Rocky Mountain Institute’s Hervé Touati explains the
“winner’s curse” and why the corporate renewables market is about to really
boom.
We're entering a new era in corporate renewable energy
purchasing.
The space has grown exponentially and diversified
significantly since Google and Apple made their first renewable energy
procurements in 2012. Where and how corporations are purchasing renewables is
also evolving, according to Hervé Touati, managing director of the Rocky
Mountain Institute.
Here are the major takeaways from his talk this week at
GTM's Grid Edge World Forum.
Demand on track to surpass 2016
RMI tracked 1.24 gigawatts of corporate renewable energy
procurements from the beginning of January through June 15 of this year.
Procurements spiked in 2015, when the industry predicted that Congress would
not extend the Production Tax Credit for wind and the Investment Tax Credit for
solar. Since then, corporate renewable energy demand has returned to more
incremental growth.
Demand remains strong, however, with 2017 on track out
outpace 2016. "You can see it's a growing trend," said Touati.
So far it's been a big-company game
The increase in renewable energy deals comes as an
increasing number of companies make bold clean energy commitments. Today, more
than 95 companies have pledged to go 100 percent renewable as part of the RE100 campaign.
Several of those companies, including Google, Microsoft and Lego, and have already hit their targets.
But while sustainability goals have become more widespread,
Touati noted that these commitments -- and, more strikingly, renewable energy
procurements -- are still concentrated among the world's largest companies.
Diversification is a growing trend, though. One trigger is
that large companies are starting to demand sustainability measures be met
across their supply chain. In 2015, Apple launched a 2-gigawatt clean
energy initiative in China, in order to tackle its supply chain
emissions. As part of that initiative, iPhone manufacturer Foxconn will
construct 400 megawatts of solar by 2018.
Walmart has also launched a major supply chain initiative --
dubbed the corporate America's "moonshot" -- that seeks to remove 1 gigaton, or 1
billion tons, of greenhouse gas emissions from its supply chain by 2030. Energy
is one of six areas where suppliers can make improvements.
"When the first five to 10 companies turn back and look
at their supply chain, that could open up significant new opportunities [for
renewables]," said Touati.
New
rate structures are also helping to expand and diversify the corporate
clean energy market. Momentum created by the "We Are Still In"
movement in response to the Trump administration's withdrawal from the Paris
Agreement is helping to get new corporate players engaged as well, Touati said.
The group currently includes some 2,086 governors, mayors, businesses,
investors, and colleges and universities, three-quarters of which are
businesses and investors.
Winner's curse
Another emerging trend in corporate renewable energy
procurements is the “winner’s curse,” as Touati calls it. This is where the
price and the value of a renewable energy project do not match, and the
customer’s asset does not deliver the expected return on investment. If not
addressed, this issue could put a chill on the corporate renewables space.
The issue is particularly pronounced in the Southwest Power
Pool, evidenced in the map below showing wind-weighted electricity prices. In
the red areas, wind energy production gets more than $20 megawatt-hour, while
in the blue areas production gets just $5 per megawatt hour. “That’s really
cheap for electricity,” said Touati.
A lot of wind developers put projects in the blue areas
because the land is cheap, the projects are easy to permit, and the wind
resource is strong. But that does not necessarily mean it’s a good deal for the
customer.
Corporates often contract for renewables at a fixed price
and receive credit for the renewable energy that project produces, while the
actual electrons that project generates are sold into a wholesale market -- a
model known a virtual PPA. The expectation is that the wholesale market prices
will be higher than the PPA price, or that they will increase over time, and
the corporate buyer will save money on the whole. But those savings aren’t
always there, as experts
have explained.
"As a corporate buyer, you need to start to look at
your renewable energy procurement the same way you look at real estate
procurement: It's all about location,” Touati said.
“What you should care about is not the cost of production;
it's the difference between the value of electricity being produced and the
cost of production,” he added. "If you produce at $50 and the [market]
value is $60, you have a better deal than producing at $25 and the value
[being] at $20.”
RMI recently released a market platform that helps
commercial customers identify opportune areas to negotiate renewable energy
deals, including node-level price data and a future analysis of transmission
congestion. The platform is available to members of RMI’s Business Renewables
Center.
RMI also formally incorporated the nonprofit WattTime as a
subsidiary organization this week, with the aim of helping more corporate
customers reduce their carbon footprint cost-effectively. WattTime’s software
"can automatically detect the actual emissions impacts when people and
companies use energy -- both in real time and ahead of time -- so any device
connected to the internet can use power at times when our electricity is the
cleanest,” according to a press
release.
WattTime “measures precisely the carbon content of every
megawatt-hour produced. If you are more interested in actually having an impact
on reducing CO2 emissions, this tool can also tell you where to invest in wind
and solar,” said Touati.
Opening the flood gates
Despite the possible risks and challenges, Touati believes
corporate renewable energy procurement is on track for more exponential growth.
"I believe the future will be a flood in the
making," he said.
A big part of that has to do with how deals get done. The
vast majority of megawatts contracted for to date were signed through virtual
power agreements, and those structures can only be signed in organized markets,
according to Touati. But new deal options are now emerging as the market for
corporate renewables matures. Whether it's a green tariff, direct access,
a green pricing program, a retail sleeve or some other structure, at least one
kind of deal is currently available somewhere in the country.
But vertically integrated markets are still difficult to
work in. The chart above shows that it's almost three times harder to get a
deal done with a vertically integrated utility territory. "I believe this
is going to change for a number of reasons," said Touati.
First, some customers are getting impatient, such as MGM in
Nevada. The casino and hotel company wasn't satisfied with its utility, NV
Energy, and so it struck a deal to pay a fee and opt out of the utility
territory. Microsoft is exploring a similar structure, Touati said.
"That's pretty radical; it is certainly changing the market in
regulated states," he said.
Second, in order to have a green tariff with a utility, you
take the typical electricity cost, add the cost of wind and solar, and subtract
the utility's avoided cost. In the past, that meant that corporations could do
a renewable energy deal, but they had to pay a premium for it. Now, with solar
and wind costs getting lower and lower, that differential is going away.
Touati asked: Who would prefer to pay more for dirty power
when they could pay less for clean power?
"That's were the flood is going to come from," he
said.
No comments:
Post a Comment