The innovations just keep coming in the corporate-utility deal space
The newest plans are “much bigger and broader than green tariffs.”
Corporate demand is now a key driver of large-scale wind and solar growth, but utilities and their biggest customers have only begun to find innovative ways to meet that demand.
At first, big corporate buyers went out to buy their own wind and solar projects. But that introduced complications and limitations, which led to partnerships with utilities that knew how to manage those challenges. The corporations and utilities are still refining the terms of those partnerships.
Corporations accounted for more than 2,000 MW of the 5,496 MW of wind capacity contracted for in 2017 and grew to 9.6% of the total installed U.S. capacity. Corporate procurement of solar grew from 10% of 2016’s installed capacity to 16% in 2017.
Innovation to meet growing corporate demand began when customers with clean energy ambitions like Google, Apple and Amazon started contracting with independent power producers (IPPs) for off-site generation. But they discovered they could not contract directly with IPPs in regulated, vertically integrated markets where they often want or need to do business.
That led to the next innovation — the green tariff concept. It was developed by corporate customers in collaboration with Berkshire Hathaway Energy and the World Resources Institute (WRI). The first green tariff was through NV Energy in 2013. There are now 21, in 15 states, according to WRI.
Through green tariffs, regulated utilities can sell to corporate customers that bring new load to the system through utility commission-approved contracts. The formal agreements protect the rest of the utilities' customers from contractual complexities and premium pricing.
The next innovation was the still-ongoing evolution of green tariffs. It began when WRI’s dozens of corporate off-takers concluded the green tariff contracts did not always meet their needs for things like competitively-priced renewable generation and long-term contracts.
They drafted a set of principles to guide utilities in structuring the renewables products they offer to include those things. More recently, customers have begun asking utilities for new renewable generation to meet existing as well as new load.
The newest innovation may be the biggest. So far, it is simply an ongoing conversation between multi-jurisdictional, vertically-integrated utilities and core members of the WRI corporate buyers group. But according to Southern Company VP for Energy Policy Bruce Edelston, it “is much bigger and broader than green tariffs.”
This new WRI-led forum is called the Clean Power Council (CPC). Its purpose is “an efficient and economic transition to clean energy resources,” WRI says. It is intended to go beyond renewable energy “to enable technologies that reduce greenhouse gas (GHG) emissions while growing businesses.”
A green tariffs overview
There is enormous unmet corporate demand for renewables.
An estimated 71 Fortune 100 companies, at least 215 Fortune 500 companies, and many more small companies have clean energy or sustainability targets.
RE100, an organization enrolling companies with a 100% renewables target, now has a global membership of 131 major corporate power users, with most serving U.S. markets.
Sierra Club’s Ready for 100 movement includes 64 U.S. cities, eight counties, and the state of Hawaii, all committed to working toward 100% renewable generation.
The standards for what constitutes 100% renewables varies widely among the companies associated with these groups. The WRI-led corporate buyers have structured a set of six Corporate Renewable Energy Buyers’ Principles that define what is necessary to keep the customer from moving to an unregulated state and an IPP.
The principles include greater choice in procurement options, more access to cost competitive options, longer- and variable-term contracts, access to new projects that reduce emissions beyond business as usual, streamlined third-party financing and increased purchasing options with utilities.
“The green tariff was exactly where the interests of utilities and big customers coincided, and it started a dialogue. Now that dialogue can be expanded to find other areas where our interests align.”
VP, Southern Company
Green tariff structures also tend to be more complicated than power purchase agreements because they must meet regulations protecting other customers from any extra costs to serve the corporate off-taker.
Green tariff contracts have accounted for 330 MW of wind, and that “is expected to grow in the near term," according to the American Wind Energy Association.
Green tariff contracts have also accounted for 770 MW of solar, according to World Resources Institute (WRI) data. “Smart utilities are recognizing the growing corporate demand and working directly with corporations,” GTM Research Senior Solar Analyst Colin Smith recently told Utility Dive.
The number of "smart utilities" is clearly increasing. Green tariff contracts representing 638.5 MW of corporate off-take have already been completed this year and 800 MW of capacity is being negotiated, according to WRI,
Smart Electric Power Alliance (SEPA) Utility Strategy Manager Dan Chwastyk said the resource a corporate buyer chooses largely depends “on what makes sense economically in each geography.”
WRI has identified eight utilities with completed green tariff contracts: NV Energy, Dominion Energy, Duke Energy, Public Service of New Mexico, Puget Sound Energy, Consumers Energy, Omaha Public Power District and Georgia Power.
It has identified nine corporate buyers and one municipality with green tariff contracts: Apple, Switch, the City of Las Vegas, Amazon, Google, Facebook, Johnson & Johnson, Walmart, Target and General Motors.
The newest additions
WRI Director of Utility Innovation Letha Tawney has been engaged in green tariff development from the beginning. She highlighted four of the newest and most interesting green tariff deals.
As part of Georgia Power’s 2016 Integrated Resource Plan, the Georgia Public Service Commission approved up to 200 MW of new commercial-industrial scale solar. Existing customers Google, Johnson & Johnson, Target and Walmart responded to a solicitation with subscriptions totaling 177 MW for the Commercial & Industrial Renewable Energy Development Initiative (C&I REDI).
“Until Georgia Power made the public offering, it was unclear what the amount of demand would be or what the prices offered would be,” Tawney said. “This may be the first example of an amount of renewables being explicitly set aside in the planning process to meet anticipated corporate customer demand.”
Georgia Power spokesperson John Kraft said the subscribers’ per-kWh “portfolio price” is fixed for the 10-year contract term. They also get the renewable energy credits (RECs) for paying for the solar generation.
Pricing is not public. But “if it is a price point Walmart can live with, it is probably a price point most corporate off-takers can live with,” Tawney said.
The assumption with these kinds of green tariffs is often that because the price of the solar generation remains fixed, the green tariff will, over time, meet the Buyers’ Principle requiring cost-competitiveness, she added.
Tawney said the Johnson & Johnson subscription was especially noteworthy. “It is a mid-sized load from a buyer that has not participated in green tariffs before,” she said. “It shows the concept is beginning to scale beyond the tech giants.”
Puget Sound Energy
The only other green tariff now in place to meet existing load is through Puget Sound Energy (PSE).
PSE Green Power Market Manager Heather Mulligan said the 42 “average megawatts” allotted to phase one of the utility’s Green Direct tariff program are fully subscribed. The 135 MW wind project has 21 customers, including REI, Starbucks and Target.
Average megawatts are a calculation of the project's nameplate capacity and capacity factor, and the customer's average usage.
A solicitation was issued last fall for phase two. PSE has narrowed the offerings down to a short list of wind and solar projects and expects to go to its regulators “in the coming weeks with a detailed final section,” Mulligan said.
The total program, including phase one and phase two, was capped by Washington state’s utilities commission at 75 average MWs, which means “the phase two portion of the 75 average MWs will be slightly smaller than the phase one portion of 42 average MWs,” she said.
Price information is undisclosed, but PSE “will have to file different pricing” for the phase two project. The green tariff structure will remain unchanged because it has worked well for the utility and its customers, Mulligan said. “We already have a list of customers who have reached out and are very interested in phase two.”
One of the newest green tariffs will allow Consumer’s Energy, one of Michigan’s dominant investor-owned electric utilities, to serve General Motors and data center provider Switch. The output of a 35 MW Michigan wind project, already on line, will be matched to 100% of the electricity used at specified Switch and GM facilities.
Though price information is disclosed, the tariff meets all six Buyers’ Principles, according to Tawney.
Spokesperson Brian Wheeler agreed the tariff’s fixed price “could be beneficial” for GM and Switch if the term of the contract, yet to be finalized, is long enough.
Schedule RF from Dominion Energy, Virginia’s dominant investor-owned electric utility, targets the commercial-industrial customer segment and is uniquely structured, Tawney said.
Over a contract term that is negotiable, all Dominion ratepayers will share the cost of the facility up to the avoided cost of system power, she said. “The corporate customer will pay the difference between that cost and the cost of the renewables generation.”
Though it is an above-retail price, the corporate buyer “gets the RECs and additional considerations that could lower the cost,” she said. “Though no deals have been completed with this tariff, those considerations could include the use of the customer’s land or its access to lower cost capital.”
“It is a different but forward-thinking type of green tariff that seems to anticipate a growing demand from C&I customers for renewables,” Tawney added.
Southern Company's Edelston sees the Clean Power Council (CPC) as “bigger and broader than green tariffs” because it engages the utilities and their customers in a dialogue about new ways to meet corporate climate change targets.
“The green tariff was exactly where the interests of utilities and big customers coincided, and it started a dialogue,” Edelston said. “Now that dialogue can be expanded to find other areas where our interests align.”
Utilities are used to selling vanilla ice cream. We do it very cheap, and everybody knows where they can get it, but we don’t have much experience with product development and differentiation,” he said. “A large data center, a large retailer, and a manufacturer each have unique characteristics. That is asking us to sell chocolate chip ice cream and green tea ice cream.”
Senior VP of External Affairs and Customer Solutions, Pacific Power
Tawney said the CPC is working on a tariff or other deal structure that would allow utilities to deliver integrated renewables-plus-battery storage solutions to corporate off-takers.
“The challenge is that many of the customers’ internal goals and targets are in MW of renewables,” she said. Until storage and smart technologies are straight economic opportunities, the only way to include them is to focus on reducing GHGs, she added. “We have started that conversation, but it is so cutting edge that most customers are not there yet.”
Edelston is focused on CPC discussions about electric vehicles (EVs) and EV charging infrastructure. The objective is “to advance EVs and charging in ways that help customers meet their sustainability goals and help us develop markets.”
A second CPC effort that Edelston is working on is introducing more corporate customers to how utilities develop integrated resource plans (IRPs). “Understanding our planning can help them meet their targets because the IRP is where we make the decisions about our generation portfolio.”
Pacific Power Senior VP of External Affairs and Customer Solutions Scott Bolton agreed with Edelston about the value of the discussions about transportation electrification. He sees it as a way to measure “the demand pull” for EVs and EV strategies.
But the CPC is much more than any one discussion because it can help utilities assist their corporate customers. “No two customers’ needs are exactly alike, and that makes it very difficult to have a cookie-cutter, one-size-fits-all green tariff,” he told Utility Dive.
“Utilities are used to selling vanilla ice cream. We do it very cheap, and everybody knows where they can get it, but we don’t have much experience with product development and differentiation,” he said. “A large data center, a large retailer, and a manufacturer each have unique characteristics. That is asking us to sell chocolate chip ice cream and green tea ice cream.”
Through the CPC, customers are helping utilities understand their needs and utilities are helping each other understand how to tailor services and see where policy changes are needed, Bolton said.