Part 1 in this two-part series: Why greening your company's power is harder than it looks.
Ikea's decision last month to build a 98-megawatt wind farm in Hoopeston, Illinois, to power its stores was welcome as yet another recent example of large corporations walking their talk, and switching to verifiable renewable energy. As the corporate green power market is heating up, it's a brand new world for a new class of players in the renewable energy realm: wholesale power brokers.
Corporate green power is a fast-growing business for wind developers like Apex Clean Energy, the firm hired by Ikea to build and operate its Illinois wind farm. Many firms, however, don't want to distract their management teams with the complexities of providing their own power, as IKEA's chief commercial officer Steve Vavrik has pointed out. What they need a middleman.
"It's like buying a house," he says. "We all can do our own real estate transactions, but most of us want to use a real estate broker."
Vavrik has a point. As we explored in this article, even deep-pocketed, far-sighted companies like Sprint have found that getting into the renewable power business can compete with their own capital and credit requirements, and draw their executives into a thicket of accounting, tax and banking complications.
For Apex and other renewable developers, tapping the corporate market has become a priority. Federal tax subsidies and state procurement mandates can no longer be relied upon to drive demand. Congressional support for further green energy Production Tax Credits is unclear, and most utilities have already taken steps to comply with Renewable Portfolio Standards requirements in states like California, Colorado, Michigan, Nevada, Florida, Ohio and Texas.
For many environmental leaders, the response to these uncertainties would be to lobby even harder in the halls of power. Greg Staple, the CEO of the American Clean Skies Foundation, a non-profit think-tank in Washington D.C. (disclaimer: ACSF is a client of mine), saw a different opportunity
"The more we looked at the outlook for renewable power, the more we became convinced it's more than just a policy problem that needs to be hit with the same type of hammer that D.C. lawyers and legislators tend to use," Staple says. "We realized that there's a market gap in providing cleaner power, even in states with competitive energy markets. More and more companies want to reduce their carbon footprint — they just don't have a practical way to buy renewables. So instead of writing another white paper about it, we decided to create a real-world business solution."
Staple knocked on the door of one of the nation's most experienced power industry consultants, Peter Weigand of Skipping Stone in Orange County, California. At the time, the wind and solar industries were booming.
"But it was a short-term euphoria," Weigan points out. "Nationwide, utilities have met 85 percent of their RPS commitments, so they have far less need to buy more."
Weigand and Staple looked at the numbers. They learned that over 1,000 wind projects were not going anywhere because demand from utilities had dried up. "The new demand has to be the commercial and industrial sector. But how do you do that? For most firms, it's not so easy," Weigand said, referring to the travails of Sprint and others.
As it turns out, there's plenty of wind power available for the independent player. Media attention tends to focus exclusively on large-scale projects built under long-term power purchase agreements, such as Ikea's deal with Apex. However, the so-called merchant wind power market, where the wind plant is built without (or very little) prior commitment of its output to contractual off-takers, is alive and well. In states with competitive energy markets, many wind farms sell their electricity on short-term contract basis, such as on the PJM Interconnection in the Northeast and Mid-Atlantic or ERCOT in Texas.
The missing link, Staple and Weigand found, is a company with technical expertise and enough flexibility to broker contracts between merchant wind power producers and large clients, then transmit that power through the grid and deliver it directly to the end users. Streamlining is crucial — no legal or financial labyrinths to penetrate, no need to manage power loads or do anything except flick the light switches on and off.
So Staple set out to start a for-profit power company.
The major hurdle that Staple was left with was getting the power from wind farms to those large companies that want the power, often hundreds of miles away. Weigand introduced him to American PowerNet, the company that has been providing wind power to Harvard University and Fidelity among others.
Operating from a nondescript office park outside Reading, Pennsylvania, American PowerNet has been quietly playing a unique role in the deregulated power industry nationwide since 1997. It provides back-office services for wholesale power buyers in competitive markets, sending electrons snaking through the grid from remote wind farms to major users.
The result of all this matchmaking is Staple's new start-up, Renewable Power Direct (RPD). Launched last month as a wholesale power marketer authorized by the Federal Energy Regulatory Commission, it bundles large customers and matches them to producers. RPD's power contracts typically run three to ten years, far less than the 15 or 20-year agreements that are common for a newly built wind farm.
"Because the cost of wind energy has dropped so dramatically in the past year, we can buy merchant wind power and deliver it at a price that has no premium and is fully competitive with utility rates," claims Staple.
RPD is currently sourcing electricity from wind generators, and expects to add solar and possibly other sources next year. It intends to provide renewable-power firms with an incentive to add new production.
RPD's power comes with Renewable Energy Certificates, and carries the added benefit of being source specific and fully identifiable. Being able to tell and show precisely which turbines generate their electrons can potentially give companies almost as many branding opportunities and bragging rights as having a wind turbine in their parking lot or a rack of solar panels over their headquarters entrance. With a lot fewer headaches.
RPD has begun to attract the attention of a growing number of potential customers. Weigand, who now is doubling as RPD's acting COO, was recently invited to Sprint's Kansas City headquarters to meet with the company’s power procurement team. Rackspace, Benton Dickinson, Proctor & Gamble and Walmart are also talking to RPD.
"We're off to a good start," Staple said. "It's a new supply model that people haven't seen before. But companies that have wrestled hard with the switch to renewable power are beginning to realize that it is workable."