Fortune 500 companies declare renewables “buyers’ principles”

RMI

Imagine if several of the world’s largest companies joined together to make clear their common interests in accessing renewable energy. Such an accord, if it contained actionable intent, would send a potent signal to the energy market that corporate renewable energy demand is serious business.

In fact this declaration has actually happened, thanks to World Wildlife Fund and World Resources Institute’s impressive facilitation. Last week, WWF released a set of principles signed by leading Fortune 500 companies—including Bloomberg, Facebook, General Motors, Hewlett-Packard, Intel, Johnson & Johnson, Mars, Novelis, Procter & Gamble, REI, Sprint, and Walmart—that frame the challenges and needs they are facing as large renewable energy buyers.

Last year, RMI and WWF hosted a “Corporate Renewable Energy Buyer’s Day” to accelerate large-company renewable market participation. There, WRI, BSR, and companies representing more than $1 trillion in annual revenue discussed and prioritized how to best execute against these challenges. The path for action derived from that event has culminated in these Buyers’ Principles and the launch of RMI’s Business Renewables Center.

Developed to help facilitate progress on these challenges and to add perspective to discussions under way across the country on the future energy and electricity system, the Principles are designed to open up new opportunities, choices, and collaborations that will help businesses meet their public goals to increase their renewable energy use.

With a combined renewable energy target of 8.4 million megawatt-hours (MWh) per year through 2020, the 12 participating companies equate to substantial demand, the equivalent of over half of all 2013 U.S. solar generation.

COMPANIES RAMPING UP RENEWABLE ENERGY ACTIVITIES

Companies are becoming far more active energy consumers and market participants as they increase their focus on comprehensive risk management, longer-term resilience, quality risk-adjusted returns, sustainability, and customer and employee perceptions. The action of these dozen companies to make their renewable desires clear shows that the age of simple REC buying and minor renewable energy dabbling has passed for much of the Fortune 500.

Non-energy, non-financial companies like Google and Honda already are major solar investors. Walmart has more total solar on its rooftops than 38 states have from all installations. But these renewable market leaders are looking to do more, and others are following their lead toward more substantial renewable energy activity.

THE PRINCIPLES

The Buyers’ Principles outline six criteria that would significantly help companies meet their ambitious purchasing goals:

•Greater choice in procurement options—Companies want more than a “take it or leave it” option. They want a choice of renewable energy suppliers and products.

•Cost-competitive options—Companies know that renewable energy can achieve or even beat cost parity with traditional energy options, and they’re willing to explore alternative contract arrangements to bring down the cost of capital and make that happen.

•Access to longer-term, fixed-price contracts—One appeal of renewables for companies is to avoid fuel price uncertainty and lock in energy price certainty with longer- and variable-term contracts that meet individual companies’ needs.

•Access to new projects that reduce emissions beyond business as usual—Companies want a) bundled renewable energy projects that capture both the energy generated and renewable energy credits (RECs), b) to eliminate double counting and maintain accounting integrity, and c) to secure renewable energy from projects geographically close to facilities.

•Streamlined third-party financing—Companies want simplified and standardized processes, contracts, and financing to access the project prices and at the scale they need to meet their goals.

•Cooperating with utilities and regulators—Working in partnership with a local utility can be more efficient and cost effective. To make that happen, companies are committed to fairly share the costs and benefits of renewable energy procurement, including the ability to meet renewable energy goals for both existing and new load.

SHAPING MARKET DEMAND

But while there’s a lot of unmet demand, the market isn’t providing sufficient renewable energy products and services that companies want. Thus, companies are coming together because they want to catalyze the market to meet their demand.

Now that these large companies have made their renewable energy interests both clear and aligned, they can engage the broader utility industry in a common dialogue.  That’s a big deal. Up until now, much of the corporate-friendly renewable energy progress has occurred on an ad hoc basis, with a single or a handful of companies in dialogue with individual utilities, regulators, or legislators on a state-by-state basis (e.g., Apple in Nevada, eBay in Utah, Facebook and Google in North Carolina). The Principles make it broadly clear there’s more common progressive thinking among large companies than just these few companies in limited geographies.

The Principles also powerfully demonstrate that the renewable and/or greenhouse gas emission reduction goals of these companies are not just words on paper. They are action mandates, and these companies are eager to transact.

Renewable energy suppliers should also now better understand the common interests of potential corporate energy-clients and investors. For instance, providers should look to creative financing and contracting solutions that can manage shorter-term PPAs. If First Solar can do a merchant utility-scale solar plant (i.e., selling energy on the spot market with no long-term PPA), then perhaps other solar projects should work toward limited-duration, high-credit-quality corporate offtakers, mixed in with merchant exposure and/or different offtakers for the longer term.

RMI-LED BUSINESS RENEWABLES CENTER AND WWF-LED BUYERS’ PRINCIPLES: COMPLEMENTARY EFFORTS

As the WWF-RMI Buyer’s Day analyzed and WWF (along with partners Ceres, Calvert Investments, and David Gardiner & Associates) recently outlined in their updated version 2.0 of their Power Forward report, three main challenge areas persist for companies in executing renewable energy deals: 1) internal, 2) market, and 3) institutional (i.e., utility regulation and other government). The RMI-led Business Renewables Center and the new Buyers’ Principles will help to address challenges within each of these broad areas.

1) Internal Challenges

Companies face:

•Lack of internal capacity to manage complex deals and financial instruments

•Unfamiliarity with renewable deal dynamics

•Costly external expertise

The BRC will:

•Build deal team capacity so deal-relevant information is easier to access, reducing deal burdens

•Provide products that familiarize deal execution teams (procurement, finance, budgeting, treasury, etc.) with renewable energy deal terms

•Provide affordable access to top-quality expertise

2) Market Challenges

Companies face:

•Long-duration, non-transferable contract terms

•Insufficient contract standardization

•Lack of market transparency

The BRC will:

•Deconstruct contracts, parsing out common negotiable variations as well as more fixed terms and their deal risks and opportunity impacts

•Offer deal and service provider databases and/or bulletin boards

Principles-enabled solutions will:

•Signal to the market to create better-fitting deal structures upon which a large number of companies agree (i.e., more common demand), such as:

•Clear request to utilities and developers for shorter-term PPAs

•Clear request to utilities to provide renewable energy tariffs, and to make such offerings to the much larger load of existing facilities, rather than just expanding current tariff programs focused on new loads

3) Institutional Challenges

Companies face:

•Limited market access: Much of the U.S. commercial and industrial energy demand is in regulated utility territory, where open energy market access is not possible

•Many unduly complicated and insufficiently revisited rules around a commercial or industrial site’s energy actions, limiting technological and business operation enhancement with distributed energy options, to which regulations and grid management technology have not caught up

Principles-enabled solutions will:

•Provide a foundation for companies to negotiate with their utilities to work out fair distribution of costs and benefits to the grid of distributed energy resources

•Provide a signal to utility regulators to enable utilities more flexibility in offering renewable energy tariffs or other corporate renewable energy access contract arrangements

Source: RMI. Reproduced with permission.