Forecasting the Future for Renewable Energy Procurement

  • Max Almono

Last month, ACORE hosted an executive roundtable in Washington, D.C. with prominent corporate procurers, financiers and developers in the renewable energy sector to discuss corporate leadership in the renewable energy economy.

The roundtable highlighted the ongoing shift in purchasers’ interests from conventional agreements for their own operations to a broader push for renewable energy adoption throughout their value chains. The first panel facilitated a conversation among senior representatives from J.P. Morgan, Google, Amazon, Mars and Covington on the evolving energy landscape and their respective strategies for achieving 100 percent renewable energy. The second panel, featuring Clean Capital, Spectrum Brands, Dow Chemical and Ingersoll Rand, focused on new financing options and business-to-business market incentives to help other corporates procure renewable energy.

Here are a few of the major themes coming out of the day:

  • Big Business is Leading the Way: In the face of political uncertainty, corporations have emerged on the vanguards of renewable energy deployment and have drastically expanded their spheres of influence in a decarbonizing economy. Over the next decade, more than 87 gigawatts of renewable energy will be deployed worldwide by RE100 companies alone. In the U.S., corporate procurement is growing rapidly due to the improved financial stability of developers, favorable state and federal policies, and of course, a precipitous decline in overall costs. Since 2009, wind and solar have achieved reductions in the levelized cost of energy by 67 percent and 86 percent, respectively. That cost curve has given corporations the confidence to not only lock in long-term fixed priced contracts but also to purchase enough renewable energy to meet their needs.
  • Advocacy is Driving Tangible Results: Large corporate offtakers have the influence to advocate for stronger energy policies across the country. For example, Amazon worked with Dominion Energy to design a green tariff program for Virginia, which has allowed the company to purchase renewable energy in a regulated market, encouraging further renewable energy growth in the region. Mars and Google have also been successful in advocating for third-party leasing and supporting renewable portfolio standards (RPS).
  • New Adopters Need More Flexible Contracting Options: There are still several challenges impeding further renewables adoption in the C&I sector. Traditional purchase power agreements (PPAs) are designed to be long-term, high-megawatt offtake commitments. This format poses several barriers for smaller and middle market corporations looking to enter the market as well as global companies that represent billions in annual revenue. To enlist renewable commitments from more such companies, financial innovation is necessary that allows for smaller, more flexible contracts. PPA aggregation (i.e., a buyer’s consortium), and reseller contracting have gained popularity in recent years. However, they still present difficulty for developers and financiers who need enough buyers to offtake the megawatts and the creditworthiness to finance the projects.
  • Upstream Companies Need Market Incentives: Additionally, industrial companies (or upstream companies), which consume roughly a third of all U.S. energy, have also faced several challenges. Dow Chemical, for example, consumes as much energy globally as the continent of Australia. Yet despite being one of the largest procurers of wind power in the U.S., the company’s sheer size creates several barriers. Further market incentives are needed to convince other industrials to pursue similar agendas.

The Value Chain is the Next Frontier for Renewable Procurement

A key takeaway from the meeting was that supply chain (or more aptly the “value chain”) initiatives have the potential to make renewable procurement more ubiquitous throughout the economy by creating pull-through market incentives that would galvanize middle market and industrial companies to commit to renewables. For example, if leading corporations were to adopt preferred supply chains that rate potential suppliers based on their renewable energy commitments, the suppliers use of renewable energy would become a competitive advantage in the marketplace. This concept could reduce market barriers for smaller companies and incentivize industrials through value chain reselling contracts or other innovative PPA structures. There is also the concept of creating and marketing “made-from-renewable-energy” products and services. Some companies have already started to move in this direction:

  • Walmart, launched its Gigaton Initiative in 2017, which aims to reduce one gigaton of the greenhouse gas emissions throughout its supply chain by 2030. Over 400 supply chain partners have embraced the goal and are actively seeking ways to reduce their carbon emissions.
  • Apple has begun working with middle market companies in China to procure renewable energy.
  • Alcoa, sells premium priced hydro-made aluminum to its customers because of the growing demand for lower carbon footprints.
  • Anheuser-Busch announced that every can of Budweiser in the U.S. will be made from 100 percent renewable electricity.

Renewable Energy is on a Roll, But There’s Way More Demand Out There

We should all be proud of the fact that renewables represented 18 percent of total U.S. energy capacity in 2017 and attracted $40.5 billion in annual investment, making renewable energy one of the largest sources of private sector infrastructure growth in the country. However, these figures only represent a fraction of potential demand. Leading corporate purchasers of renewable energy have the capability to drastically influence how our economy treats sustainability and renewable energy procurement. With stronger market signals, ACORE’s members and valuable key stakeholders can unlock a new multibillion-dollar C&I market and help the U.S. transition to a renewable energy economy.