City planner Jason Russell (left), Michael Hartley, executive director of the Ohio Conservative Energy Forum, Terry McClure, farmer and former president of the Ohio Farm Bureau and Lynn Scarlett, global director of public policy for the Nature Conservancy, talked about the debates in Ohio about renewable energy this week at the City Club of Cleveland. (City Club of Cleveland photo)
CLEVELAND, Ohio -- A long-time Ohio Republican political operative, a past president of the Ohio Farm Bureau and the Nature Conservancy's global director of public policy have a message for state lawmakers: Your voters are greener than you thought.
The trio appeared Wednesday before a City Club of Cleveland panel moderated by Jason Russell, a city planner.
"Environmentalists don't know how to talk to conservatives," said Michael Hartley, a former Kasich administration director and now the executive director of the Ohio Conservative Energy Forum.
The forum this week released a poll which surveyed only Republican and conservative voters. The poll found that these voters support renewable energy, energy efficiency programs and net metering for home solar systems.
Terry McClure, a conservative fifth-generation northwest-Ohio corn, soybean and wheat farmer and still part of the Ohio Farm Bureau, said electricity is critical to farming today. He said that locally-produced wind energy is now cheaper than what the utilities want to sell farmers. And he added that solar panels are a natural addition to the huge barns on most farms.
Lynn Scarlett said businesses globally are gearing up to provide renewable technologies because the demand for renewable energy is expected to double by 2030.
The bottom line? The trio think the adoption of renewable energy and energy efficiency technologies are a kind of global energy tsunami that is coming. The only question is whether Ohio will participate.
Hartley tried to explain to the somewhat skeptical City Club audience that GOP lawmakers are likely to accept a green energy middle ground between the utilities and legislative ideologues on the one side and the environmental and consumer groups on the other.
Every time I can use a renewable source to produce my electricity, I save gas or coal, for next generation."
So far, that acceptance has not happened.
There were protracted battles at the state house in 2014 and 2015 over rules dating back to 2009 requiring Ohio power companies to provide annually increasing percentages of electricity generated by renewable technologies such as wind and solar.
Related rules also required utilities to provide energy efficiency programs for customers to help them reduce how much electricity they use.
The GOP-dominated legislature, led by the most ideologically conservative members, "froze" the rules for two years in the spring of 2015.
They changed state law after months of hearings and lobbying that pitched large industries and the utilities against consumer and environmental groups, smaller businesses, clean energy companies and their trade groups.
FirstEnergy, which had been openly critical of the efficiency programs as bad for business, immediately shut down its consumer appliance and lighting rebate programs.
The freeze disappears at the end of this year and the lobbying has already begun with the objective of extending the freeze during a quick "lame duck" session in late November or December. Kasich has threatened to veto such a measure.
The Ohio Conservative Energy Forum has staked out a middle ground that Hartley believes can be approved and signed by the governor -- either this year or next year.
"I spent 20 years on campaigns to elect Republicans," said Hartley. "Many of the folks in the legislature I have known since they were councilmen and commissioners, since college.
"Economic growth, national security, faith and the political angle of winning elections -- that's how you talk to them."
Hartley's group wants state rules to require utilities to up the percentage of renewable energy by 5 percent over the next five years. It's now at roughly 2.5 percent.
"What we have put forward, it's guaranteed that environmental groups are not going to accept, it doesn't go far enough for them," he predicted. "On the other side, there are those who want a permanent freeze. That goes way too far."
The poll results seem to backup Hartley's assertions that GOP voters not only support green energy, efficiency programs and consumer choice but also that they will not reject conservative lawmakers who vote to require utilities to provide it.
Hartley, McClure and Scarlett urged their audience to reach out to their lawmakers.
McClure summed up conservative thinking about power this way:
"Every time I can use a renewable source to produce my electricity, and save gas or coal, for next generation, that is a good thing."
He said the statehouse fights over the issue is an example of the "polarization we have on so many issues right now."
"We think there has to be middle ground on many issues This is a prime example of one with a very important middle ground, and we are finding in the polling that there are a lot of people at that point. And we know there are a lot of businesses at this point. They agree with us."
The City Club recorded the discussion and archived video and audio versions.
Maine regulators last week proposed a 15-year phase-out of net metering for current rooftop solar systems and a 10-year limit for new systems.
The proposal came as a part of a rulemaking process that the Maine Public Utilities Commission hopes to complete by the end of the year and implement in 2017.
“In light of changes in the technology and costs of small renewable generation, particularly solar PV, we felt that opening a rulemaking process to consider changes to the rule was the prudent course of action to ensure that all ratepayers are treated fairly,” Chairman Mark Vannoy said in a statement.
The rulemaking also proposes gradually reducing compensation for new solar customers, increasing the size of an eligible customer facility by more than 50%, from 660 kW to 1 MW, and additional consumer protections.
House of Representatives Assistant Majority Leader Sara Gideon, a solar proponent who helped craft a compromise solar power bill that was vetoed by Gov. Paul LePage in April, blasted the PUC proposal.
“Maine needs a comprehensive solar policy. Unfortunately, the PUC’s narrow focus on a single part of the broader solar policy doesn’t help our state’s ability to open new markets that create jobs and lower costs for homeowners, businesses and communities,” Gideon said. “This past session’s solar bill did not simply look at net metering in isolation but was crafted to help our constituents who are clamoring for access to community, commercial and municipal solar. That responsiveness and broad view is why policymaking should be left to lawmakers.”
The net metering review was automatically triggered by a PUC rule after solar exceeded 1% of Central Maine Power’s installed capacity. The utility reported solar at 1.04% at the end of 2015.
The B.C. Cobb Plant in Muskegon is one of several coal plants to either close this year or to be scheduled to close in the near future. Photo: Joel Bissell, AP
Paul Egan, Detroit Free Press9:53 a.m. EDT September 19, 2016
LANSING — Millions of dollars have been spent on TV ads and campaign donations to state lawmakers.
Lobbyists are raking in hundreds of thousands more.
And although public testimony has been heard at a series of lengthy legislative committee meetings, if recent history is any guide, whatever the Legislature votes into law will come in the form of last-minute substitute bills — likely during the lame-duck session.
All of that can only mean that Lansing is tackling an important and complex policy issue that will affect every Michigan resident.
This time, it's a two-bill package of electricity and energy legislation that is purportedly about as high stakes as lawmakers' work at the Capitol can get — keeping the lights on in Michigan. Though some dispute the reliable supply of electricity is truly at stake, how much residents, schools and businesses will pay for power, how clean and efficient the state's electrical generation will be, and whether any effective competition will be allowed in Michigan's highly regulated electricity market, will all be affected by Senate Bills 437 and 438, which were reported out of a Senate committee in May.
Sen. Mike Nofs, R-Battle Creek, chairman of the Senate Energy and Technology Committee and the main sponsor of SB 437, said Friday he hopes to move newly revised legislation in the Senate this week, though he doubts the House will take up his bill and its companion bill until after the Nov. 8 election.
"What they decide is going to effect the entire state and it seems like the major special interest groups are having the largest influence on what is going on," said Craig Mauger, executive director of the Michigan Campaign Finance Network, who added that at least 145 registered lobbyists made their views known at committee hearings on the energy package — along with only about a dozen average citizens — who mostly told him they didn't feel like they were being heard.
"The idea that a regular citizen, or a group of regular citizens, have the same ability to influence these bills that the two incumbent utilities have, is just laughable," Mauger said.
Michigan's main utilities — DTE Energy and Consumers Energy — are closing aging coal plants and say changes are needed to state energy law to assure they can build enough generation to meet all future needs.
Citizens for Michigan's Energy Future, a nonprofit corporation supported by DTE and Consumers, spent $7.4 million in 2015 to make their case — much of that on TV ads warning of a looming energy shortage, the Michigan Campaign Finance Network reported in August. Spending reports for this year are not yet available.
At issue is the "electric choice" market — alternative energy suppliers who, under current law, can serve up to 10% of the market with surplus electricity they purchase and sell to schools and other commercial customers at reduced costs.
The big utilities say a longtime overcapacity in Michigan is drying up, and while they will make sure Michigan has enough capacity to serve their 90% of the market, they are not going to build to cover the other 10%, which they see as "free riders," without legislative changes.
"The lights aren't out yet, but we need to move," DTE Chairman and CEO Gerry Anderson told the Free Press editorial board on Aug. 29.
"The people who understand this, including me, are worried," Anderson said.
Whatever happens, "we're going to take care of our customers," but "10% of the market are not our customers."
The proposed legislation, which DTE and Consumers support, would still allow a 10% market for electric choice, but would require those alternative suppliers to have the electricity they sell lined up three years in advance.
The alternative energy suppliers, along with free-market lawmakers such as Sen. Mike Shirkey, R-Clarklake, want to expand the choice market to serve thousands of potential customers now on a waiting list. They say talk of potential shortages is being overly hyped in order to kill electric choice, and requiring long-term commitments for cut-rate electricity would essentially do that.
"This entire arena ... is rife with people cherry-picking pieces of information and then reframing them to advance their narrative," Shirkey said. "We don't have a pending, looming reliability gap."
Nofs rejected the idea that DTE and Consumers have had undue influence on the legislation. If they did, "we would have had this done last year," he said.
"Obviously, they are just one or two players in the same pot as the others, who are opposing, who also have spent thousands of dollars on ads, lobbying and writing op-eds to your paper," Nofs said.
"I think it's an equal playing ground and no one has any more influence than the next organization."
Nofs said Friday the federal government and MISO (the Midcontinent Independent System Operator), a nonprofit that administers and plans wholesale electricity markets, are now calling for "resource adequacy" assurances similar to what his bill was seeking. The amended legislation he expects to introduce this week will reflect that change, he said.
Nofs noted alternative energy suppliers have said that MISO is in a better position than the state to determine if supplies are adequate, but MISO has come to a similar conclusion about the need for long-term commitments for alternative energy suppliers.
Maureen McNulty Saxton, a spokeswoman for Energy Choice Now, a coalition pushing for greater energy choice, said MISO is drafting proposals to assure resource adequacy, but "MISO has not offered anything publicly yet and the federal government hasn’t approved anything yet." It's hard to understand how Nofs can redraft his legislation based on something MISO hasn't done, she said.
"Last-minute changes, whatever they are, are just a last-ditch effort to save a discredited plan and jam through bad legislation, and lawmakers and their constituents see right through it," Saxton said Friday.
The cost of electricity is another issue, as Michigan's rates are already high relative to other Midwest states.
Nofs acknowledged Friday that rates will increase an unknown amount under his legislation, both for current "choice" customers — which includes many Michigan school districts — and for customers generally. But he said rates would increase in any case, because new plants have to be built and will need to be paid for. The legislation will require competitive bidding on those projects and require utilities to absorb any cost over-runs, he said.
James Clift, policy director at the Michigan Environmental Council, said protection for ratepayers is one of the key pieces missing from the legislation.
Most of the time, there's plenty of electricity to serve all customers in Michigan, Clift said. The issue is peaks that are reached, typically on hot, summer days, he said. Improving the efficiency of the electric grid through measures such as reducing line loss, and shifting loads through measures such as time-of-day pricing, could reduce those peaks and reduce the need for costly new plants, he said.
Another major issue in the current legislation is the proposed replacement of Michigan's 10% renewable energy mandate with proposed renewable energy and efficiency goals of 35%.
Some critics have said setting goals, rather than mandates, is meaningless, because goals have no teeth.
Nofs said Friday that changes being considered to the legislation, partly in the hopes of attracting more Democratic support, would scrap the proposed goals and return to a mandate for renewable energy, perhaps one of 10% to 15%.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.
The Cutting EdgeThis week, the solar industry held its annual Solar Power International conference in Las Vegas. It followed a contentious back-and-forth between utility-scale and rooftop solar advocates. How will this rift affect the future of the industry's leadership and advocacy goals? On today's The Cutting Edge, EnergyWire reporter Rod Kuckro discusses the split within the solar industry and its broader impacts.
Transcript
Monica Trauzzi: Welcome to The Cutting Edge. The solar industry held its annual solar power international conference in Las Vegas this week. It comes after a contentious back-and-forth between utility-scale and rooftop solar advocates, and here with all the details on that back-and-forth is EnergyWire's Rod Kuckro. Rod, thanks for coming on the show.
Rod Kuckro: You're welcome, Monica. Nice to be here.
Monica Trauzzi: So it's a dramatic split between rooftop and utility-scale solar advocates. Take us back to when this rift began and sort of how things progressed so quickly.
Rod Kuckro: Well, the rift has been simmering for years, but it really blew into the open Sept. 5 when two well-known solar entrepreneurs, Jigar Shah, who was the founder of SunEdison and now operates a clean energy financing company, and Barry Cinnamon, who's a longtime entrepreneur in Silicon Valley, wrote an open letter to the industry. They did it deliberately before this trade show to sort of expose the fact that, in their eyes, distributed generation companies, those that do rooftop solar, are getting the short end from the board of directors of the Solar Energy Industries Association. It was a shot across the bow, essentially.
Monica Trauzzi: Yeah, so how is the industry reacting? I mean, this was an unusual move by Jigar Shah.
Rod Kuckro: It was very unusual because he's actually a fairly private person and tends to do things behind the scenes. But as one person said, he thinks that he wanted to go public with this to sort of force the issue at a time now when SEIA, the trade group, is without a CEO. They have an interim CEO. Rhone Resch resigned and left a few months ago. And at a time when the board of SEIA's now weighted two-thirds in favor of companies that do rooftop solar for utilities. And the contention of Jigar Shah and Barry Cinnamon is that the action is not at the federal level — they got their tax credit last year — but it's at the state level where there are all these battles over net metering and whether utilities should apply fixed charges on solar owners to make up for the lost revenue.
Monica Trauzzi: So how does this affect SEIA's search for a successor to Rhone Resch?
Rod Kuckro: Well, as Barry Cinnamon told me on the phone yesterday, the ball is now in their governance court. The board has to decide as they look for an executive director what kind of person they want, what the experience level's going to be. They really don't need someone who's good with Congress. They've got what they need from Congress, but they need somebody who's good with the industry to bridge this divide between the utilities and the rooftop providers. They make the point, that is, Shah and Cinnamon, that most of the jobs in the United States in solar are for the rooftop installers. It's a blue-collar industry, and they want to keep those jobs in the states where they're growing.
Monica Trauzzi: So what's next for the conversation? Where does this go from here? And I know you received a lot of reaction to your story that was in EnergyWire.
Rod Kuckro: Well, we'll know a lot, frankly, based on the person that's chosen to succeed Rhone Resch, the departed CEO at SEIA. We'll also get to see whether there'll be any efforts to give the state executive directors of SEIA more authority and actually a role on the board. If not, what we might witness is what's happened before, Monica. You've seen it with other trade associations. There could be a permanent split, and you could have essentially a utility-scale solar industry association and one that represents only distributed generation installers.
Monica Trauzzi: It'll be interesting to see what happens.
Rod Kuckro: Yes, it will.
Monica Trauzzi: Thanks for joining me.
Rod Kuckro: You're welcome.
Monica Trauzzi: More Cutting Edge coming next Friday. We'll see you then.
With the federal tax credit secured, Resch decides it’s time to move on from SEIA.
by Stephen Lacey
April 15, 2016
Rhone Resch, the man who's steered the U.S. solar industry's top lobbying group for a dozen years, is leaving his position at the end of May.
The Solar Energy Industries Association (SEIA) published a letter from Resch detailing his decision to step down this afternoon. "Now is the right time for me to move on to new challenges and opportunities that lie ahead," he wrote.
Resch led national advocacy efforts during some of the most important moments for the American solar industry, including the passage of the eight-year Investment Tax Credit in 2008, passage of the stimulus package in 2009, and the most recent renewal of the Investment Tax Credit last December.
According to Resch's resignation letter, SEIA grew from 65 members in 2004 to 1,000 members in 2016.
The industry now employs over 200,000 people and is on track to install 20 gigawatts of capacity annually in the next five years, according to GTM Research.
While the solar industry has seen exponential growth and many political successes under Resch, his tenure was not without a bit of controversy. Some had criticized him for his salary, which was modest compared to other Washington lobbyists, but large for solar industry standards.
Many were also upset with SEIA and Resch for not taking a harder line on Chinese solar manufacturers during tariff disputes.
His legacy is undoubtedly positive. There were many local advocacy factors that enabled solar's growth, but Resch played a central role in ensuring that the solar industry's voice was heard in the halls of Congress and the White House -- well before anyone took it seriously.
Below is Resch's letter in full.
***
After twelve remarkable years at the helm of SEIA, I have decided to step down as President and CEO on May 31st. I leave feeling confident that SEIA will carry on the significant progress the organization has made during my tenure.
As I consider the next steps in fulfilling my own career goals, I can’t help but look back on my time with deep gratitude for the great people I have met along the way. From the individual members who are building this industry one installation at a time, to the many mentors who have served on the Executive Committee and the Board, to solar champions of all kinds who motivated me to fight as hard as I could for solar, this has been an incredible professional experience.
During my time with SEIA, we collectively installed more than 30 gigawatts (GW) of solar energy, increased US jobs by more than 200,000 and forced the cost of solar down by more than 80%. This growth pumped more than $150 billion into the U.S. economy during difficult economic times.
We passed the investment tax credit (ITC) that jump started the industry in 2005, worked tirelessly to ensure the ITC never expired and most recently executed an ITC extension that will provide unprecedented market stability for the industry through 2023. We expanded state RPS’s across the country and protected and enhanced net energy metering laws to expand markets for distributed solar. We created dozens of initiatives that streamlined the siting, permitting and financing of large-scale solar energy projects. And we co-created Solar Power International (SPI), which is now rated as one of the “top 50 conferences and trade shows” in the country.
We also grew SEIA into one of the most politically effective trade associations in Washington D.C. and in state capitals across the country. Since 2004, SEIA expanded from an association with a budget of $350,000 and 65 members to one with a $12 million budget and about 1,000 member companies today. And together we created a powerful, single voice for the solar industry, representing all technologies and all markets, including residential, commercial and industrial and utility-scale solar.
I am inspired by and proud of these accomplishments, but most importantly, I am thankful to have worked with some of the smartest and hardest-working people I have ever met. SEIA has truly become my second family, and I could not be prouder of each staff member and their dedication to our mission.
I am honored to have made a small contribution to help create an industry that has such a positive impact on the U.S. economy, energy security and the environment. With the ITC effectively extended through 2023 and solar energy markets growing throughout the country, now is the right time for me to move on to new challenges and opportunities that lie ahead.
Again, thank you for the trust you have put in me to lead such a worthwhile and noble organization.
Last year, corporations eclipsed utilities as buyers of wind power. It is a trend that looks likely to continue, but it also is a quickly changing market with its own challenges and evolving solutions.
The trend peaked in the fourth quarter when 75% of wind power purchase agreements were signed with corporate buyers rather than utilities.
“Corporate PPAs have doubled every year since 2012,” Ian Kelly, a manager at the Rocky Mountain Institute (RMI), said.
RMI’s Business Renewables Center (BRC), a membership organization for corporations that purchase renewable energy, tracks corporate PPAs. According to BRC, there were 1.18 GW of renewable corporate PPAs in 2014 and 3.24 GW in 2015. So far this year, there have been 0.59 GW of corporate PPAs.
RMI estimates that 60,000 MW of new wind and solar projects will have to be built by 2025 to serve the corporate market
Credit: Renewable Choice Energy
The possibility that the production tax credit (PTC) for wind power would expire at the end of the year drove the fourth-quarter surge, said Kelly. Then deals fell off in the first quarter, but they have since picked up, with the second quarter comparable to second-quarter 2015’s deal flow, he said.
The market is also expanding. Companies looking to gain market recognition for their environmental stance, like Apple and Google, were among the first to sign renewable PPAs. But in the past year, older, more established companies and companies involved in heavy manufacturing, such as 3M, Dow Chemical, General Motors and privately held candy manufacturer Mars, began signing renewable PPAs.
There are at least two main drivers of this trend. On one side, a growing number of corporations have embraced sustainability goals. In a June whitepaper, the Edison Electric Institute said that nearly half of Fortune 500 companies and 60% of Fortune 100 companies have climate and clean energy goals.
To meet those needs, RMI estimates that 60,000 MW of new wind and solar projects will have to be built by 2025 to serve the corporate market.Corporations could, of course, just buy renewable energy credits (RECs). That is what most corporations did to meet their sustainability goals, until about 2012 when they began to enter into corporate PPAs.
RECs can be used to meet renewable targets, but a corporation is going to pay a premium because they are essentially double buying. In addition to buying the RECs, the company still needs to purchase the electricity to run its operations, said Pete Dignan, president and CEO of Renewable Choice Energy, which advises corporations on reducing their carbon footprint and meeting sustainability targets.
PPAs also provide “additionality,” the term of art used to describe actions that cause more renewable resources to be built or less conventional thermal generation to be used. By signing a PPA, a corporation can show that it is not just going along for the ride; it is causing a wind or solar plant to be built. PPAs also have the potential to be a better business decision.
Increasingly, corporations are looking to buy renewable energy, not just to meet sustainability targets, but to reduce their energy costs. As Kelly notes, “without a PPA, you are short power and a price taker.”
At a renewable energy conference earlier this summer, Rick Needham, Google’s director of energy and sustainability, said, “We are not doing this because it will make us feel good. These are economic decisions that are also good for the world.”
The other driver is on the development side. State renewable portfolio standards (RPS) are reaching capacity, slowing demand utilities’ demand for new renewable energy projects. That prompts developers to look for new markets.
Utilities are also reluctant to sign long-term PPAs until issues with the Environmental Protection Agency’s stalled Clean Power Plan, which aims to curb greenhouse gas emissions, are resolved, said Keith Martin, a partner in Chadbourne & Parke’s energy practice. “We see this trend continuing for another 18 months to two years.” Meanwhile, he said, corporate PPAs are “a godsend for developers.”
Meeting mutual needs for renewable energy
For developers, corporate offtakers represent a new class of potential buyers for the output of their projects, and they are entering the market just as utilities are slowing their renewable energy purchases.
“There is a mutual need,” said Michael Polsky, president and CEO of Invenergy. Invenergy has a pipeline of renewable energy projects, and corporations have sustainability goals. In addition, developers like Invenergy are looking for price certainty to secure better financing terms. That certainty might not be available when doing a merchant project in Texas’ competitive power market, but it can be provided by a corporate PPA.
The result can be a win-win, said Polsky. “Corporations are not buying power for more than it would cost them otherwise,” he said.
Earlier this year, Invenergy signed a 225-MW PPA with Google. The agreement includes the sale of wind energy from Invenergy’s 278-MW Bethel wind farm under construction in Castro County, Texas. The next month, February, Invenergy signed a 120-MW PPA with 3M that includes the sale of wind energy from the company’s 120-MW Gunsight wind farm under construction in Howard County, Texas. At the end of 2015, Invenergy signed a 125-MW PPA with Owens Corning, and a 100-MW PPA with Equinix.
Corporate PPAs may be a godsend but, as Martin notes, they don’t come without challenges. Corporate PPAs are different than utility PPAs. In many cases, they are not even PPAs; they are “virtual PPAs” or contracts for differences.
In most cases, a corporation is not contracting to buy electricity directly from a wind farm. It’s contracting to pay a set price for a certain amount of energy. The wind farm sends the energy to the wholesale market, and the corporation buys from the market. If the wholesale price is higher than the contracted price, the corporation gets paid the difference. If the wholesale price is lower than the contracted price, the corporation writes a check.
Corporate PPAs also come with their own unique risks and challenges, including basis risk, shorter tenors, and credit issues. Basis risk occurs when the price the corporate offtaker pays is not the same as the price the project developer receives. That can happen because the offtaker’s price is established at a different node, or location, than the sponsor’s price. For instance, corporations are buying power from a wholesale market hub and developers are selling from the busbar where the energy enters the grid. To date, no financial institution has been willing to step up and hedge that risk, said Martin, which shifts the risk on to developers.
Corporate PPAs have so far also tended to be shorter in tenor than utility PPAs, 10 or 15 years or even shorter, compared with utility PPAs that can run for up to 20 years, which is a closer match to the expected life of assets like wind turbines.
Corporate offtakers also are potentially weaker credits than utilities. Even companies with strong credit ratings can suffer sudden downdrafts that affect their creditworthiness. Utilities, with steady revenues from regulatory franchises, are generally more secure credits.
The combination of those factors underscores the one thing all stakeholders note about negotiating a corporate PPA: a lot of education. Many corporations don’t sign supply deals longer than three or four years. It takes a lot of explaining for them to get comfortable with locking in a set price for energy 10 or 15 years into the future.
Corporate PPAs can also be cross jurisdictional. A corporate customer might want to source green power locally or they might be located in one state and be buying power from a project in a different state. Given the regulatory jigsaw in the United States, that greatly complicates a potential deal. “It is not one size fits all. Every corporation has different needs and goals," said Jerry Bloom, a partner in the energy practice of Winston & Strawn. But developers do gain at least one advantage when selling the output of a project to a corporation. The price comparisons are based on the corporation’s retail price of energy. When selling to a utility, the developer is negotiating against the utility’s wholesale price of energy.
A graphic representation of how Google's PPAs work
Signing a corporate PPA with a project sponsor comes with hurdles, mainly how to structure a deal so that it can be financed at an all-in cost that is still economic, but there are even higher hurdles for utilities trying to craft similar deals.
Corporate PPAs are “not without consequences for utilities,” Martin notes. Utilities have been trying to squash net metering but, he said, they are missing the larger picture: Big industrials are taking hundreds of megawatts of load from utilities. “Eventually they will turn their huge artillery” on this problem, Martin said.
There is no better example of this fight than the battles taking place in Nevada. Under a 2001 state law, large customers are free to choose their electricity supplier. But Nevada regulators, concerned that the loss of a large customer could saddle remaining utility customers with higher bills, has been imposing stiff exit fees on large customers who want to sever their utility ties. That has not deterred some customers from leaving NV Energy in order to sign deals for cheaper and greener energy.
Casino owner MGM Grand in May said it would pay an $87 million exit fee, and it has signed a deal to buy its energy from Nebraska-based Tenaska Power Services. MGM’s defection turned out to the first of several. Wynn Resorts has agreed to pay $15.7 million to get out of buying its power from NV Energy, and Las Vegas Sands and Peppermill Casinos have followed suit.
Utilities may have a good reason to fear the loss of corporate customers. Not only do they lose the revenues from that customer, they are faced with the prospect of trying to recover costs from a smaller customer base. But trying to meet corporate customers’ green power needs also presents problems for utilities.
Some utilities are not allowed to own generation, so they could not satisfy a corporation’s need for additionality. If they could build a wind farm for a corporate customer, they face another problem. The new wind farm could displace some of the utility’s existing thermal generation and ultimately leave it with a stranded asset.
Stranded cost issues could make it more difficult for utilities to maneuver in the corporate PPA market, but utilities do have one advantage: They already have the customers and are familiar with the regulatory and legal structures of PPAs. “If they had the option, corporations would stay with utilities,” said Bloom.
Green sleeves
“Utilities are starting to recognize that this is a real phenomenon,” Bloom said, and some have begun offering corporate customers green tariffs. A green tariff can offer several advantages. In some cases, a green tariff can be set up as three way deal in which the corporation is receiving energy under a back-to-back PPA between the developer and the utility known as a sleeve. That avoids many of the financial risks associated with a corporate PPA. And, for the utility, it solves the stranded asset problem, because it is a way to keep the corporate customer.
But by some accounts, utilities still have a way to go in working out the details of their green tariffs. For instance, Dignan said, not all green tariffs provide the additionality that many corporations seek.
But in the face of challenges such as NV Energy is facing, utilities have a strong incentive to come up with solutions to meet customers’ needs. One example is a recent deal between Amazon and Dominion Virginia Power (DVP).
In June, Amazon unit Amazon Web Services (AWS) signed a PPA with Community Energy for an 80-MW solar farm in Accomack County, Virginia, as part of its effort to be powered entirely by renewable resources.
In the past, power from the solar farm was sold into the PJM Interconnection at wholesale market prices, while AWS data centers in Virginia paid retail rates for power supplies by Dominion Virginia Power from a mix of renewable and fossil fuel power plants, diluting the amount of green power AWS was receiving.
In order to boost is green energy usage, AWS and DVP entered into an agreement, approved by the Virginia Corporation Commission, under which DVP provides scheduling and settlement services to AWS for its wind and solar projects that sell energy into PJM. A separate agreement allows AWS to pay DVP a market-based retail rate that closely matches the wholesale rates the renewable projects are paid. The agreements allows DVP to help AWS move closer to meeting its renewable energy goal without shifting costs to other customers.
The deal shows that “utilities don’t have to sit on the sidelines,” said RMI’s Kelly and, with 60,000 MW on the table, they are unlikely to do so for long.
