Today, a growing number of organizations and businesses choose offsite renewable energy to diversify their energy portfolios, achieve sustainability and meet budgetary goals. Across the spectrum of offsite renewable energy options, small and large solutions exist, but the mid-level options have been scarce.
At one end of the spectrum, many U.S. states and local utilities offer community solar and virtual net metering programs for small commercial customers that qualify for these often-nuanced programs. At the other end of the spectrum― where lies the RE100, a collaborative, global initiative uniting more than 100 influential businesses committed to 100% renewable electricity, are large corporations, such as Facebook, Google and Amazon, that can source energy directly from solar farms. These are complicated transactions and companies that do not have full time energy and sustainability staffs that the Facebooks of the world employ are unable to take advantage of these structures.
A wide range of offtakers exist whose energy needs haven’t been fully addressed by traditional service models during the surge of offsite renewable purchasing. The American Council on Renewable Energy (ACORE), The Solar Energy Industries Association (SEIA) and Bloomberg New Energy Finance have hosted events focused on this sector and its growth prospects. Meanwhile, groups representing broader elements of society have become increasingly important advocates for greater adoption of renewable energy, including the Renewable Energy Buyer’s Association (REBA), Rocky Mountain Institute’s Business Renewables Center (BRC), Ceres, and the World Resources Institute. These organizations produce valuable content, and their involvement gives further validation that this is an exciting and growing sector within the energy industry.
Filling the “Green-Energy Gap”
While the momentum this demonstrates is impressive, many of the players in this market are missing something. Announcements and deals by companies the size of Facebook and Google attract much attention, as do innovations at the other end of the size spectrum like community solar or “virtual net metering.” In the process, though, a key segment in the middle of the market tends to be overlooked; and a good majority of Commercial & Industrial (“C&I”) customers fall into this gap.
The C&I industry should always maximize on-site generation where possible and take advantage of any utility programs or community solar programs that are available. Chances are after these initiatives are complete, there will still be plenty of electricity load leftover. This is where offsite solar comes into play.
Developing solutions for mid-sized customers begins with an understanding of how organizations purchase electricity. Retail energy markets fall into two main categories, regulated or deregulated. While only 17 states plus the District of Columbia are at least partially deregulated, these tend to be in heavily populated areas with more than half of the U.S. population residing in deregulated markets.
Organizations located in regulated markets have fewer options available to purchase renewable energy than those in deregulated markets, although these options have increased recently with green tariffs available in places like Washington State and for certain types of users in North Carolina. If no green tariff is available or the customer cannot qualify for one, they have fewer options.
One of those options is to purchase power from a specified out-of-state asset with a mechanism that gives the customer a final price that adjusts with the local market. This is also sometimes called a swap, virtual PPA or contract for differences. Many virtual PPAs have been executed to date, but these deals come with high complexity, no local or regional benefits, and can be challenging to justify economically.
A more extreme alternative is for customers to leave their utility. Until recently, paying an exorbitant fee to leave the electric utility would have sounded risky if not impossible. Today it is becoming almost commonplace for large users in Nevada, where Caesars Entertainment, MGM and Switch have all paid in the hundreds of millions of dollars to exit the utility. Like the Virtual PPA, this option entails much complexity and requires an enormous energy load and sophisticated analysis.
Those organizations fortunate enough to operate in deregulated markets have more options. They can take part in virtual PPAs much like their counterparts in regulated markets, and they can also work with their retail energy supplier to incorporate renewable energy into their supply mix. This allows for more flexibility in terms of location, structure, project size and term length.
This is still not always simple, as pointed out in an article from The Wall Street Journal: “Smaller companies—not just mom-and-pop operations, but multi-billion-dollar brands as well—are finding it isn’t so easy to tap into solar or wind power. It can require armies of lawyers, accountants and clean-energy experts to hammer out contracts with power producers and navigate a thicket of regulations that vary widely from state to state.”
The article goes on to point out that one solution is to aggregate several smaller users to reap the economies of scale realized by the large users. Such aggregation deals still require PPAs, which are complex documents that warrant extensive finance, risk, accounting and legal review. The aggregation agreements themselves also require significant time to complete, and they come with high legal, accounting and consulting fees. Customers choosing this path must also still procure the “residual” supply necessary when the variable output of the asset does not meet their needs.
The market has matured and there are several consultants and even platforms that can help with these aggregations. However, even these organizations look at the middle-market projects (< 20 MWdc) as too small and often prefer to chase after the mega utility scale deals. At Madison Energy Investments, we believe that retail energy suppliers are in the best position to offer a seamless, economical solution. They routinely serve as aggregators, understand energy markets deeply, and have direct experience in structuring retail and wholesale energy contracts. Customers shouldn’t have to go to the market and enlist peers to join them in purchasing renewable energy in the hope that they will have the same view of the market, the same term and risk appetite, and similar contract timing needs. Retail suppliers are well-positioned to purchase the power from a renewable energy asset and then distribute that power to customers in a manner (and via a contract) that is familiar to the customer. Retail suppliers can absorb the risks from policy and regulations, utility interconnection, and development—all in the context of a customer’s relationship with its regular energy supplier. If structured properly, renewable energy can be integrated into a customer’s current supply arrangement using a contract vehicle like the one they are accustomed to using. Customers in deregulated markets have already approved retail supply contracts and can use them to access the economic and sustainability benefits available from renewable energy. The associated details of term length and retail contract timing are far easier to address than introducing a client to an entirely new contract vehicle, hiring consultants and tracking down fellow energy users of just the right size to team up for an energy project at larger scale. While there are certainly limitations in regulated markets, clients in deregulated markets should have seamless, economic renewable energy solutions available to them. Retail energy providers - in partnership with Madison Energy Investments as the long-term owner of the asset - are best positioned to fill the gap!