Corporate America sets renewable energy record
Amy Gahran | Nov 17, 2015
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Large corporations pushing to meet sustainability goals are turning to long-term power purchase agreements with utility-scale renewable power developers in record numbers.
According to the Rocky Mountain Institute, U.S. employers this year have signed power purchase agreements for a total of 2 GW of offsite renewable capacity.
"These numbers are moving very fast," said Herve Touati, managing director of RMI's Business Renewables Center, which serves as a resource and matchmaker for large corporations and renewable power developers. "Last year that total was 1.2 GW; and in 2013 it was only 0.5 GW."
Last year alone, corporations and other institutional buyers accounted for 25 percent of new installed wind capacity in the U.S., fueling concerns about so-called grid defection. More such deals are expected. Forty-three percent of the Fortune 500 have goals to reduce their carbon footprint, cut energy use, or power a portion of their operations with renewable energy, according to the institute.
An RMI report last year said that by 2020 some parts of the U.S. could see "grid parity," in which the cost and reliability of solar and battery storage systems is about the same as buying electricity from a utility.
Utilities have been concerned about the loss of customers but many in the industry say some of the more dire predictions are overblown. They also say that regulators are, in fact, working with them to ensure a more stable future for the grid.
Regulators "want healthy utilities, they want healthy utilities that are capable of making the investments needed for customers," FirstEnergy Corp. CEO Charles Jones Jr. said during a panel discussion at the EEI Financial Conference this month in Florida. "It's not in anybody's best interests to let them become unhealthy."
At the same time, renewable providers are doing all they can to capture market share.
In one of the most recent such deals, Owens Corning, a founding member of RMI's center, signed a PPA to procure 125 MW of capacity from the Wake Wind Energy Facility in Texas, owned by Invenergy. The length of the contract was not disclosed, but Owens Corning confirmed that it is substantially longer than the 3- to 5-year power supply contracts that previously were typical for the company.
The key to gaining support within the company for such a contract was to start with smaller renewables investments, said Chief Sustainability Officer Frank O'Brien-Bernini.
Owens Corning is working to halve its greenhouse gas "intensity" by 2020 (compared to its 2010 baseline). In 2013, it made its first major foray into renewable generation, with the installation of a 2.7 MW ground-mounted solar array at an insulation manufacturing plant in Delmar, N.Y. Also, the company recently completed the installation of a canopy of solar panels on the 11-acre parking lot at its Toledo, Ohio headquarters.
"Given the size of our energy demand, we know that we simply don't have enough real estate to make the huge emissions impact we need through on-site renewables and efficiency alone," said O'Brien-Bernini. "When we started looking at offsite options, we realized that wind energy is very economically attractive now, for the scale we need. Also, we already had close ties to this market, since we provide materials used in wind turbine blades."
Owens Corning, however, faced a common hurdle to completing the wind power deal.
As Touati explained it, "Many companies have policies prohibiting long-term supply contracts. But once a company is convinced that they need to examine offsite options for renewable energy, that means they're considering huge contracts - often $200 million in value over, say, 15-20 years. How do you think a typical CFO will react to that? Some of our objectives are to offer guidance on how these contracts make financial sense, how to address legal concerns, and how to handle the accounting treatment."
Like many large corporate renewable PPAs, the Owens Corning deal was structured as a "contract for difference." Through this mechanism, a wind or solar farm operator is paid the difference between the cost to generate renewable electricity and the average market price for conventionally generated power. O'Brien-Bernini explained that, in effect, Owens Corning is paying Invenergy to add more wind power capacity to the grid, and the direct return on this investment is the price paid for electricity on the wholesale power market.
The contract for difference model was pioneered in the U.K. Later this month, the Carbon Disclosure Project (an international organization that works with shareholders and corporations to disclose corporate greenhouse gas emissions) is expected to release updated guidance for formulating and executing contracts for difference.
In addition to recouping its investment in wind power, Owens Corning receives a U.S. Renewable Energy Credit - a tradable commodity that companies use to reduce their carbon footprint and allows them to register progress toward sustainability goals.
O'Brien-Bernini said it helped a lot to get the company's finance and legal departments involved early in the process. "We conducted many kinds of financial and sensitivity analyses, to get everyone comfortable with this approach to agreements," he said.
"Our company already makes long-term commitments when rebuilding a major asset at a plant, or when constructing a new plant," said Owens-Bernini. "It's not like long-term commitments are foreign to us. We just have to ease people into long-term thinking about energy supply. How we already think about capital applies here."