Kaiser Permanente joins Apple, Walmart in clean energy buying spree
Healthcare provider Kaiser Permanente plans to buy enough solar and wind energy to cover half of its electricity consumption across all of its California facilities, the company plans to announce on Wednesday.
That commitment comes in the form of several massive power purchase agreements (PPAs), making it the latest high-profile company to embrace this approach along with the likes of Apple, Becton Dickinson, Google and Walmart.
“The energy we use to run our medical centers and other buildings produces the majority of our greenhouse gas emissions,” said Ramé Hemstreet, Kaiser Permanente’s chief energy officer, commenting on the contracts. “Replacing fossil fuels as an energy source with green power is the most important action we can take to address the impacts of climate change on health and to reduce pollutants that can lead to disease.”
What’s on the books
In terms of overall capacity, Kaiser’s initiative rivals the scale of Apple’s historic $848 million solar power purchase agreement disclosed in early February.
The PPAs include a 20-year contract to buy 110 megawatts of solar capacity from the NextEra Energy Resources installation in Riverside County, California; and an agreement for 43 megawatts of output from replacement turbine (using more efficient technology) being installed at the iconic Altamont Pass wind development in Alameda County.
Together those sites will generate up to 590 million kilowatt-hours annually, enough to run about 82,000 American homes. (For perspective, Kaiser Permanente uses about 1.5 billion kilowatt-hours of electricity per year across 38 hospitals, more than 600 medical clinics, and other facilities.)
As part of a separate deal, Kaiser Permanente will also purchase up to 70 megawatts of onside solar through an agreement with NRG Energy that will see it install arrays on as many as 170 of its hospitals and California campuses by the end of 2016.
A sound economic argument
In aggregate, Kaiser’s commitments will reduce carbon emissions nationwide by up to 30 percent, helping the company reach its goal three years earlier than promised. It will also give the company far more visibility into its power costs over the long term, another benefit trumpeted loudly during a workshop about corporate renewable investments at GreenBiz Forum 2015.
“Last year, the dam broke and there were at least double the deals announced. Companies are doing this because there are significant economic benefits,” said Quayle Hodek, CEO of Renewables Choice Energy, which started life as a renewable energy credit (REC) provider.
The biggest corporate argument against using solar or wind evaporated over the past year, cost efficiency, all but evaporated over the past year, he said. Plus, who wouldn’t want visibility into their electricity prices over a period of 20 years? “To the extent that you want to jump into this market, you will really be in the driver’s seat,” Hodek advised GreenBiz Forum attendees.
“What’s important is we do this, and in the process, work with others to green the grid,” said Bill Weihl, director of sustainability for social networking giant Facebook. That’s why collaborative demonstrations of support, such as the Corporate Renewable Energy Buyers' Principles, and resources, such as the Rocky Mountain Institute’s Business Renewables Center, are so important. “When 10 companies go to a utility and say they care about this, they are much more likely to listen,” he said, referring to the principles.
Facebook’s long-term aspiration is to source all of its power needs with clean energy by 2020; with a short-term goal of 25 percent looming by the end of 2015. As of 2013, the company’s mix include 14 percent renewables, but Weihl believes the company will deliver on this year’s pledge with the help of its work in Iowa (where it is procuring wind) and Sweden (where its data center is powered by hydroelectricity). “If you care about clean energy, 100 percent is the right number,” he said.
To those who would suggest that sourcing clean energy leaves companies vulnerable to unproven technologies, Weihl counters that “doing nothing” is an even bigger risk given uncertainty over long-term pricing for electricity generated by fossil fuels such as coal, oil or natural gas.
Choices for almost every circumstance
That’s not to say this process is simple or straightforward. Power purchase agreements—in which an organization agrees to buy the output of a project for a predetermined price over a rather lengthy term—are increasingly common, and they take several different forms. Direct procurement relationships from utilities or grid operators, on-site generation technology, or investment tax credits might also make sense, depending on a company’s circumstances. Here are criteria to consider:
- Whether the business leases or owns its facilities, which will dictate what’s possible from an accounting standpoint
- The company’s geographic operating footprint
- How much upfront capital is available, along with the company’s credit rating
- Whether the goal is cost savings or a carbon-reduction story to tell (this will dictate who technically “owns” the RECs associated with a given project)
- The company’s ability to make long-term commitments (a tax deal might play out over five to 10 years, for example; many PPAs last 20 years)
- The project size (10 megawatts is considered a bare minimum for PPAs)
- The anticipated return for investors
- Existing state and federal incentives (wind deals, for example, are likely to be attractive in early 2015)
Brush up on accounting
Jed Richardson, global energy director for healthcare giant Johnson & Johnson, which spends about $300 million annually on power, warned sustainability managers not to underestimate the influence that a company’s finance department will have over these decisions. “Moving accounting folks into this mindset is challenging,” especially when you’re talking about transformational change and not incremental improvements, he said.
Erin Decker, senior manager of sustainability programs for Salesforce.com, also advised companies considering PPAs to get accounting teams involved early in the process so that the full extent of the impact can be understood and exploited.
While Salesforce hasn’t signed a deal of this nature, its evaluating opportunities to meet its goal of using renewable energy to power all of its data centers. “We need to be ahead of the trends,” she said. “We don’t want to be caught flat-footed.”