TODAY’S STUDY: The Private Sector Gets Into The New Energy Biz
Charting the Emergence of Corporate Procurement of Utility-Scale PV
Jenny Heeter, Jeffrey J. Cook, and Lori Bird, September 2017 (National Renewable Energy Laboratory)
Corporations are procuring utility-scale photovoltaic (PV) generation to meet their renewable energy and financial goals for electricity. The corporate procurement of utility-scale PV has grown from less than 1% of annual installed utility-scale capacity in 2014 to 9% in 2016 (Shiao et al. 2017), and it accounted for 17% in early 2017 (Honeyman et al. 2016). Through July 2017, corporate customers contracted for more than 2,300 MW of utility-scale solar, primarily using financial power purchase agreements (PPAs) and green tariff or bilateral contracts with utilities (43% and 36%, respectively) (Figure ES-1).
Figure ES-1 includes PPAs and green tariff or bilateral contacts, which are in some cases enabled by retail choice and becoming a licensed wholesale seller of electricity. This paper examines the benefits, challenges, and outlooks for large-scale off-site solar purchasing through four pathways: PPAs, retail choice, utility partnerships (green tariffs and bilateral contracts with utilities), and by becoming a licensed wholesale seller of electricity. Each pathway differs based on where in the United States it is available, the value provided to a corporate off-taker, and the ease of implementation (Table ES-1). In addition, corporations will consider a range of metrics when determining which procurement option is most appropriate for them.
In order to expand corporate procurement of off-site solar, both a purchasing pathway and costcompetitive solar are required. Corporations typically are interested in purchasing least-cost renewables, with no preference of wind over solar, however, more wind has been contracted to date, largely due to its low-cost availability in Texas, along with the ability to sign a PPA. Figure ES-2 shows the levelized cost of energy (LCOE) of utility-scale solar using a one axis tracker, and corporate procurement of renewable energy, by resource and procurement pathway. To deploy more corporate off-site solar, new procurement pathways are needed, such as the green tariff that is enabling procurement of solar in Nevada.
Of the states with the greatest solar potential (on an LCOE basis), California and Nevada have seen the greatest MW of corporate PV purchasing, through financial PPAs (California) and green tariffs (Nevada), but purchasing options are just emerging or do not exist in other areas of the country with strong solar potential…
Pathway Comparison and Outlook
Market innovation is enabling corporate solar procurement, including new purchasing models, declining costs, and increased interest by corporate purchasers. The market drivers for largescale solar photovoltaic are poised to continue in the near term: increased interest by corporate customers in renewable energy procurement, declining solar costs and increasing retail electricity rates, as well as a rush to sign projects that will receive the full 30% investment tax credit by commencing construction before the end of 2019. A critical question is which pathway offers corporations the best opportunity to leverage these developments and deploy more solar.
Each pathway provides different levels of value to corporate purchasers. In addition, corporations will consider a range of metrics when determining which procurement option is most appropriate for them (Table 6). Each pathway differs in the hedging value it provides, ease of implementation, and availability.
• Hedge value. Corporations interested in procuring solar would prefer the best value proposition available in a given location. This value is driven largely by the scope of the hedging opportunity. In this context, operating as a licensed wholesale electricity supplier might offer the best opportunity, followed by PPAs. In the retail choice and utility green tariff pathways, contracts might be shorter term, and the fixed rate might be influenced by retail supplier and utility participation in the contract.
• Ease of implementation. Corporations are also interested in reducing the administrative costs of their off-site purchases (in term of staffing and knowledge development as well as administrative fees paid to utilities or others). In this regard, utility green tariff programs and retail choice require less internal capacity building and market expertise, but they might come at the expense of paying administrative or other fees.
• Availability. The availability of these options can influence which pathways corporations are able to pursue in a given location. Availability might also influence how corporations might source electricity to serve existing facilities and how they make siting decisions for future facilities. In this context, the licensed wholesale electricity supplier pathway is most attractive because it is available to any corporation across the United States. In comparison, PPAs, retail choice, and utility green tariff programs are more limited in geographic scope.
Expanding Off-Site Solar Procurement Options
For the corporate solar procurement market to grow, more purchasing options need to be available at decreased price points for corporate buyers. Corporate buyers need access not only to a purchasing option but one that will be feasible for them to sell to senior executives. There are a variety of opportunities to expand corporate access to each of the four pathways as well as make them more attractive to prospective companies. These opportunities were generated from the interviewees who participated in this study and are summarized for each pathway in turn
To enable PPAs in new markets, state policymakers could open electricity markets to wholesale access. Because financial PPAs require renewable projects to sell into a wholesale market, projects in states such as Arizona and New Mexico cannot move forward under a financial PPA.
Additional work is also needed to ensure that PPAs are viable options for smaller corporate purchasers. To date, PPAs have been dominated by information and communication technology companies that have large, centralized loads (O’Shaughnessy et al. 2016; Miller et al. 2015), but many smaller corporate purchasers are beginning to take interest in the option. Aggregation of smaller loads is time-consuming and to date has been done only in limited numbers; however, as corporate interest increases among smaller purchasers, creating PPA aggregation models would allow greater numbers of companies, and megawatts, to be signed.
To further reduce PPA prices, more standardization of contracts is needed as well as decreased customer acquisition times. Currently, corporate solar contracts are negotiated on the basis of each individual company, which is time-consuming and adds costs to the project. If corporations and solar developers were to use a more standardized PPA, these costs could come down. Standardizing contracts could also create a secondary market for financing projects. In addition to standardizing contracts, decreasing the time to acquire a corporate off-taker could improve project economics. Developers have noted that corporate customers often require a lot of education before signing deals, particularly when compared to a utility off-taker. Developers also need a sense of where potential corporate off-take is located, to site projects accordingly; this is especially an issue for large utility-scale solar projects, which take more time to site and construct than on-site solar projects.
State policymakers could also open markets to retail choice, either for some or all retail customers. To date, 21 states allow at least some corporate customers to purchase electricity from their choice of suppliers, with 8 of those states having only partial retail choice. Although there is movement in Nevada and Washington to allow more retail choice (either for the market as a whole, as in Nevada; or for specific customers, in the case of Microsoft in Washington), the retail choice cap in Michigan was recently maintained. Because of the complexities in restructuring retail electricity markets, there will likely be little movement in expanding retail choice in the short term.
If state policymakers are interested in creating opt-out provisions such as those in Nevada, one of the more contentious issues to be aware of is the process of assessing exit fees. Exit fees are designed to keep existing ratepayers whole for any costs incurred by the corporation leaving the utility. In Nevada, exit fees are determined at the level of the PUCN.
Utilities have primarily been adopting green tariffs voluntarily, but state policymakers could direct utilities under their purview to create and provide a green tariff. Michigan’s Public Act 342 (2016) required electricity providers to offer a voluntary green pricing program. Although the act did not specify that the program needed to be a green tariff program, Consumers Energy proposed a green tariff to fulfill their obligation under the statute. To date, only 7 utilities have green tariffs with customers, and an additional 7 utilities have participated in bilateral agreements with corporate off-takers; however, there is increased interest by utilities in developing new arrangements. These options can take time to develop, with public utilities commission approval needed for both the tariff and individual contract.
To increase the use of green tariffs, utilities, corporate off-takers, and public utility commissions could consider creating green tariffs and bilateral contracts that provide value to both the utility and the subscribing customer. Corporate customers want to ensure that their participation is not laden with heavy administrative costs and that the full value of the price hedge is passed through in the green tariff or bilateral contract. At the same time, utilities want to ensure that their transmission and distribution costs are compensated.
Supplier Although becoming a wholesale electricity supplier offers the greatest control over corporate electricity use, to date it is a complex process in which few corporate customers have taken interest. Corporate customers that have large electricity loads might be interested in learning from the experience of those that have undertaken the option to better evaluate whether it would make sense for them.
Future Outlook Summary
Existing purchasing options will improve access and viable purchasing options for corporate customers to buy off-site renewable energy. However, for solar to play a larger role in corporate purchasing, states and utilities should consider working with stakeholders to develop purchasing options in areas where solar is most cost-competitive. Many interviewees noted that corporate purchasers have little preference for either solar or wind; rather, they are looking only at the availability of renewable projects at lowest cost. Although solar has dominated corporate purchasing in some areas of the country, in other areas purchasing is currently dominated by wind. Opening options in areas of the country where solar is most cost-competitive could make it a preferred option for corporate customers. Figure 13 shows the levelized cost of energy (LCOE) of utility-scale solar using a one axis tracker and corporate procurement of renewable energy, by state.
Of the states with the greatest solar potential (on an LCOE basis), California and Nevada have seen the greatest MW of corporate PV purchasing, through financial PPAs (California) and green tariffs (Nevada), but purchasing options are just emerging or do not exist in other areas of the country with strong solar potential.