What it takes to get corporate clean energy deals done
Where are we now when it comes to clean energy deployment?
Some 5,000 renewable energy power generation projects span the U.S. landscape, ranging from 175-megawatt wind farms to 3-megawatt solar projects, according to renewable energy advisory firm Altenex.
Corporations are already big buyers of all that energy. Big, iconic companies such as Apple, Google, Proctor & Gamble and Mars Inc., interested in moving away from fossil fuel energy to avoid price volatility, lower their energy costs and to satisfy constituents of consumers and shareholders who don’t want to affiliate with a company that adds to global warming.
Notwithstanding the Supreme Court ruling Tuesday to temporarily halt enforcement of the Clean Power Plan, the energy market is moving steadily toward renewables. Stocks of companies involved in coal and oil exploration are plummeting, coal mines are shutting and growing numbers of companies are committing to transition to renewables.
"CEOs and the C suite in general are under increasing pressure to develop comprehensive, cost effective carbon strategies that can satisfy multiple constituents," said Peter Kelly Detweiler, a principal at Northbridge Energy Partners LLC, during the webcast.
Entering power purchase agreements (PPAs), direct purchase agreements or contracting for installations all require managing "complex issues" around evaluating costs, forecasting energy economics, sourcing and risk assessment — not to mention lining up the financing, said Blaine Collison, managing director of Altenex.
"What’s really making this (market) go is the fact that renewables are compelling, there is a reduced cost benefit here to properly identify, analyze and execute a deal, there’s a reduced volatility benefit here. There’s clear additionality available, which is really important for sustainability goals,” Collison said.
“The companies and institutions coming to this market and executing long time deals are creating new renewable energy supply," he said — as evidenced by the 5,000 renewable projects built or under development across the country.
But he added "There are some challenges," and he recommended listening to companies that have navigated those challengs and negotiated deals.
For Kohl’s Department Stores, which operates with zero net carbon emissions after installing solar arrays on most of its 1,200 stores and entering direct energy purchase contracts, the key to completing a renewable deal is making sure the financials line up, then communicating both those benefits and the sustainability benefits to the C suite.
"I think the economics piece is really what helps drives the conversation and moves it up to the C suite quicker,” said Vince Lombardi, senior manager of sustainability and development at Kohl’s. While reducing carbon emissions has been Kohl's mission in seeking renewable power arrangements, it is often the financials that decide individual projects.
"For me it is looking out and being able to provide budget certainly and perhaps what our future energy curve might look like from the grid," Lombardi said.
He said the retailer lately has considered some PPAs so that it can scale its renewable power sourcing more quickly.
3M, the diversified manufacturer of business and consumer products, this week entered a power purchase agreement with Invenergy for 120 megawatts of wind power from its wind farm in Texas.
"This was a sustainability play; the financial modeling was a second leg to this platform," said 3M General Counsel Andrew Wilson. "Two of the largest conversations with the C suite were our commitment to renewable energy goals, 3M’s goal of 25 percent renewable energy by2025 and GHG reduction targets where our goal is to reduce GHGs to half of our 2002 determined baseline."
But he agreed that the key driver of choosing this deal and completing it was making sure it was financially beneficial. Many things come into play with that, including regulatory environment of the state.
"It is a fundamental part of our due diligence to look at what credentials that a project may offer and, of course, central to that is the regulatory credentials," Wilson said.
He said one of the financial "tipping points" in the wind deal was how swiftly the deal passed through the regulatory arena and the costs associated with regulation. It is a "decision criteria."
3M's wind purchase is a big deal for the company, "the culmination of several years of developing a real renewable energy road map," Wilson said. It answers its science-based targets for reducing its emissions and getting 25 percent of its electricity from renewable sources.
In general, power purchase deals seem to be more common among corporates than investing in onsite solar or wind projects for each of their buildings, although often companies do both.
Collison said a new emerging model is direct purchase agreements in which companies buy renewable power from a wind or solar generating facility but instead of taking physical delivery, they sell the power to the spot market, the wholesale market. They use those purchases not only to fulfill sustainability targets but also as hedges against rising energy costs because the original contract is typically for a fixed price.