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Transforming corporate clean energy commitments into action

It's time to understand the economics of renewables, as the recent summit of the Renewable Energy Buyers Alliance made clear.

In the days after President Donald Trump’s announcement to withdraw from the Paris Climate Agreement, more than 1,200 cities, states, universities, and corporations declared, "We are still in." These pledges, which former New York Mayor Michael Bloomberg submitted to the United Nations Framework Convention on Climate Change (UNFCCC), include commitments by over 260 corporations, including PepsiCo and Walmart, to reduce their greenhouse gas emissions in line with the latest science.

That was the backdrop for this year's REBA Summit at VERGE 17, where over 400 energy leaders gathered to discuss opportunities and work through challenges around corporate procurement of clean energy. (REBA stands for Renewable Energy Buyers Alliance.)

Attendees at the Silicon Valley event represented the 66 percent of Fortune 100 and about 50 percent of Fortune 500 companies that have made public sustainability commitments. Similarly, over 100 corporations have committed to RE100, a coalition to source 100 percent renewable energy, and 100-plus companies are ready to transact through the Business Renewables Center (BRC).

These commitments show that in fact, we are still in. But we must now move from "intent" into "action." Doing that requires not only forward-looking leadership on the part of the United States, but also that renewable energy buyers understand the economics of renewables to make the right choices.

Purchasing renewables is often the easiest and most meaningful way to address sustainability and stability.
General Motors is a prime example of this. During the REBA Summit, it announced a new 200-megawatt wind energy deal that will power its manufacturing plants in the Midwest and bring the company's renewable energy coverage up to 20 percent of all electricity use in 2018. To replicate its success, here are three factors that businesses should consider when turning commitments into results:

1. Corporate pledges influence power markets

Corporations around the United States are stepping up their investments in renewable energy for many reasons. Boards, shareholders and consumers are demanding that corporates address sustainability. Not only is purchasing renewables often the easiest and most meaningful way to do this, but it also helps corporations take greater control of their energy futures through greater stability and reliability. Many companies are looking to lock in low wind and solar prices and to diversify against rising fossil fuel costs.

This push from corporations for renewables is driving the market. For example, Appalachian Power in coal-rich West Virginia is shifting toward wind and solar, and has closed three coal-fired plants in recent years. This came about in part as a result of a summit meeting that its parent company, American Electric Power (AEP), held with corporations including Walmart, Facebook, Hilton and Procter & Gamble. According to a recent New York Times article, "Those companies stressed that if they were going to expand their businesses in AEP regions, they would need access to low-carbon energy."

As more companies turn their pledges into action, they are sending an important market signal to power producers, regulators and policymakers that clean energy is valued and markets should adjust accordingly. With over 7.5 gigawatts (GW) of renewables capacity being sourced directly by corporate buyers, this demand for more clean power isn’t going away anytime soon.

2. Corporate action influences location 

Our historically low natural gas prices are suppressing power prices across the United States. Renewable energy is competing with natural gas that is so cheap, even coal can’t compete. But despite that installed wind and solar costs have fallen 40 percent and 64 percent since 2008, respectively, no coal plants at all are being run today on the wholesale electricity market — an indication of just how challenging it is to compete on cost with cheap natural gas.

Even while renewables are still finding success in this environment, a lot of wind or solar coming online all at once can cause congestion, necessitate curtailment and in some cases, affect the economics for renewables in certain parts of the country. This means that anyone looking to invest in a new renewables project must fully consider regional risks such as competing gas assets or limited transmission infrastructure. At the end of the day, companies need to think of renewables just like real estate: it’s all about location, location, location.

3. Corporates must understand the economics

Renewables are competitive on cost in many parts of the country, but that doesn’t mean that each individual deal or power purchase agreement will be economically viable. In deregulated wholesale markets, where companies can support putting new renewables on the grid, buyers face an economic puzzle that is constantly changing.

To make an economic argument for purchasing renewables, buyers must not only consider the cost of energy, but also evaluate the relationship between the fixed cost they will pay and the floating market price they will receive.

The good news is that many companies are investing in education and expertise to grow their institutional understanding of the electricity markets. From seasoned players such as Google to new entrants in the market such as furniture manufacturer Steelcase, having a knowledgeable energy team is a critical step toward actionable sustainability practices. Arming those individuals with the right tools is also important. In its role as a nonprofit, the BRC works to help develop tools such as its Market Analysis Platform, which helps users quickly evaluate hypothetical wind or solar facilities at over 4,000 locations across the country by estimating both the fixed costs that a buyer might expect to pay and the floating market prices a buyer could expect to receive based on real market data. Equipped with knowledge and analysis, companies successfully can complete economically smart renewable energy deals.

Bottom line: It’s time for global leadership

The United States is facing a critical economic juncture. There will be fewer leadership opportunities in a clean energy industry that is seeing more demand — not less — from the most significant multinational companies around the world.

To capture the greatest economic growth from this wave of corporate renewable energy demand and the falling costs of renewable energy, the United States must commit to a forward-looking stance on climate and energy issues both domestically and internationally. As Trump moves to exit the Paris Climate Agreement, companies and cities are taking up the void, yet political leadership still leaves a vacuum in global agendas, which leads to a different global competitiveness dynamic.

In a recent testimony to the U.S. Senate Committee on Energy and Natural Resources, the BRC stated that "the cost curves for renewable technologies continue to point downwards, and without the United States’ leadership, companies and investors naturally will seek out more vibrant and growing markets elsewhere."

Economic investment in clean energy also includes investing in the overall power infrastructure. Markets right now are relying on an antiquated electric system, which is one reason we’re seeing price pressure. Investing in infrastructure, such as building more high-voltage transmission lines, coupled with investing in newer technologies, will bring about lower costs and more jobs in the long run than replacing aging fossil fuel plants.

Companies of all sizes have a role to play — from on-site rooftop solar, to large off-site procurement of renewables, to advocacy and public support for policies that can benefit the new, evolving energy system. Businesses already have provided a powerful voice for this new industry. Now is the time to go beyond vocal support, however, and start turning intent into action.

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