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Royal Caribbean's creative workaround for onshore renewable energy procurement

It is pioneering a unique approach to marrying power purchase agreements and verified carbon offsets.

Technically speaking, cruise operator Royal Caribbean has lots of direct control over its carbon dioxide emissions: By the company’s own estimate, close to 98 percent of them fall under the Scope 1 category, which pertains to its direct operations. 

But most of that impact is tied to consumption of fuel at sea, rather than electricity usage onshore. That presented an unusual dilemma when Royal Caribbean started evaluating how to join other large organizations in procuring renewable energy via a big corporate power purchase agreement (PPA).

In theory, the cruise line could have purchased unbundled renewable energy credits (RECs) to claim against the emissions. But investing in the sort of PPA touted by companies such as AB InBev, Microsoft or Facebook presented a challenge, as it would be difficult to match the environmental attributes associated with such a transaction neatly with the company's actual electricity consumption.

Instead, Royal Caribbean’s team wanted to invest in something that was more tangible, something that had a demonstrably positive impact — in terms of land use or socio-economic factors — when it came to adding new clean energy to the national grid, said Nick Rose, director of environmental programs for the Miami-based company.

"We needed to have this be an offset… We wanted to make sure it was big enough to have a sizable impact on the footprint," he said.

Projects like this are very difficult to assemble.
The "this" in question is the 200-megawatt, 12-year-long power purchase agreement (PPA) that Royal Caribbean disclosed in early October with Southern Power, a subsidiary of the big gas and electric utility Southern Company. The deal covers the Reading Wind Facility, a site that straddles Osage and Lyons counties in Kansas. Notably, it’s Southern Power’s first project to be certified under the Verified Carbon Standard (VCS).

That means the farm has been vetted more rigorously for offset claims than an installation carrying traditional RECs. The arrangement provided Southern Power with the "economic basis" to construct the installation, which it acquired from developer RES. When it’s completed, the facility will offset about 12 percent of Royal Caribbean’s emissions, starting in 2020, according to the press release issued by the companies. That translates into about 760,000 megawatt-hours of electricity generated annually.

"We are constantly looking for new ways to reduce our environmental footprint, both in the short and long term, and thanks to our partnership with Southern Power, this is the latest step in our journey," said Royal Caribbean Chairman and CEO Richard Fain in a statement.

To the company’s knowledge, this is the first corporate PPA to be negotiated under this structure — one that pairs it with verified carbon offsets, Rose said. It took almost two years for his team to talk through the idea and work out the particulars of how to pull this off with multiple organizations that manage verified offsets. (Terra is the organization behind the VCS designation, which applies to about 1,300 projects worldwide; Royal Caribbean also consulted with Gold Standard when designing this idea.) After the philosophy behind the structure was worked out, it took a  year to get the procurement process under way, Rose said.

The transaction was likewise a new experience for Southern Power, said Bob Schaffeld, senior vice president and chief development officer for the energy company. The process of certification required a thorough "forensic" analysis that examined variables including the impact of the installation on the land, the quality of the wind resources available, and other generating attributes. "Projects like this are very difficult to assemble," Schaffeld said. 

Any time you can help put green energy on the market is a good thing.
Royal Caribbean worked with Schneider Electric to evaluate potential projects, and the VCS component made that process a bit more challenging, said John Powers, vice president of strategic renewables for the energy management company.

The value of the offsets was instrumental in helping get the project financed, Powers said. This is the first project of this nature that the organization has helped orchestrate. (Considering that Schneider Electric advised more than half of all the corporate PPAs signed this year, that’s saying a lot.)

The size of the PPA was an important variable in its viability: any smaller, and it would have been more financially challenging for the developer to convert the environmental attributes of the installation into offsets, according to Rose. “A smaller project wouldn’t have helped us get over this hurdle,” he noted.

Aside from the PPA, Royal Caribbean has a wide array of ongoing programs in place to address the need to make its fleet more energy-efficient. That includes the installation of advanced purification systems (which address sulfur dioxide) on its vessels, outfitting them with air lubrication systems to address drag and improve fuel efficiency, and funding research into alternative fuels, such as liquified natural gas.

Are there more PPA deals of this nature in the cruise line’s future? Rose didn’t rule out the possibility, provided this first arrangement doesn’t run into financial or strategic snags. “We would love to be a pioneer in a space that allows a more traditional [transportation] company to do this,” he said. “Any time you can help put green energy on the market is a good thing.”

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