a utility.”
Nevada moves to deregulate
Nevada is now on track to become a truly competitive market. In November, voters overwhelmingly approved a ballot initiative to deregulate the state’s electricity market. The initiative was supported by several Nevada casinos, Switch, and Tesla, which is building an enormous, renewable-energy-powered battery factory near Reno. The proposal must also pass on the 2018 ballot and will require legislative action in order to become law, but the vote sent a strong signal that deregulation is the direction Nevada’s biggest customers want to go.
Cindy Ortega, senior vice president and chief sustainability officer at MGM, said the reason her company is driving market reform comes down to “delivering value to the shareholder and corporation.” It’s not about environmentalism; it’s about the attractive business case for clean energy and removing an intermediary from MGM’s energy decisions, she said, during a talk at SXSW Eco in October. MGM is now using its experience to lead on clean energy, both inside and outside of the Silver State.
“We’ve learned that in the area of energy and environment, we could bring a lot of sensible policy to the state level. So it was a natural outgrowth to start working on the federal level,” said Ortega, in an interview. “When a person like me or some of my colleagues at MGM go to the Hill and speak to a congressperson or a senator about the reasons for investing in energy technologies, we carry a lot of credibility, because we’ve invested in those ourselves at our companies.”
“Nevada has the opportunity to be a platform for designing a deregulated system that can be used in other jurisdictions,” she added. “And so we’ll be a part of that conversation as well.”
Was 2016 a turning point?
The Switch and MGM cases in Nevada have prompted discussions around the country about how utilities and state policymakers can do a better job of serving the needs of their corporate customers. Many companies say they prefer working with their utility because they’re considered a trusted energy adviser, and because it’s necessary to adopt renewables at a large scale.
In October, WRI released a paper on emerging green tariffs in regulated electricity markets. The report concluded that traditional utilities can offer renewable energy services that are as attractive as what companies can find in competitive markets or through third-party-financed deals for behind-the-meter projects. Green tariffs may also provide customers with greater flexibility and lower transaction costs, given the level of experience utilities have with integrating generation technologies and aggregating customer demand.
One way to address the issue of shifting costs to non-participating ratepayers, the paper suggests, is for utilities and regulators to “consider justifying some cost-sharing by all customers if those costs lead to system-wide benefits (for example, reduced congestion) or positive externalities (for example, reduced emissions).”
Another problem with utility deals is speed — or lack thereof. Companies, especially internet brands like Amazon, Google and Facebook, are used to working at a fast pace. Regulated utilities move more slowly. They’re built to provide reliability and low-cost energy; they’re not built to come up with customized clean energy offerings. In North Carolina, for instance, it took Google three years to complete its first solar deal with Duke Energy. During that same period, the company procured more than 800 megawatts of renewable energy in other parts of the country and around the world.
But 2016 showed significant progress. A lot more green tariff programs were created, and commissioners started approving them more quickly, said Tawney. But a lot more work needs to be done — on green tariffs and other policies — in order to make corporate renewable energy purchasing mainstream.
“Right now, I think it’s about breaking down some of these market barriers and really seeing what we can do to accelerate the uptake, because clearly the demand is there,” said Terrell. “You’re talking about some of the biggest brand names on the planet putting money and resources behind buying renewables and we need to do what we can to make sure that we can continue that progress.”