5 steps renewable providers can take to simplify energy procurement and increase business opportunities
Utilities and other providers should customize renewable energy offerings to small and mid-cap companies or risk ceding significant significant growth opportunities.
The following is a Viewpoint by Marlene Motyka, Deloitte’s U.S. and Global Renewable Energy leader.
Corporate renewable energy procurement is growing rapidly and signs point to continued acceleration. In fact, corporate demand is outpacing policy as a key driver of renewable growth.
So far, large corporations have been at the forefront of this trend, but mid-cap and small companies (with global revenue <$500 million; see Figure 1) are also increasingly committing to renewable energy purchasing goals.
This growing market segment may represent the next wave of opportunities for utilities, renewable developers and service providers, yet these buyers are currently underserved and they need simplified access to renewables. Providers should consider customizing their offerings to meet the needs of smaller buyers, or they risk ceding a tremendous growth opportunity to competitors.
This article explores this growing opportunity and provides five steps utilities and other renewable providers can take to serve this market segment.
Corporate purchasers signed contracts for more than 3.5 gigawatts (GW) of solar and wind power in 2015, 2.5 GW in 2016 and over 2.5 GW by November 2017. Advanced Energy Economy reports that 43 percent of Fortune 500 companies have a sustainability target, a renewable energy target, or both.
While U.S. federal tax credits and state Renewable Portfolio Standards (RPS) have long supported renewable energy growth, rising customer demand is increasingly underpinning corporate procurement. In Deloitte’s 2017 Resources Study of business and consumer attitudes on energy, 61 percent of business respondents said their customers are demanding that they procure a certain percentage of their electricity from renewable resources, and about half said they are working to procure more electricity from renewables.
Although large companies may be some of the most visible corporate renewable purchasers, the Resources Study found that small companies were most likely (56 percent) to report that they’re working to procure more renewable electricity, compared to mid-caps (41 percent) and large companies (47 percent). This trend could accelerate quickly, as large corporations start to impose sustainability standards on their supply chain participants. And the declining cost of wind and solar power, increasingly putting them on par with conventional forms of electricity generation, could attract even more small and mid-cap corporate renewable buyers.
However, despite this growing interest, current renewable purchasing mechanisms may not be sufficient. Even the largest and most experienced companies run into barriers, especially concerning power purchase agreements. And mid-cap and small companies are less likely to have the buying clout, the legal resources or the electricity market experience required to negotiate these complex agreements.
If utilities and other renewable providers don’t address the needs of this segment, they could cede a significant growth opportunity to competitors. Some corporate customers are already finding alternatives that bypass utilities such as self-generation, procuring directly from developers, or avoiding doing business in states where utilities or regulators cannot accommodate their renewable energy purchasing goals.
On the other hand, if utilities, renewable developers and service providers want to seize this opportunity, below are five steps they can take.
1. Offer services and options to companies that cater to various risk appetites and maturity levels
Some companies are just beginning to launch their energy management programs and to explore the value proposition of renewables.They are neither willing nor able to adopt complex solutions that require them to alter operations or make significant capital investments. Helping them pick the low-hanging fruit first can lay the groundwork for a lasting relationship.
As corporate buyers become more mature — and presumably more confident — providers can move from the basics, such as green-power programs, to more sophisticated solutions like demand response, building automation systems or on-site renewable generation combined with battery storage.
2. Frame solutions from a financial perspective, as well as from an engineering one
Cited by 54 percent of business respondents in the Deloitte Resources 2017 Study, cost cutting is still one of the big reasons companies implement resource management programs. But the solutions are not often framed that way. While engineers and sustainability officers will likely have input into green-power decisions, the CFO frequently has the final say.
3. Remember that small and mid-cap companies also care about additionality
This means they want assurance that their renewable energy purchases contribute to expanding renewable energy assets or “greening the grid.” Some small and mid-cap companies seek to participate in green-power or similar programs for convenience, favorable economics, and because regulations or resource constraints prohibit them from directly procuring renewable electricity.
These programs would be even more attractive if utilities articulated how they drive the overall growth of renewables — either directly by building new installations or indirectly by supporting smart-grid upgrades and integration of distributed generation.
4. Offer aggregated supply options or help customers to aggregate their demand
Aggregation is emerging as an important means of providing access to large-scale renewable energy projects for the small and mid-cap segment, as well as for public sector and nonprofit organizations. Community solar is one form of aggregation that presents a supply-side opportunity for residential or commercial utility customers to invest in a solar array or receive credits on their electricity bills for solar power not located at their homes or businesses.
Community solar is growing in popularity and importance. However, another form of aggregation is now happening on the demand side where customers are banding together to strengthen their purchasing power in renewable energy deals. Making the aggregation process easier from either side of the supply-and-demand equation could be instrumental to better serving the C&I market.
5. Explore turnkey solutions
The appeal of turnkey solutions is likely to grow in lockstep with the rise of the small and mid-cap segment, with early movers exploring how to bundle renewable energy procurement, energy efficiency services, and distributed renewable generation combined with battery energy storage. Some are already taking this route. Utilities and developers may wish to consider what types of bundled services they could offer on their own or through acquisitions, alliances and partnerships.
Utilities and developers can either seize the opportunity to serve this growing group of mid-cap and small companies purchasing renewables, or risk ceding the opportunity to competitors.