P&G, GM And Google Take Flight On Wind Power
The American Wind Energy Association (AWEA) released its Q4 2015 market report (PDF) in January, and it contained a surprise. "Approximately 75 percent of the megawatts contracted through PPAs [power purchase agreements] during the fourth quarter were through companies including Procter & Gamble, General Motors, and Google Energy," noted the report.
AWEA’s CEO, Tom Kiernan, said, "Increasing demand from these buyers has created a promising new market for clean, low-cost wind energy.” In fact, non-utility customers accounted for 52 percent of last year’s total of over 4000 MW of wind PPAs. Non-utility customers include some universities and city governments, but the vast majority are corporations.
Wind provides a fixed-price, long-term contract on energy.
"For the first time ever, non-utility buyers emerged as the leader over utility buyers when it comes to the new wind farms that were contracted last year," said Jacob Susman, vice president and head of origination at EDF Renewable Energy. Susman and Hervé Touati, a managing director at RMI and head of the Business Renewables Center (BRC), a collaborative platform accelerating corporate renewable energy procurement, will lead a webinar Feb. 25 that will unpack what this means for corporations, the wind industry and climate and energy in general.
"Corporate procurement of utility-scale wind power is really accelerating. We’ll talk about what to expect and how the market might evolve," Touati said.
The webinar will be "a really exciting discussion that is very data-rich and that tracks the growth and expansion of corporate purchasers as a customer group in the wind energy space," Susman added. "One of the issues we want to tackle on the webinar is, ‘What does this mean for the overall character and fabric of the wind energy industry?’"
Corporate buyers are a large part of a growing market
Hannah Hunt, senior analyst for industry data and analysis at AWEA, said, "It’s exciting to see the growing new market for wind investment through non-utility purchasers." And the overall market is growing as a result.
AWEA’s report stated that the U.S. wind industry installed a total of 8598 MW in 2015, an increase of 77 percent over 2014 and the third-highest annual total ever. "We’re really seeing some momentum start to build for the industry," said Hunt.
This is especially welcome because the threat of production tax credit (PTC) expiration in several years resulted in major boom and bust cycles for wind installations. Congress acted last year to extend the PTC to 2020, allowing momentum to build. "The recession really took a toll on the industry for a couple of years, and so the idea of returning to those near-peak levels of year-on-year installed capacity is pretty remarkable," Susman added.
The U.S. wind industry installed a total of 8598 MW in 2015, an increase of 77 percent over 2014.
Until recently, utility-scale wind power largely was purchased by regulated utilities that found large wind farms to be an effective way to meet the requirements of their states’ renewable portfolio standards (RPS). Utilities in states such as Colorado and Alabama are also pursuing wind on the basis of economics as a least-cost grid resource, going above and beyond RPS requirements.
"Now you have corporate purchasers coming into the market who are purchasing wind power not because of government mandates, but because it’s the right thing to do and it’s good value," said Susman.
"Companies are increasingly looking to set sustainability targets and reduce their own carbon emissions," Hunt explained. "Signing long-term wind contracts allows those companies to meet their reduction targets. Wind provides a fixed-price, long-term contract on energy."
Where will corporate buyers take the wind market?
Another question the webinar will consider, said Susman, is, "In what direction might corporate purchasers be willing to pull the industry and possibly make it a little more commercial, a little less dependent on mandates and regulation?" Utilities are highly regulated and the PPAs they signed were structured to reflect those constraints.
"We think it’s going to lead to a much more commercial approach to the contracting for these renewable projects,” said Susman. "There are many opportunities to innovate on the contractual side."
Indeed, EDF RE has developed novel deal structures to accommodate congestion on the grid, which may affect delivery of contracted power, and to better serve corporate accounting needs. (The BRC’s Accounting Primer is one of its most in-demand products for members.)
Susman said that corporate PPAs tend to be "more focused on innovative and creative contracting structures that work well for both buyer and seller and that also achieve a range of attendant goals, like sustainability and providing a hedge against future energy price rises."
Corporate PPAs tend to be more focused on innovative and creative contracting structures that work well for both buyer and seller.
A recent example of an innovative corporate PPA is Lockheed Martin’s 30 MW deal for solar power, tailored to suit the company’s complex corporate structure and to provide benefits, including price hedging, to multiple, compartmentalized budgets. Lockheed’s PPA was designed to credit the cost of a solar facility’s energy to myriad business areas, each of which is separately accountable to the federal government for project costs on things such as satellites and aircraft.
"We see tremendous innovation as more and more corporate PPAs are executed," said Touati. "Many of these innovations are made by BRC members, who then share their first-mover experiences and knowledge with the broader BRC community for the benefit of fast followers.”
Susman added: "Commercial actors can team up with other commercial actors and say, ‘Why not? Why can’t we do it this way?’ and then find a way to make it happen."
Room to grow
And there is likely much more to come. "This is still a relatively new space," said Susman.
Hunt added: "The emerging trend in corporate purchasers, in non-utility purchasers, is very new, two to three years old, so there is significant room for additional demand at this point."
In fact, there are still comparatively few companies purchasing utility-scale renewables. "Forty-three percent of Fortune 500 companies have clean energy or climate targets, but only a handful have signed PPAs," said Touati. "We expect this market to grow as more and more of them take action." To wit, first-time buyers made two-thirds of 2015’s corporate renewable purchases, so more companies are entering the market.
Corporations buying full spectrum of utility-scale renewables
Even so, the corporate contribution to renewable energy demand is large: Corporations signed 3.44 GW of PPAs last year, while the year’s total installed capacity for wind and solar were 8.6 GW and 7.3 GW, respectively, according to AWEA. As corporations’ share of renewable purchases grows, so does their share of all power purchasing: Renewable power accounted for 68 percent of total installed megawatts in 2015, and both wind and solar exceeded natural gas’s 6 GW of installed capacity on their own.
Corporate interest isn’t just surging with wind. It’s a big deal with solar, too. Which is why the Solar Energy Industries Association hosted its inaugural "Solar Goes Corporate" event last week, where Lily Donge, a principal at RMI and leader of the BRC, presented. The New York seminar featured speakers from BRC members Amazon, General Motors and Kaiser Permanente, all major utility-scale renewables purchasers. Donge said, "Corporations are finding great value in solar, and SEIA’s event was proof that their peers want to learn more — and get in on the action themselves."
The goal of the BRC is to facilitate 60 GW of renewable energy purchases by corporations by 2025. Last year’s 3.44 GW of purchases were nearly triple the total for 2014, which was double the total from the year before that. The trend, led by wind, is in the right direction. "This market is growing fast, and things are on the right track," Touati said, "but more corporations need to take advantage of the great value that utility-scale renewables can unlock for them."