The Latest Trends in Corporate Renewable Energy Procurement
Rocky Mountain Institute’s Hervé Touati explains the “winner’s curse” and why the corporate renewables market is about to really boom.
We’re entering a new era in corporate renewable energy purchasing.
The space has grown exponentially and diversified significantly since Google and Apple made their first renewable energy procurements in 2012. Where and how corporations are purchasing renewables is also evolving, according to Hervé Touati, managing director of the Rocky Mountain Institute.
Here are the major takeaways from his talk this week at GTM’s Grid Edge World Forum.
Demand on track to surpass 2016
RMI tracked 1.24 gigawatts of corporate renewable energy procurements from the beginning of January through June 15 of this year. Procurements spiked in 2015, when the industry predicted that Congress would not extend the Production Tax Credit for wind and the Investment Tax Credit for solar. Since then, corporate renewable energy demand has returned to more incremental growth.
Demand remains strong, however, with 2017 on track out outpace 2016. “You can see it’s a growing trend,” said Touati.
So far it’s been a big-company game
The increase in renewable energy deals comes as an increasing number of companies make bold clean energy commitments. Today, more than 95 companies have pledged to go 100 percent renewable as part of the RE100 campaign. Several of those companies, including Google, Microsoft and Lego, and have already hit their targets.
But while sustainability goals have become more widespread, Touati noted that these commitments — and, more strikingly, renewable energy procurements — are still concentrated among the world’s largest companies.
Diversification is a growing trend, though. One trigger is that large companies are starting to demand sustainability measures be met across their supply chain. In 2015, Apple launched a 2-gigawatt clean energy initiative in China, in order to tackle its supply chain emissions. As part of that initiative, iPhone manufacturer Foxconn will construct 400 megawatts of solar by 2018.
Walmart has also launched a major supply chain initiative — dubbed the corporate America’s “moonshot” — that seeks to remove 1 gigaton, or 1 billion tons, of greenhouse gas emissions from its supply chain by 2030. Energy is one of six areas where suppliers can make improvements.
“When the first five to 10 companies turn back and look at their supply chain, that could open up significant new opportunities [for renewables],” said Touati.
New rate structures are also helping to expand and diversify the corporate clean energy market. Momentum created by the “We Are Still In” movement in response to the Trump administration’s withdrawal from the Paris Agreement is helping to get new corporate players engaged as well, Touati said. The group currently includes some 2,086 governors, mayors, businesses, investors, and colleges and universities, three-quarters of which are businesses and investors.
Another emerging trend in corporate renewable energy procurements is the “winner’s curse,” as Touati calls it. This is where the price and the value of a renewable energy project do not match, and the customer’s asset does not deliver the expected return on investment. If not addressed, this issue could put a chill on the corporate renewables space.
The issue is particularly pronounced in the Southwest Power Pool, evidenced in the map below showing wind-weighted electricity prices. In the red areas, wind energy production gets more than $20 megawatt-hour, while in the blue areas production gets just $5 per megawatt hour. “That’s really cheap for electricity,” said Touati.
A lot of wind developers put projects in the blue areas because the land is cheap, the projects are easy to permit, and the wind resource is strong. But that does not necessarily mean it’s a good deal for the customer.