We are currently experiencing a period of dramatic growth in renewable energy. The U.S. Energy Information Administration (EIA) estimates that from 2019 to 2021 the share of total U.S. electricity coming from renewable energy will grow from 17% to 22%. The biggest reason for the surge in renewable development is cost (see our recent Customer Insights edition, Levelized Cost of Electricity, for more information). In addition to renewable energy being the lowest cost source of new generation, development is being spurred by environmental, social and governance (ESG) pressures on corporations, tax incentives and the climate imperative.
What’s driving renewable energy growth?
The renewable energy boom is being driven by two distinct types of development: utility and corporate. Utility-sponsored renewable energy development is being built into resource planning and in many ways looks like traditional generation build. Many regulated utilities across the country have made commitments toward specific renewable energy and carbon reduction targets, including American Electric Power’s commitment to 8,000 MW of regulated wind and solar through 2030 and reducing carbon dioxide emissions by 70% by 2030 and 80% by 2050.
On the corporate side, a trend that began with some of the United States’ largest companies, especially in the tech sector, has begun to spread broadly to organizations spanning sizes and industries. According to the Renewable Energy Buyers Alliance (REBA), over 13.5 gigawatts (GW) of renewable energy procurement was announced in 2018 and 2019, and corporate buying activity has not slowed down with the challenges faced during 2020. Over half of Fortune 500 companies have made public commitments to renewable energy, greenhouse gas (GhG) reduction or energy efficiency, according to the Retail Industry Leaders Association.
Pressure from very large organizations to include renewable energy throughout their supply chain is a driving force behind renewable procurement. Today, large tech companies and consumer brands strive to claim that not only are their facilities powered by renewable energy, but so are their end-to-end operations, including their vendors and suppliers.
What sustainability options are available?
In the beginning, large organizations began investing in renewable energy at very high costs. By overspending as they did, this was a means to increase awareness of renewable energy and to drive costs down, making renewable energy more affordable for everyone. Today, there are a variety of renewable energy options available for companies of all sizes and budgets, including Renewable Energy Certificates (RECs), utility green tariffs, on-site development and off-site development. Let’s explore each of these options.
1.RECs – Buying and retiring RECs is the simplest way for an organization to claim that all or a portion of their load is served by renewable energy. Each REC represents one megawatt-hour (MWh) of electricity generated by a qualifying renewable energy facility and can be sold with the energy or separately.
2.Utility green tariffs – Green tariffs are offered by local electric utilities. These tariffs are typically a variation of REC purchasing, often being tied to developments within a given state or region.
While RECs and green tariffs allow for companies to claim renewable energy attributes, many companies feel these strategies are lacking because they do not add new renewable energy to the grid.
To achieve additionality, meaning adding new renewable energy to the grid, and displace fossil-based generation, on-site development and off-site development allow organizations to tie their renewable claim to a specific facility. Organizations focused on the true impact of their renewable energy purchase are increasingly focused on such developments as these strategies move beyond claiming the attributes of renewable energy and facilitate new renewable energy to be built.
3. On-site development – On-site development renewable projects, such as on-site solar, are also known as behind-the-meter projects. These projects are typically either owned by the host company or owned by a third-party and financed under a power purchase agreement (PPA). Under a PPA, the owner of the solar array charges the host a dollar per kilowatt-hour ($/kWh) fee for the electricity generated for the term of the deal, which typically lasts 20 to 25 years. Organization may choose to self-fund and own the solar array outright, earning a return over the life of the asset by saving on energy bills. In either ownership scenario, on-site developments typically do not offset 100% of a facility’s energy load since that would entail significant over production much of the time as load fluctuates throughout the day. To achieve 100% renewable energy, some companies will pair on-site solar with purchased RECs.
4. Off-site development – To truly offset 100% of an organization’s load with renewable energy, many buyers are turning to off-site projects. These projects include wind, solar or a combination of the two, and are typically structured through a PPA, a virtual PPA (vPPA) or an integrated retail product. Under an off-site PPA, an end-user is paying a fixed rate for a project’s output, which is incorporated into the physical supply of electricity – the specifics of different arrangement types vary. Under a vPPA, an organization pays a fixed rate for a project’s output, but the electricity generated is not supplying the organization’s physical load. Rather, the customer receives the value of the power produced because it’s sold into the local market. PPAs and vPPAs typically involve a 10- to 15-year commitment.
A third option for off-site renewables is an integrated supply arrangement, which is available to organizations in deregulated states. AEP Energy’s Integrated Renewable Energy product was detailed in a recent edition of Customer Insights. Our Integrated Renewable Energy plan is a 100% renewable energy, fully-bundled retail energy solution that protects the end-user from congestion plus volumetric risks, which are inherent in most PPA arrangements. This structure benefits organizations looking to optimize both their energy spend and lessen their environmental impact.
How to get started
While activity in the renewable energy space is exciting and encouraging, it can seem overwhelming for organizations that want to get started. At AEP Energy, we believe there is a path to renewable energy for companies of all sizes. Regardless of the size of your company, the steps to renewable energy are the same.
Assess the landscape – what’s the context around your decision?
Evaluate your opportunity – how do your possible options stack up?
Set your strategy – what is the most cost-effective path to meeting your goals?
Execute – how do you effectively implement your strategy?
Whether you’ve made significant strides along your renewable energy journey or you’re just getting started, now’s a great time to take the next step.
Interested in learning more?
If you are interested in learning more about the renewable energy landscape or how your organization might take advantage of low renewable energy costs, contact Evan Howell, Director, Energy Services for AEP Energy, at firstname.lastname@example.org or call Evan at 312-488-2211. If you are already working with an AEP Energy Sales Representative, they will happily provide more information.
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