Renewable energy’s increasing importance to the U.S. power generation portfolio is upending many aspects of an electrical system that has remained essentially unchanged for more than a century. The transition from fossil fuels to wind and solar resources is reshuffling traditional business models for financing new energy generation. While electric utilities remain the leading buyer of traditionally generated electricity, renewable-energy developers are looking toward private corporate power purchasers to finance expansion efforts.
Interest in a growing market
Setting records in 2015, the renewable-energy industry shows no signs of slowing down. Wind surpassed all other generation technologies in installed capacity last year, according to the American Wind Energy Association (AWEA). Combined, wind and solar made up more than 60 percent of 2015’s installed total, according to the U.S. Energy Information Administration. Corporate buyers have become important to this rapid growth.
Corporations and other nonutility customers accounted for 52 percent of all wind power contracted through power purchase agreements (PPAs) last year, according to the AWEA’s 2015 U.S. Wind Industry Annual Market Report. In total, corporate buyers signed deals for 3.2 gigawatts (GW) of combined wind and solar capacity in 2015, according to the Rocky Mountain Institute’s Business Renewables Center (BRC). This figure is a 77–percent jump from 2014’s 1.8 GW.
Tech leaders such as Apple and Google top the list of corporate buyers, but a number of manufacturing and consumer product companies are signing up, as well. In part, purchases help big brands—such as Procter & Gamble, General Mills and Owens Corning—burnish their reputations while also doing their part to reduce carbon emissions. Corporate accountants see a bottom-line case to be made for buying renewably generated electricity, because PPAs often set a fixed price over an agreement’s duration, which can stretch 10 years or more.
Launched in 2014, the BRC has quickly become a player in the corporate renewable-energy marketplace. It facilitates conversations between producers and their potential customers. The group’s big-picture goal is to boost total corporate renewable-energy purchases up to 60 GW under contract by 2030, so it offers training for companies’ financial officers and has rolled out a database of purchase opportunities for member companies. It advocates long-term PPAs, which provide renewable-energy-project developers with the income assurance they need to finance new wind- and solar-power installations.
“What matters for project developers is to have enough uptakers to guarantee at least 10 years [of operation],” said Hervé Touati, a principal with Rocky Mountain Institute and the BRC’s managing director. “If you could guarantee, with a good credit rating that you are buying the product for 10 years, that’s very helpful to the developer.”
Giving credit where it’s due
Because the relationship between the power producer and purchaser isn’t direct in a PPA—the producer’s solar array or wind farm isn’t directly connected to the purchaser’s main panel—a currency of sorts has been developed to recognize the value of renewably generated electricity in the open market. Renewable energy certificates (RECs) pass to the purchasing companies as electricity is generated to document the purchaser’s ownership of those renewably generated electrons.
A separate REC marketplace also exists, and it’s possible for companies to sell RECs to other corporations or utilities that need to prove compliance with state-level renewable-portfolio standards. However, a truly “green” corporate customer will retire its RECs, ensuring the output from the renewable generator with whom they have contracted is actually offsetting fossil-fueled capacity.
A system based on an accounting unit as abstract as an REC could present opportunities for fraud, so third-party auditing is generally involved in these transactions. Green-e Energy, San Francisco, is the nation’s largest certifier of voluntary renewable-energy products, which gives the organization unique insight into how quickly the market is growing. Last year, Green-e tracked more than 37.9 million megawatt-hours of renewable-energy sales, a jump of 13 percent over the previous year. This statistic includes purchases resulting from utility green-pricing programs, competitive renewable-energy vendors and REC-related transactions. On their own, RECs experienced a 16 percent increase over 2013 sales.
That growth likely will continue, thanks to a recent move by the U.S. Department of Energy (DOE) to recognize the benefits of corporate renewable purchasing. In November, the DOE created a new category of zero-energy building (ZEB) that takes REC purchases into account in any certification efforts.
True ZEBs must match their annual energy consumption with an equivalent amount of on-site renewable generation. However, a new REC-ZEB designation allows owners that are unable to generate enough electricity on-site to fully offset their consumption by purchasing RECs. Though DOE standards don’t specifically mention PPAs, they would seem to meet REC-ZEB requirements as long as the RECs associated with a PPA were retired and not resold.