Here’s what corporate buyers can expect from green tariffs
Editor’s Note: This is Part II of a two-part series on utility renewable energy programs. Part I describes the rise of renewable energy tariffs and core elements that meet the needs of corporate buyers.
To date, utility renewable energy offerings aimed at meeting the needs of large commercial and industrial (C&I) customers have had mixed success. These programs, which have evolved over the past five years, vary greatly. Last week, we discussed six essential elements for program success — but how well does the reality measure up, and what still needs to be done to meet customers’ needs?
To answer those questions, let’s first take a step back and look at the broad categories of programs referred to as "green tariffs," which can be split into four main types:
Sleeved PPA programs allow large customers to purchase energy from an off-site renewable energy project, with the electricity and terms of the power purchase agreement (PPA) or contract "sleeved" through that customer’s local utility and delivered to the customer. There are different options to bill customers under a sleeved PPA program, including riders that charge the PPA price and credit the customer back based on avoided cost to the utility; the market value of the renewable project, or some other metric; and tariffs that charge customers for the various unbundled services they use, including the transmission and distribution charges, generation and capacity from renewable energy, and any generation and capacity not supplied by renewable energy. Examples include Public Service of New Mexico’s Schedule No. 47 in New Mexico, NV Energy’s Green Energy Rider in Nevada, and Rocky Mountain Power’s Schedule 32 in Utah.
- Subscription programs serve multiple customers from the output of one or more renewable energy facilities owned or contracted by the utility. These can look very similar in structure to sleeved PPA programs but generally provide customers with flexibility in terms of subscription size and length and may provide pricing information upfront. Examples include Puget Sound Energy’s Green Direct in Washington, Xcel Energy’s Renewable*Connect in Minnesota and Colorado, Georgia Power’s C&I Renewable Energy Development Initiative (REDI) program, and Consumers Energy’s proposed Large Customer Renewable Energy Pilot (LC-REP) program’s Option A in Michigan.
- Market-based rates replace the generation portion of a customer’s bill with a variable rate based on wholesale market prices. The market-based rate does not itself supply renewable energy, but it can work in parallel with a virtual PPA between a customer and a renewable energy project or a renewable energy offering from the utility, providing a more direct correlation between the customer’s electricity rates (per kilowatt-hour usage) and the variable market price of the renewable energy and capacity sold into the wholesale market. Examples include Dominion’s Schedule Market Based Rate (MBR) in Virginia, Omaha Public Power District’s Schedule No. 261M (PDF) in Nebraska, and Consumers Energy’s proposed LC-REP Option B in Michigan.
- System resource REC purchases allow customers to purchase the renewable energy certificates (RECs) and any other environmental attributes from projects procured to meet system needs, with the customer’s participation enabling the development of new renewable energy to meet the needs of all customers. The first such program is Dominion’s Schedule Renewable Facility (RF), developed in partnership with Facebook and approved in 2018.
With so much variety, it might seem that customers have all the choice they need.
Indeed, compared to just three programs across the country in 2013, 20 offerings are available or pending approval. Instead of programs appropriate for only the largest C&I customers, there are now several program structures, including options that work for smaller customers or customers with more dispersed loads. There is also significant variety within the four broad categories, as noted above. On a whole, the trends are positive.
However, some stumbling blocks remain. Let’s take a look at a few recent programs illustrative of both the progress made and the challenges ahead:
- Georgia Power’s Commercial & Industrial Renewable Energy Development Initiative (REDI), which will deliver a total of 177 megawatts of renewable energy to four customers, highlights the importance of finding solutions that work for both customers and utilities. The program was developed through Georgia Power’s integrated resource planning process, with resources for the program procured alongside solar resources to meet the utility’s other customers. As such, both participants and the utility are assured that the REDI program is being served by cost-competitive resources, and if a customer decides to leave the program, that portion of the project can be used to serve system needs without causing any harm to other ratepayers. However, C&I customers that missed out on the first offering will have to wait for a second round before they can purchase renewable energy in Georgia.
- In Virginia, Dominion’s Schedule MBR, Schedule RF and proposed Schedule Renewable Generation (RG) cover all four program types, provided that the proposed Schedule RG is finalized in a way that allows it to serve as both a sleeved PPA program or a subscription-style program (AEE has intervened in this case, alongside Virginia Advanced Energy Economy and the Mid Atlantic Renewable Energy Council). However, these programs still leave gaps in the market, because Schedule MBR and Schedule RF are limited in size and eligibility, as described in more detail in a recent policy brief by AEE and Virginia AEE.
- Consumers Energy in Michigan has proposed a Large Customer Renewable Energy Program that speaks to the importance of variety and the challenge of being an existing load customer. The program is under review by the Michigan Public Service Commission in a case that AEE has intervened in alongside the Michigan Energy Innovation Business Council and the Institute for Energy Innovation. Under Option A, customers have a subscription-style offering, and under Option B customers can opt for a market-based rate program. The inclusion of two options under one proposal reflects a growing recognition that there is no such thing as a one-size-fits-all solution. However, each program has challenges. Most important, existing Michigan customers are just about out of luck. Option A is already nearly fully subscribed (it was provisionally approved for one year back in 2017), and Option B is only open to customers bringing new load. Hopefully, an expanded Option A would rely on a competitive solicitation process to ensure that it provides a cost-competitive renewable energy offering. Also troubling is the fact that Consumers, in its application for permanent approval of Option A, restricted customers to a term of either three or 20 years, giving limited flexibility.
So where do things stand for companies, large and small, that want renewable energy to power their operations?
For some, the growing number and variety of options are making it possible to choose the energy they want. For others, the utilities that serve them still do not offer programs that fit their needs or impose barriers and restrictions that make it impossible for them to participate.
The good news is that demand continues to build, and utilities and their regulators are rushing to respond. Innovation in renewable energy tariffs is not over. Rather, it is just beginning.