The signing of the Corporate Renewable Energy Buyers’ Principles today by 12 leading companies reaffirms their sizable, continued commitment to supplying their operations with renewable energy, with a goal of using 8.4 million megawatt-hours (MWh) per year by 2020. And it’s not just these 12 corporate giants. Sixty percent of the largest U.S. companies have set climate and energy goals to increase their use of renewable energy.
The companies developed the Buyers’ Principles to address challenges they face in reaching these goals, to increase the availability of cost-competitive renewable energy and to create new opportunities with utilities and energy suppliers.
The three main challenges companies face in increasing their use of renewable energy are: 1) Market structures leading to complexity, 2) purchasing models for renewable energy leading to price premiums, and 3) Lack of options in existing renewable energy choices limiting companies’ flexibility.
Challenge 1 – Complexity
The U.S. electricity market is complex and diverse, varying widely from state to state, and region to region. In some markets, customers and companies have the option of choosing their electricity generation provider – allowing them to buy renewably generated power through the grid and their local utility – while elsewhere, there is no such option.
Where renewable energy is not available through the grid or is cheaper from on-site systems, customers may decide to supply their own renewable energy through a rooftop solar system or small wind farm connected directly to their facilities – known as “behind the meter” generation. These systems are still difficult to site, permit, and economically evaluate as costs, regulations, and service charges vary across states and utilities.
Even energy experts can have trouble navigating this difficult landscape, and for companies, it can be impenetrable. As Amy Hargroves, director of corporate responsibility and sustainability for Sprint, points out, “Very few companies have the knowledge and resources to purchase renewable energy given today’s very limited and complex options.”
The Buyers’ Principles propose a two-part solution: 1) standardized and simplified contracting processes, and 2) working with utilities and regulators to expand renewable energy choices. Utilities are experts in providing their customers with access to least-cost energy resources throughout the United States, and they could turn that expertise to providing the renewable energy these companies want.
Challenge 2 – Price Premium
According to Hargroves, “[companies] know cost-competitive renewable energy exists.” However, current market structures often do not allow customers – and companies – to take advantage of these cost advantages. In many markets, customers seeking renewable energy supply are limited to purchasing renewable energy certificates (RECs), a market-based approach to selling the “renewable” attributes of power generation on top of and in addition to their electricity supply. So customers in these markets have a regular utility electric bill, at the same rates as everyone else in their customer class, and then must purchase RECs separately. This approach ensures that renewable energy is more expensive than traditional energy supply – even if the actual cost of the energy aside from the RECs is lower.
While paying less for renewable energy is a matter of a company’s bottom line, in the words of David Ozment, senior director of energy for Walmart, “If we can buy renewable energy for less, we can operate for less — and we can pass on the savings and a cleaner energy future to our customers and their communities.”
The Buyers’ Principles offer several solutions: 1) access to electricity supply options “bundled” with RECs 2) access to longer-term, fixed-price renewable energy options, which provide protection against the price volatility of fossil fuels and can offer cost savings in the long-run, , and 3) increased access to third-party financing vehicles, which can further lower the cost of the renewable energy.
Challenge 3 – Lack of Options
Large U.S. companies have one major commonality when it comes to energy—and for most of them, it is their largest controllable expense, meaning it offers them the biggest opportunity to reduce costs. However, that doesn’t mean that all of these companies have the same energy needs or strategies. Some companies operate in leased space while some own their facilities or buildings. Some companies prefer to invest in the renewable energy systems that directly provide their energy supply, some wish to pay for their energy supply with their operating budget through a utility or third-party. Some companies know their operations will be in a given location for 20 years, while others have business models that mandate a flexible, shorter-term approach. All of these companies want the same thing – access to cost-competitive renewable energy – but what that specifically means could be different for each company.
The Buyers’ Principles offer a simple solution to this problem – companies need access to more options for purchasing renewable energy. That could mean: 1) more flexible contracts that allow a range of contract times or the ability to transfer a contract to another local facility, 2) increased access to third-party financing for those that do not want to invest their own capital, and 3) expanded renewable energy offerings from utilities, which could provide both the third-party financing and the flexibility to move between facilities, much as the current utility electricity products do.
The Renewable Energy Buyers’ Principles emerge directly from the companies’ own experiences trying to meet their ambitious goals and can serve as a signpost for those that would like to sell power to them. Working together, these companies can deliver on their triple bottom line—economic, social, and environmental goals—while supporting expansion of the renewable energy industry and reductions in pollution.
- LEARN MORE: Download the Corporate Renewable Energy Buyers’ Principles for more information on what companies are looking for in today's energy marketplace.