Customer access to clean energy has increased dramatically in the past 15 years, as technology cost reductions, electricity market deregulation, and financial creativity have combined to produce more accessible renewable products for end users.
Energy managers now have a wealth of tools at their disposal. The most recent product class is the offsite solar PPA. This product represents the fourth major way that large electricity buyers can access the benefits of renewables. It’s the most flexible and satisfying yet, and appeals to a broad range of end users, including universities, corporations, manufacturers, municipalities and other government agencies.
We will briefly recap the history of customers’ renewable energy options, as well as the pros and cons of each.
2001: The Renewable Energy Certificate
In 2000, the Bonneville Environmental Foundation and EPA’s Region 10 office completed the first retail REC transaction. In the "old" days, prior to the invention of the REC, customers were at the mercy of their utility. If the local utility didn't offer a renewable energy option, customers were out of luck.
The REC, a tracked and verified certificate that represents the carbon reduction created by adding 1 megawatt-hour (MWh) of metered renewable electricity to the grid, allows customers to circumvent the utility and support renewable energy in a meaningful way. The REC is now the accounting standard for nearly all U.S. renewable energy transactions, and many utilities operate REC-based green power programs for their customers.
Generally speaking, large end users of electricity appreciate the simple, elegant and cost-effective nature of a REC transaction. However, because the REC product does not include the underlying electricity, the customers cannot access the fixed-price benefits of renewable energy with RECs.
2007: The rooftop solar lease
SunEdison pioneered the rooftop solar power-purchase agreement, which was then applied by Sunrun and SolarCity in the residential rooftop space in the form of both leases and PPAs in 2007.
The products relieved homeowners from the burden of large, upfront cash payments for solar panels. Since then, it has been enhanced many times over and helped leading companies raise hundreds of millions of dollars to support projects. Solar leases and PPAs, both residential and commercial, remain a primary financing method for on-site solar projects in the U.S., offering customers value and flexibility.
Nonetheless, for many customers that have large electricity loads, shading issues, or aging roofs, or for customers that don’t own their facilities, the products may be an impractical or incomplete solution.
2010: The corporate wind PPA (offsite)
When Google completed the first purchase of wind electricity from an offsite project (a project located remotely from any Google facilities), it became FERC-registered to do so -- a burdensome and resource-intensive process for all but the most well-heeled companies.
Since then, project developers and energy marketing companies have worked diligently to make wind PPA opportunities more accessible to a broader range of organizations and customers. Institutions like Microsoft, Yahoo, Mars, Amazon Web Services and Ohio State University have completed transactions, but, as this list implies, wind PPAs are typically large in size and most appropriate for very sophisticated buyers with large electricity loads.
Nonetheless, because the PPA is an actual purchase of electricity (or a financial hedge that achieves the same end), the wind PPA allowed customers to manage their long-term electricity costs for the first time.
It’s important to note that while wind power and solar plants have upfront capital costs, the marginal costs for generating the renewable electricity are zero. This means that the projects can sell their power at a known, fixed price for the life of the project, an offer that fossil-fuel plants are incapable of matching.
2014: Offsite solar PPAs
There are a number of customers that simply do not have the sufficient rooftop or open space to host a solar power system that would make a meaningful contribution to their electricity needs. These organizations, including universities, municipalities and businesses, also typically cannot pay for the system outright. Offsite solar PPAs offer these customers a way to secure the economic and environmental benefits of solar. Systems can be sized appropriately to meet their needs and structured to provide savings without upfront cost.
For example, National Aquarium executives explored the potential for rooftop solar and discovered that, given the unique architecture of their building, an onsite project wasn’t feasible. Though they considered building a very small system adjacent to the building, that project would only have allowed National Aquarium to address a tiny portion of their total electricity load. They wanted to do something more meaningful.
Offsite solar checked all the boxes -- now a 4.3-megawatt solar project in Cambridge, Maryland supplies electricity over a distance of 50 or so miles as the crow flies. The system, developed by OneEnergy Renewables, will provide power for approximately 40 percent of the Aquarium’s electricity requirements for the next 25 years, and helps the organization, which values conservation and the environment, walk the talk.
Though this power product is similar to a wind PPA, in many respects, the offsite solar PPA holds significant advantages. First, because solar is modular in nature, projects can be scaled up or down to suit the power requirements of various customers (i.e., you don’t have to be Google to implement). And because sunlight is readily available in numerous markets (as opposed to strong wind resources required by large wind projects), developers can build projects in strategic grid locations that offer the best economics for both project and customer. Finally, because solar projects are relatively easy to site and permit, projects can be built closer to customers’ facilities.
A portfolio approach
Renewable power products continue to improve over time, and each product offers particular benefits to customers. Which products are most appropriate for your organization depend very much on your individual profile: your location, your electricity load, your financial position and your real estate. Fortunately, a portfolio approach makes tremendous sense for most organizations.
The most savvy organizations:
- Implement as many efficiency measures as possible to reduce energy consumption and budget
- Purchase fixed-price solar or wind PPAs to serve as fiscally prudent hedges on long-term electricity prices (generally 10 percent to 40 percent of total consumption)
- Purchase inexpensive RECs to green the remaining portion of their power portfolios
There you have it: an economic portfolio approach to green 100 percent of your electricity supply, reduce energy price risk and budget volatility, and build brand value with customers, employees, and other important stakeholders.
Bryce Smith is the co-founder and CEO of OneEnergy Renewables, a national solar developer that delivers the economic and environmental benefits of clean energy. Previously, Bryce worked as Director of the Bonneville Environmental Foundation's Project Management Group, overseeing and developing more than 160 solar projects in 16 states.