Corporate Customers Set Green Procurement Record

With corporations setting a record for renewable energy purchases in 2018, two messages have become clear: Renewables make economic sense, and the private sector prefers a clean energy transition, according to a new report by the Business Renewables Center.

With Facebook leading the way—the social media giant announced 22 deals to generate 1,894.5 megawatts of capacity—the BRC, a membership program at the Rocky Mountain Institute, tracked a record 76 deals in 2018, reaching more than 6.5 gigawatts (GW), said Alexander Klonick, a BRC associate and co-author of the report with Lily Donge.

In its first year of market participation, AT&T completed four deals totaling 820 MW for second place in the top five corporations. Walmart followed with five deals totaling 533 MW; ExxonMobil Corp. had two deals totaling 500 MW, and Microsoft had two deals totaling 405 MW.

“Facebook had a huge year. Even without Facebook, this was still a record year,” Klonick told CPE. “There’s a lot of diversity in this space. We saw ExxonMobil with 500MW of deals there. That’s an organization and a company that can get very cheap energy through their own operation, yet they are choosing to go with renewables.”

Both the number of deals and announced capacity in 2018 were more than double the 2017 total of 31 deals with a high of 2.8 gigawatts and the next-highest year, 2015, when there were 32 deals with 3.2 gigawatts announced.

“The record number of companies successfully pursuing renewable energy this year sends a clear signal that environmental sustainability is a serious priority for business leaders across the economy,” said Rocky Mountain Institute CEO Jules Kortenhorst in a statement. “These companies aren’t going to wait for public policy on climate issues to catch up—they are taking the initiative to accelerate toward a prosperous, low-carbon economy.”

The deals tracked by the BRC are contracted capacity from corporate purchase power agreements (PPAs), virtual purchase power agreements (VPPAs), green power purchases, green tariffs and outright project ownership. Facebook broke all buyer cumulative procurement records since deals have been tracked, the BRC noted.

One of Facebook’s deals in 2018 was part of a new PPA signed in March with Adobe for energy produced by the 320-megawatt Rattlesnake Creek Wind Farm in Nebraska owned by Enel Green Power North America Inc. (EGPNA). The deal increases the renewable power supply to Facebook’s data center in Papillion, Neb., about 120 miles from Rattlesnake Creek.

The new deal expands on a November 2017 agreement for 200 megawatts and will gradually increase the output by 2029 to power Facebook’s data center. The agreement with Adobe gives it power and renewable energy credits (RECs) from a 10-megawatt portion of the wind farm through a PPA covering 2019 to 2028, with the total output set to supply the Facebook data center starting in 2029.

 “Powering our data centers with 100% clean and renewable energy is not just a goal for Facebook, it is a requirement of our business,” Bobby Hollis, Facebook’s director of global energy, said in a prepared statement. “The Rattlesnake Creek wind farm will enable us to power our future Papillion Data Center, and fulfills our passion to expand the energy market for other corporate buyers, like Adobe.”

New Corporate Buyers 

While Facebook was an early adopter in  renewable energy procurement, 2018 also saw a large and more diverse number of new corporate participants. At least 25 of the more than 40 individual buyers were inking renewable contracts for the first time. Among the corporations making their first renewable energy deals last year was Kohler, the manufacturer of kitchen and bath products and engines and power systems.

In March, the company announced a 15-year agreement to purchase 100 megawatts of wind power annually from the Diamond Vista wind farm, a nearly 300 megawatt facility near Salina, Kan., that EGPNA will develop, own and operate. Kohler also owns and operates two golf resorts – in Kohler, Wisc., and St. Andrews, Scotland.

Another first-time deal maker was J.M. Smucker Co., which entered into a long-term PPA agreement in August with Lincoln Clean Energy for 60 megawatts of the 230-megawatt Plum Creek Wind Farm in Wayne County, Neb. Starting in 2020, the Plum Creek facility will meet about half of Smucker’s total electricity needs.

Natural Growth

Klonick described the growth of corporate renewable procurement as a natural progression. “I think it’s just a natural growth in the market and natural building in the community,” he said. “It gets to a tipping point where you see these original leaders in the space looking to do these deals and venturing into something that is beyond their core business. They are proving that this is possible both from a logistic standpoint and from something that they as a corporation can do and is possible from a financial standpoint.”

Costs for solar and wind projects have come down in recent years, partly aided by incentives, which are beginning to be phased out. But advances in technology and financing structures for renewable deals have also helped decrease costs and risk factors for both the demand and supply side, notes George Favaloro,  a Boston-based executive director at Anthesis Group and leader of the consultancy’s U.S. energy and renewables practice. 

That, he adds, points to a maturing market which has been particularly helpful to the solar power market. That has helped solar, in particular.  Over the past two years, solar deals jumped from about 25 percent to 43 percent of the deals tracked in 2018, despite tariffs put in place last year on solar panels imported from China, Klonick said. Out of the 6.5 gigawatts of total contracted capacity in 2018, 2.8 gigawatts was solar, he noted. Meanwhile, costs are falling faster than was previously anticipated, he added.

“The pace of innovation in renewable technology has put us in a position where we can make the economics work. At least the economics of it are palatable now,” Favaloro told CPE. In the early days of corporate renewable procurement technology companies like Facebook led the way followed by big retailers like Walmart, he noted. “Now it’s a very diverse and broad group sourcing renewable and in substantial quantities,” Favaloro said.

A big change, he noted, is that the first corporate renewable deals required a 20-year commitment. Many corporate customers were skittish about signing on for such a long term at the outset. Now, deals of 10, 12 and 15 years deals are much more common, with 12-year deals accounting for much of the transactions, Favaloro said.

Technological and Financial Innovations

Klonick and Favaloro both pointed to changes in the financial structure of corporate renewable transactions that has also energized the number of deals as well, particularly the growth of virtual power purchase agreements (VPPAs). But  managing risks that are inherent to PPAs is still an issue, Klonick observed.

In October, Microsoft and REsurety, along with partners Nephila Climate and Allianz Global Corporate & Specialty Inc.’s Alternative Risk Transfer unit, announced a new solution. Called a volume firming agreement (VFA), the product is designed to mitigate the risks of renewable energy sources of solar and wind and act as a hedge against the risks posed by electricity costs on the open market and dealing with the hourly variability of wind and solar.

Microsoft, which co-developed the VFA, became the first adopter. Microsoft said VFAs are not a replacement for PPAs; they are contracts that are added to new or existing PPAs to mitigate the risk to the buyer. Microsoft said it signed three VFAs with Alianz, covering three wind farms in Texas, Illinois and Kansas totaling almost 500 MW. “As Microsoft continues to purchase renewable energy to power our operations, we anticipate utilizing VFAs to firm the energy and match our consumption on an hourly basis,” the software giant stated in a corporate blog.

Utilities are also increasingly stepping up with green tariff programs for corporate customers. BRC noted about 25 percent of the deals announced in 2018 were through utility green tariff programs.

“It’s small right now, but I think it’s going to be a big part of the marketplace in the future,” Favaloro said.