By the end of 2017, forty-nine United States cities had made public commitments to source 100% renewable energy. These bold goals are collectively reinventing the future of communities across the country, and, simultaneously, driving economic and social progress.
Experts predict that cities will increasingly pursue clean energy sources, and 2018 will see the ‘fruit’ of many commitments made over the last year. Nathanael Greene, Director of the Natural Resources Defense Council (NRDC), claims “Cities will get in the game of purchasing renewables. It’s going to be meaningful”.
While each city may have different motivations, it is clear that many are pursuing renewables as a stable, inexpensive source of electricity over the long-term. Renewables can help cities manage risks associated with carbon, climate change, and a short position on energy. They are key to achieving environmental goals, help combat can help reduce water consumption, and, most notably, renewables stimulate economies through increased job creation.
Regardless of the primary motivating factor for a city to make a 100% renewable energy commitment, each must develop a strategy to get there. Many of our own clients sometimes find themselves scratching their heads after making their 100% renewable energy pledge, saying, “Okay—now how do we actually do this?” We find that most rely on a combination of three different types of contracting mechanisms to reach a 100% renewable energy goal: offsite generation, onsite generation, and energy attribute certificates (EACs).
Offsite generation in the form of power purchase agreements (PPAs) has been in the news a great deal in the past year, as PPAs are the primary contracting mechanism that large entities explore to meet their renewable energy targets. In a PPA, the buyer, or offtaker—who is, in this case, a city—contracts directly for the clean generation from a renewable energy developer. This can be done through two mechanisms: the financial (or virtual) PPA and the direct (or physical) PPA.
Financial PPAs rely on a contract for difference (or fixed-for-floating swap) where the PPA is contracted at a fixed price. When the market price of power dips below the fixed price PPA, the offtaker must make the developer financially whole. But, whenever the market price of power is above the fixed price PPA, the offtaker receives the difference as a rebate on the cost of its electricity. For many entities, this translates into a savings of millions of dollars over the life of the PPA contract.
In a direct PPA, the offtaker shares a grid region with the generator that enables the direct delivery of power. Direct deals are constrained by both wholesale and retail energy deregulation, so regions that allow for direct deals are limited. However, in a financial PPA, the offtaker and developer enter into a financial contract for differences where no power is actually transacted.
Although attractive, PPAs are a heavy lift. The execution of a direct or financial PPA in the U.S. can take between 6-12 months and requires a variety of conditions to be met.
The rapidly falling price of solar is making onsite generation more and more feasible. Cities have greater choice in onsite generation, ranging from a ground-mounted system, to rooftop generation, to community aggregation via solar gardens.
Nonetheless, organizations are typically constrained in their use of onsite, particularly to reach a 100% renewable energy goal. For example, most institutions lack the space—either on the ground or the rooftop—to effectively meet all of their electricity needs with onsite. However, cities may be uniquely positioned to take advantage of onsite or behind-the-meter projects. Cities, as institutions, own many properties and potentially have land that could be used for larger-scale projects within the city’s footprint.
That said, building codes can restrict a city’s ability to site its panels. And, although the price of solar has fallen so dramatically, it can still be economically unrealistic for some organizations to invest the capital start-up costs required for onsite generation.
Remedies like onsite PPAs and community aggregation can help make onsite solutions more economical.
Energy Attribute Certificates
EACs remain a crucial part of the 100% renewable energy strategy. While many use EACs—typically in the form of renewable energy credits (RECs)— to achieve 100% RE, EACs alone generally do not carry many of the co-benefits desired from a renewable energy purchase. These co-benefits include attributes like additionality and the displacement of global emissions.
EACs function as a “birth certificate” of renewable generation. In fact, for any renewable electricity to be considered clean, it must be bundled with EACs. EACs represent the environmental attributes of the clean generation, including an emissions factor of zero. Even if an entity is using onsite generation or an offsite PPA, if they do not own the EACs, they cannot claim that they’re using renewables or reducing emissions.
The zero emissions factor of most EACs can be applied to electricity consumption, regardless of source, through market-based GHG reporting. For many entities, though, the idea of being more directly involved in the development of the renewable energy industry is enticing.
Typically, we see clients use EACs in the following ways:
- To provide them with clean generation and a claim to zero Scope 2 emissions when bundled with 100% of their purchased electricity.
- As a stop-gap means to reach their goals while pursuing longer-term onsite or offsite generation.
- To help meet their 100% renewable energy goal when combined with onsite and offsite generation, as it’s difficult to get to 100% using these contracts alone.
Schneider Electric applies a portfolio approach to working with our clients on their journey to 100% renewable energy; appreciating that no one strategy fits every situation. Contact us today to learn more about how we can support your pursuit of offsite, onsite, and EAC solutions.
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