Commercial, industrial and institutional (C&I) energy buyers typically have three goals in mind when they go to market for a renewable electricity solution:
- To meet corporate renewable energy targets
- To find a project that features a tangible business connection
- To maximize profits
There are several renewable energy procurement options that allow companies to achieve these goals to varying degrees. The more conventional opportunities include the use of energy attribute certificates (EACs), offsite power purchase agreements (PPAs) and onsite installations. However, recently, utility green power programs have also entered the mix.
It's important to understand why and what value they offer to today’s C&I energy buyer.
Largely viewed as a response to the growing demand for greater energy choice and clean energy options, green power supplied by centralized utilities indicate a positive step in the overall energy landscape. Concerned by the trend of environmentally conscious consumers replacing traditional utility generation supply with directly-sourced renewable options — as witnessed in Nevada with MGM Resorts and in Washington with Microsoft — many utilities have begun to pivot by offering green power solutions.
This attempt by utilities to capture the growing audience of corporate energy buyers asking for renewable options signals a meaningful shift in the way electric power is bought and sold.
In the context of the current market landscape, where the variety of attractive options to contract for renewables has advanced, it’s safe to wonder: Will these utility efforts satisfy the sophisticated C&I buyer who is eager to capture both the economic and reputational benefits of being a renewable energy leader?
Green Subscriber Programs Through Your Utility
Of the many utility-supplied green power options, two models have gained prominence. The more widely available and accessible option is utility green subscriber programs, whereby customers subscribe to small amounts of energy from a larger project. Most utilities have developed some form of a subscriber program as an easy way for customers small and large to opt-in to buying EACs. Often times, it can be as simple as checking a box on your utility bill.
These EACs can be quickly added to a company’s energy portfolio, are available in flexible amounts and short timelines, and have the potential to tell a compelling story of supporting local clean power projects.
The biggest downside of green subscriber programs is the significant price premium utilities place on these EACs. Today, the incremental cost of most green subscriber programs ranges from $10 to $25 per megawatt-hour (MWh), compared to sub-$1 per MWh market value for EACs in many markets.
Another downside for companies with distributed operations is the load coverage potential of subscriber programs. Typically, C&Is can only participate in these programs for up to 100 percent of their consumption in the applicable utility service territory. Companies with operations in multiple geographies that want to subscribe for EACs to match 100 percent of their energy consumption would have to do so via several utility programs. In other words, no single utility green power program can cover a multi-national or even national company’s entire energy load. Additionally, not every utility in the U.S. offers a green subscriber program to its customer base.
Utility Green Tariffs
The other prominent utility green power program is the green tariff. Like a utility-sleeved PPA, green tariffs allow a company to contract for and physically consume renewable generation through their utility. Different than green subscriber programs, which provide C&Is only with renewable attributes, green tariffs typically involve physical delivery of the renewable energy to the customer’s facilities — giving C&I buyers a chance to manage their electric commodity costs at greater scale in regulated markets. For large buyers, green tariffs can be a more economical way than subscriber programs to procure renewable energy in regulated markets.
Compared to subscriber programs, setting up a green tariff involves a much greater amount of direct customer involvement. Green tariffs are usually initiated by specific end-user requests to meet aggressive renewable energy goals and, thus, are best evaluated on a case-by-case basis. Generally, these tariff agreements will feature heavy commitments related to load volume, contract duration, and overall contract value and complexity of terms.
The process of contracting for renewables under this mechanism is time and resource intensive, and it may fall beyond the realm of expertise of many C&I procurement teams. Due to this level of involvement, the ‘anchor’ or main offtaker in a green tariff arrangement generally has greater choice in the technology type, location and price for a renewable project, though they are still subject to geographic and other restrictions.
Few states currently have green tariff offerings, and initiating one is a considerable lift for both the buyer and the utility. Even in states that do offer green tariff options, there is typically minimal capacity readily available because most programs limit the number of megawatts offered under the tariff. They are also usually designed specifically for large single end-users and require considerable direct involvement of both the offtaker and the developer.
This limitation leaves little capacity available for smaller buyers. These buyers may also have a difficult time initiating a green tariff on their own due to large load requirements needed to influence the utility.
Assess the Options Carefully
Utility green programs are just one mechanism available to buyers in this ever-changing landscape. As in any regulated market where energy comes solely from utilities, options are limited. While they can be more flexible and relatively less complex than other procurement mechanisms, all utility green power programs, to some degree, restrict a company’s control over additionality benefits, load coverage and ROI potential.
See the matrix below, to weigh the benefits and costs of common green power procurement mechanisms.
Note: this matrix does not differentiate between green subscriber programs & green tariffs, rather compares the two utility programs to other various procurement methods.
Informed buyers should explore all renewable electricity options, including utility programs, to identify the mix of solutions that meet their individual goals. Other options, such as financial PPAs and unbundled EACs, allow companies to go beyond what their utility has to offer while vastly expanding the scalability and the level of choice. While every green power procurement option has drawbacks, programs through local utilities tend to place greater constraints on corporate buyers compared to other avenues.
Every company is different and renewable energy does not come ‘one size fits all’. The renewables and cleantech team at Schneider Electric-Renewable Choice has decades of experience in assessing unique company ambitions and developing solutions to meet them. If you are interested in learning more about which combination of renewable energy options will best suit your company needs, please get in touch with our strategic renewables team.
Contributed by: Josh Heeman, Cleantech Services Specialist at Schneider Electric Energy & Sustainability Services