Anyone watching the recent explosion of demand for renewable power from corporations like Facebook, Walmart and even ExxonMobil will have wondered: How far can this go?
Much, much further, is the short answer. For all its recent gains, the corporate renewables market is likely in its very early innings, according to a new analysis from Wood Mackenzie and the American Wind Energy Association (AWEA).
Among the 1,000 largest American companies by revenue, the penetration of renewables stands at just 5 percent in their power mix, the report finds. That leaves as much as 85 gigawatts of potential renewable energy demand within the Fortune 1000 through 2030. And that's just for U.S. companies.
Nearly 200 corporations globally have pledged to go 100 percent renewable under the RE100 initiative, and some, like Google, now buy more wind and solar power than many large utilities. Still, in the U.S. alone “there are hundreds of companies that exist in the Fortune 1000 that have not made pledges to that level,” said Dan Shreve, head of global wind energy research at Wood Mackenzie.
It's unlikely that all of that demand will be met by wind and solar, and certainly not within the next decade. But by looking beyond the constant drumbeat of splashy corporate renewables announcements, many of them light on nuance and detail, the report reveals the scale — and challenges — of a market that may only be scratching the surface.
“There’s an enormous opportunity remaining,” Shreve said in an interview. “We view commercial and industrial demand as a centerpiece of our market outlook moving forward. It’s a terribly important sector that’s going to drive demand in the absence of any federal policy associated with renewables.”
Goodbye to the PTC
Several factors have fueled corporate demand for renewables in the U.S., some of which expose potential vulnerabilities for the market going forward.
The most important is the exceptionally low price of wind power in parts of the country, alongside ever-lower prices for utility-scale solar. Wind power-purchase agreement prices fell last year to an average of $16 per megawatt-hour in Texas’ ERCOT territory, the biggest market for corporate PPAs, WoodMac says.
In a world of rising electricity prices, it's no wonder that power-hungry corporations like AT&T, Amazon and Apple have taken the time to become experts on renewables procurement.
Such low-cost deals are possible thanks in part to federal subsidies, with the federal wind Production Tax Credit worth an inflation-adjusted $24 per megawatt-hour for 10 years at its full level.
The multi-year PTC extension secured in 2015 played a central role in shaping the modern corporate renewables market, Shreve said. With an unprecedented four-plus years for wind developers to gestate, market and construct wind farms that qualified for the full PTC, corporations had the time to “dig in and understand the potential opportunities when it came to the acquisition of green power."
The market’s turn toward corporate deals coincides with growth of another type of offtake structure: the merchant hedge contract. Hedges give project owners a degree of revenue stability when selling into cutthroat wholesale markets.
The simultaneous rise of corporate deals and hedges reflects the challenges developers face in securing traditional utility offtake deals amid a wave of renewables projects coming online across the country. Together, corporate deals and hedges accounted for 42 percent of the wind capacity built last year, nearly as much as that procured by utilities.
Shreve said corporate deals will remain vital to the wind market even as it contracts after the PTC's final years.
Solar's big moment
Another big change coming for the corporate market is the rise of solar energy.
Solar is likely to eclipse wind as the technology of choice for most corporate deals by the early 2020s. That's due not only to a more favorable phaseout schedule of its main subsidy, but also to the inherent economic advantages in its generation profile, with solar's natural midday output more valuable to most companies.
That reality, as much as any other, hangs over the wind market's future.
“Wind and solar are stronger in different parts of the country, so states must ensure they have competitive policies and adequate transmission infrastructure to attract investment in the renewable projects and business activities that they will power,” said AWEA CEO Tom Kiernan, in a statement.
One of the corporate market's biggest opportunities is finding a way to crack into the virtually untapped base of smaller companies without the load or internal resources to sign up for big renewables deals, often done through virtual PPAs.
Of the nearly 30 million businesses in the U.S., more than 99 percent fall into the "small" size designation. Even larger businesses may find it cumbersome to source renewables if they have lots of sites scattered across multiple areas, as is the case with many retailers.
The easiest solution for many smaller companies would be offsetting their emissions by buying renewable energy credits. The price of such credits is expected to crash by the late 2020s as many states blow past their renewables targets.
But even smaller companies increasingly want to ensure that their renewables purchases are enabling new wind and solar farms to get built, Shreve said.
Utilities the key?
There have been successes in aggregating demand from smaller corporate buyers and getting big deals done. Some developers are "moving more and more into a role as a power marketer and aggregator, cultivating demand from smaller buyers and breaking up these plants into smaller agreements," Shreve said.
Still, no one has found the "cookie-cutter approach" that works well for every would-be corporate offtaker. Ultimately, the rise of utility green tariff programs holds the most potential, he said. Such programs see utilities offering companies the chance to buy power from a specific wind or solar project at a special rate, through what is known as a sleeved PPA.
"Utilities hold the key to unlocking that second tier of green power demand," Shreve said.
Wind and solar developers may not love utilities stepping in and becoming the go-to owners and retailers of renewable power. But the market may not give them a choice in the long run.
In a world where businesses of all shapes and sizes are embracing renewables, "I think there's plenty of opportunity to go around," Shreve said.
The report's free 40-page executive summary is available for download here.