Why renewable energy offers long-term stability
General Motors and energy experts explored how Power Purchasing Agreements can protect your company against the peaks and valleys of fossil fuel prices.
Despite their steep drops this year, oil and gas prices historically have been subject to wild fluctuations and spikes that worry even the calmest of planners.
Set aside the environmental boon of avoided carbon and pollutants. Bracket the reputational benefits garnered by reaching impressive corporate sustainability goals. What you have left are compelling financial reasons to voluntarily source clean energy for a company’s power portfolio.
That was the consensus reached on a recent GreenBiz webcast, "The Opportunities and Challenges of Buying Renewable Energy," sponsored by Altenex, an energy management network that advises commercial and institutional customers.
The business case is straightforward: volatility in the price of fossil fuels represents nothing but massive, massive risk exposure for anyone who is responsible for an operational portfolio.
One would hope that this would be the case given the incentives of federal tax credits and state feed-in tariffs (where a state buys renewable energy, often making up the price difference between the renewable and the conventional grid, with the hopes that prices will drop with more widespread use).
"Renewable energy can reduce your energy costs — full-stop," said Blaine Collison, managing director of Altenex. He was joined last week by energy expert Peter Kelly-Detwiler of NorthBridge Energy Partners, Sarah Zemanick from Cornell University and Rob Threlkeld of General Motors.
[Catch Blaine Collison and Rob Threlkeld in person at VERGE in San Jose, California, Oct. 26 to 29.]
Cost-benefit analyses of whether a company should switch to renewable energy are beginning to tip in favor of renewables — on cost alone. In many regions of the United States, the costs for installing solar or contracting for wind options have reached parity with grid-based options from a utility.
This is all the more impressive, considering that the fossil fuel industry snags $550 billion in governmental subsidies annually.
Even though oil and gas prices have plummeted this year, historically prices of fossil fuel-based electricity have been wildly volatile (PDF) with price spikes hitting at unanticipated times.
And that means in a longer-term view, oil, natural gas and coal do not look like the best price option, Collison said. The cost of fossil fuel based electricity is expected to increase over time, while the cost of renewables is rapidly decreasing.
In addition, the concern for the long view is arguably the best reason for large businesses and institutions to consider renewables. Collison said that forward-looking companies that take their energy consumption for the next 10 to 25 years into consideration will see the benefits of renewables flesh out.
Traditional utility companies rarely enter pricing contracts that span decades. Renewables, on the other hand, can.
The combined effect of ever-changing fossil fuel sources, the increase in natural gas generation, environmental regulation and coal plant retirements results in unpredictable electricity prices, continued Collison:
"The business case is straightforward: The volatility represents nothing but massive, massive risk exposure for anyone who is responsible for an operational portfolio. If you are short power — if you are simply buying power at the monthly market price or year-to-year — then you are subject to that extraordinary volatility."
Diversifying an energy portfolio hedges against the risk of future fossil fuel price fluctuations. What’s more, if this energy mix includes long-term pricing for, say, the next 25 years, it effectively would displace the unknown pricing of fossil fuels with the known pricing of renewables. This is what Collison calls "the great promise of renewables."
Traditional utility companies rarely enter into pricing contracts that span decades. Renewables, on the other hand, can. The sun is going to keep shining, the wind is going to keep blowing, landfills will keep producing gas and the Earth will continue producing thermal energy. The inexhaustibility of these energy sources is precisely their financial strength.
What are the long-term ways a business can add renewables into their energy mix?
General Motors’ Global Manager for Renewable Energy, Threlkeld, said shifting energy sourcing of a large far-flung organization to 100 percent renewable or even mostly renewable is a large task that is likely best done through a mix of onsite development and contractual power purchase agreements.
"You are not going to get to 100 percent renewable energy with onsite (projects) only," he said.
As a company with global operations, it needs to consider the energy source available in location and if it should supplant the utility provided energy with PPAs and installations of its own.
Private solar investments "have allowed us to stabilize pricing" in electricity purchases, he said.
The sun is going to keep shining, the wind is going to keep blowing, landfills will keep producing gas and the Earth will continue producing thermal energy. The inexhaustibility of these energy sources is precisely their financial strength.
Another option, several speakers on the webcast noted, is to enter an on-site Power Purchasing Agreement. A developer manages the design, permitting, financing and installation of a renewable energy system on a customer’s property. The customer then buys the power from the developer for a fixed duration and at a fixed price that is usually cheaper than the grid price.
The main driver for this form of PPA is to avoid spending the capital of installing a private renewable system because the developer incurs the costs of initial set-up, as well as those for operation and maintenance.
At Cornell University in upstate New York, a region that does not get sun part of the year, solar has a few challenges. Along with overcast days, many university buildings are historical treasures with architectural or university constraints put up against adding installations to rooftops. As a signatory member of ACUPCC, Cornell University installed PVs on its solar-ready roofs in its commitment to a carbon-neutral goal. However, this accounted for only one mega-watt of power; a meager 0.25 percent of its total consumption.
Nonetheless, sentiment is strong on campus to go renewable, said Sarah Zemanick, director of campus sustainability.
So by investing in a 10-acre solar farm and in long term contracts for wind power through a PPA and in regional and student run bio-thermal initiatives, the university is moving its energy portfolio to mostly renewables.
Zemanick said that changing New York state and federal regulations are complicating some negotiations. The federal tax credit for investment in solar installations is set to expire at 2016 while New York is changing its metering. Still, the university is working through it, she said.
Shifting energy sourcing of a large far-flung organization to 100 percent renewable ... is likely best done through a mix of onsite development and contractual power purchase agreements.
The off-site wind project will save the university money, she said, "but the fact that these are big, long-term commitments is scary to the administration." The sustainability team has had to sell some of the ideas to university administrators.
There are hurdles to get through for most renewable projects — but such is the case for any capital project that an organization or business invests in. And thousands of commercial, institutional and municipal participants have found renewable energy a good bet.
IBM, Cornell University, GM, Microsoft, The Home Depot, Dow, Target, The University of Chicago, Yahoo, Kohl’s, Texas Instruments, Bloomberg, Walmart and 3M are some companies Altenex works with that have added in renewables to their energy mix.