State of Green Business
How the renewable energy market is evolving
Corporate power purchase agreements (PPAs) are being talked about everywhere — from water coolers to boardrooms to industry conferences. Today, corporate and institutional (C&I) end users have unparalleled access to bilateral agreements directly with utility-scale renewable energy facilities — greening their energy portfolio and creating financial benefits. How did we get here?
While a number of interrelated factors have driven this change, we have identified two clear eras in the development of renewable energy.
The two eras of renewable energy market development
Era 1: The Early Days of Deregulation, RECs, and RPSs (1990s–2000s)
The first era, starting in the 1990s, was characterized by deregulation, the creation of renewable energy certificates (RECs) and the development of the renewable portfolio standard (RPS). During this time period, renewable energy was purchased through compliance and voluntary programs, and renewable energy cost a premium to conventional power.
In the mid- to late 1990s, options were few for commercial and institutional customers that wanted renewable energy. An end user could install an on-site solar PV system, or if in a deregulated market, could select a retail provider that combined RECs with normal brown power. Over time, the number of deregulated markets and options increased substantially.
By the early 2000s, some utilities began offering green power options to customers. At the same time, unbundled RECs provided a new way to purchase green power without having to go through utilities or power retailers — even in a regulated power market. EPA Region 10 executed the first large retail REC deal (PDF) with Bonneville Environmental Foundation for 2.7 million kWh in 2000. A year later the EPA launched its recognition program, the EPA Green Power Partnership, to acknowledge voluntary buyers of renewable energy and encourage new ones. In 2002, Center for Resource Solutions’ Green-e Energy program, the third-party certification for RECs, certified 1.7 million MWh.
By the middle of the decade, momentum grew and a number of states legislated renewable portfolio standards, and compliance markets emerged as the dominant source of renewable energy demand in the United States. Statutory requirements varied by state, but many allowed both PPAs and unbundled RECs to satisfy compliance. At the same time, the groundwork was being laid for future changes with the development of third-party financing models.
The solar PPA (and solar leasing) was born in 2006 (PDF), a brainchild of SunEdison and MMA Renewable Ventures, with early pioneers quickly jumping on board. While the compliance markets grew, so too did the voluntary market. End users demonstrated clear demand for renewables — primarily through RECs — and by 2009 Green-e certified sales grew to 22 million MWh.
Era 2: The Modern Time of PPAs and the C&I Segment (2000s–present)
Around the same time, the landscape began to shift as more companies became interested in PPAs. The growth of the solar PPA market played an important role spurring industry growth. The most popular method of solar installations transitioned from ownership to PPAs, and the upward trend continued as more states approved third-party financing. In 2008, Walmart and SC Johnson executed the first large-scale off-site corporate renewable energy PPAs for 200 MW. Others followed, and by 2014, the renewable market was reoriented and forever changed.
While end users can still support renewables directly with the purchase of RECs, demand shifted toward options which both reduce costs and meet sustainability goals. To guide this emerging industry, WWF and WRI published the Corporate Renewable Energy Buyers’ Principles in July 2014, and established six criteria to accelerate progress in connecting companies directly with renewables. Today, there are over 43 signatories, collectively representing more than 30 million MWh of demand for renewable energy.
By the end of 2014, more than 23 percent of all wind contracts were executed not between generators and utilities (the traditional two counterparties), but instead directly between generators and C&I end users, demonstrating robust support for these new options.
And today, in 2015, something truly big is happening. With an abundance of projects, increased comfort by C&I decision makers with various PPA structures, and a rush to beat expiring tax credits, we are approaching 1.5 GW of executed large-scale off-site corporate renewable energy PPAs in 2015, with more expected in the coming months. We also see a growing number of industry associations and corporate commitments.
Rocky Mountain Institute launched the Business Renewables Center to accelerate corporate renewable energy procurement. At the same time, 36 companies have committed to the RE100, a global initiative to showcase companies committed to using 100 percent renewable power. A line has been crossed; end users are paving a new path to renewables, resolving challenges with innovative partnerships and creating a new landscape of renewable energy.
A tipping point for renewable energy
It is clear that we are at a tipping point today for how corporate and institutional organizations treat renewable energy. Renewable energy markets have fundamentally changed in profound ways.
With nearly two-thirds of Fortune 100 and nearly half of Fortune 500 companies having made renewable energy commitments, the collective impact can have a rapid and significant effect on the energy system in America. C&I decision makers have more power and influence than ever before. They are creating new markets, no longer only just responding to them. They are tapping solar and wind through physical and virtual PPAs, ownership and leasing.
Opportunities once only available to the Googles and Facebooks of the world, the largest end users with concentrated load, are becoming ever more available to a broader set of organizations.