Say you’re an executive of a mid-to-large size company and you want to switch a significant portion of your electricity use to renewable sources. Your company is proud of its new policy on environmental sustainability, and you’re attracted by the fast-dropping price of wind power as a hedge against fluctuating utility rates. Your top management has given you the go-ahead.
With all the development of renewable energy in recent years and the attention to going green and the double bottom line, your task should be easy to achieve, right?
That’s the answer that many companies are reluctantly discovering as they stumble through what they expected to be a relatively simple process. While some deep-pocketed companies like Apple, Ikea and Google have recently made dramatic investments in their own wind farms and solar arrays, many others are finding that greening their power is devilishly hard to accomplish.
The dilemma was summed up by Google itself in a 2013 white paper, “Expanding Renewable Energy Options for Companies Through Utility-Offered Renewable Energy Tariffs.” The paper found that the three main options available to large electricity consumers — onsite generation, renewable energy certificates (RECs) and power purchase agreements — all have serious flaws. Moreover, in states where competitive suppliers are not permitted, all doors are closed:
Companies cannot request and procure renewables directly from the local utility in a transparent and straightforward manner, where they know how much renewable power they are getting (and from where). With few exceptions, utilities and the state commissions that regulate them do not provide a way for large users to request renewable power. In short, even though companies want renewable power and are willing to pay for it, the product is not being offered.
Having a big windmill or solar array at your corporate headquarters is the most eye-catching of all options. It’s good for bragging rights but unfortunately it’s not practical for many firms, either because they lack sufficient space or because of the up-front capital costs and long-term payback.
Renewable energy certificates (RECs)
This option has long been the preferred way of greening your power. It’s easy — just buy RECs that are certified by Green-e, an independent, third-party organization. Each REC reflects the production of one megawatt of renewable power.
Unfortunately, because RECs are typically sold separately from the underlying electricity, like the practice of buying religious indulgences, using RECs may feel good but have little impact on the actual mix of electricity a company uses.
For example, in another 2011 white paper Google concluded that voluntary REC purchases do not necessarily lead to the development of new renewable generation capacity, and in many cases simply cause utilities to repackage and reshuffle their existing green and brown power sources among customers.
In our view, this is not additional. We’d be handing money over for green electricity, but in the grand scheme of things, nothing would change. The carbon output of the whole system would be the same and no new renewable generation would get built.
The conclusion was underscored by a 2013 study by Michael Gillenwater, Xi Lu and Miriam Fischlein, energy researchers at Princeton, Harvard and UCLA, respectively. They concluded that RECs have a “negligible influence” on the creation of new wind or solar power projects:
In the United States consumers appear to be receiving misleading marketing messages regarding the effect of their participation in voluntary green power markets that rely on RECs as a tradable environmental commodity.
Power purchase agreements (PPA)
Some companies have decided to go directly to the source, contracting with wind or solar energy companies for a direct supply of electricity. But that’s much harder than it appears, says Amy Hargroves, director of corporate responsibility and sustainability at Sprint. In a presentation to the U.S. Environmental Protection Agency on March 13, she detailed the frustrating three-year odyssey that Sprint underwent as it tried — and ultimately failed — to create a PPA.
Hargroves described how she started with great enthusiasm in 2011 to attack Sprint’s 2012-2017 climate goals: a 20 percent reduction in greenhouse gases, a 20 percent reduction in electricity use, and providing 10 percent of the company’s electricity from renewable energy. The first two goals proved easy. The last, not so much.
A major hurdle, Hargroves found, is simply the daunting complexity of it all:
The first thing we realized is how few resources there are out there that offered simple information, particularly for companies that don’t have renewable energy experts, for people who don’t have that big of a Corporate Responsibility department, almost nothing exists for beginners. The consultants we talked to tended to be pretty expensive or very biased because they were promoting a particular solution; the range of solution options was almost overwhelming; and then there’s so much complexity in this area, and even regional specifics that you needed to understand in terms of the regulated or the deregulated market.
Then, once Hargroves climbed the steep learning curve, she found that the mountain got even steeper, and the consequences for Sprint’s overall business structure became more dangerous:
Who’s going to do your power scheduling? Do you have your own department that can do that? Well, most companies don’t. We discovered that’s another $120,000 expense that we had to arrange through the developer. These are things we had no idea of up front but you have to deal with when you’re considering going to a PPA.
We did not understand the impact of debt on our credit rating, cash flow, expected interest rate we’d have to pay, number of banking relationships we’d need to have. … Believe it or not, any of these PPAs have a significant impact on your credit, and if you have quite a bit of debt already, which we do as a very network intensive company, any debt you get for this actually hurts your ability to get debt for other purposes.
And then the accounting and tax implications, oh my goodness, we must have had four different types of tax accountants that were involved, the different types of tax attorneys that were involved, the SEC reporting group that got involved, tremendous discussions around what are the triggers for derivative accounting, there were very surprising impacts that it’s important to understand.
Hargroves said proudly her company is well on its way to achieving its goals for reducing greenhouse gases and electricity use. But renewable energy?
“It’s still too hard to do this,” she concluded dejectedly.
And if it’s too hard for a huge company like Sprint, with resources and commitment galore, what can other companies do? There must be a better way to way to tackle the problem.
Renewable Power Direct (RPD) is a new Washington D.C. start-up that thinks it has the answer. (Full disclosure: As a consultant, one of my clients is American Clean Skies Foundation, which owns RPD.) To find out about RPD's innovative approach in a fast-evolving market, read the second installment in this two-part series.
Featured photo of solar array on top of administrative building by Mik Lav via Shutterstock. Bottom photo of IKEA store by Tooykrub via Shutterstock.