With growth in electricity demand, companies seek new ways to buy and get credit for zero-carbon energy.
Under pressure from regulators, investors and customers, dozens of U.S. corporations have set ambitious net-zero carbon targets for their operations and their suppliers. At the same time, decarbonizing the power grid before mid-century is critical to meet the country’s obligations under the Paris climate accord.
Existing clean energy procurement models, however, are not widespread enough and not adaptable enough for wholesale grid decarbonization. These include “virtual power purchase agreements” (VPPAs), purely financial transactions where the corporate buyer purchases renewable energy certificates (RECs) but does not directly use the electricity generated by the project.
Overall energy demand has been mostly flat for the last decade. But some forecasters see electricity needs climbing quickly in the coming years as companies and corporations “electrify everything.” Demand for renewable energy — and the transmission needed to distribute it — is set to soar, especially as sales of electric vehicles rise. Investment in the U.S. power grid is unlikely to keep up, these experts say.
“The pace of growth is breaking us,” said Ben Chadwick, executive director of renewables origination at Baltimore-based utility Constellation Energy, speaking Feb. 12 on a panel at GreenBiz 24 in Phoenix. “How are we going to accommodate all this new load?”
Transformational but too complex
VPPAs are “incredibly complex,” said Chadwick. They require long-term agreements and investment-grade credit, and are often too complicated for small and medium-sized companies looking to quickly decarbonize.
“VPPAs have fundamentally changed the grid for the good, but they’re not a transaction structure for the masses,” said Chadwick.
“Renewable energy buyers are asking, ‘How can I achieve the most impact?’” said Henry Richardson, senior analyst at WattTime, a nonprofit that helps companies reduce greenhouse gas emissions from their power consumption, speaking on the same panel. “Should we buy renewable energy in India, where it will displace coal? Is it time for batteries?”
“Someone needs to create the Costco-like structure for electricity so that companies at the retail level can participate in wholesale demand.”
Under emerging Scope 2 and Scope 3 requirements for indirect emissions, “there are no rules for energy procurement,” said Richardson.
Networking and technology giant Cisco generates 90 percent of its emissions from electricity use. It has committed to achieving a 90 percent reduction in emissions by 2040. That means “clean energy transition is critical to us achieving our goals,” said Kelsi Doran, the company’s director of sustainability strategy. In early February, the company closed a 15-year VPPA in Spain that will supply 60 gigawatt-hours a year of zero-carbon electricity from solar power, covering the bulk of its operations in Europe.
The Costco of electricity
Such direct, single-company investment is not feasible for most companies, said Constellation’s Chadwick. What they need is a transaction model that is simple, can be executed quickly, offers predictable costs and “structures that folks can trust will provide impact and will win the seal of approval from whatever organization is doing the accrediting,” he said.
“Someone needs to create the Costco-like structure for electricity so that companies at the retail level can participate in wholesale demand.”
To that end, under a program known as Constellation Offsite Renewables, or CORe, Constellation is offering companies aggregated VPPAs that otherwise would be unavailable or unachievable. Each individual company gets a share of the overall RECs bundled as part of the agreement structured by Constellation.
The customer signs a “five- to six-page power agreement that provides all the economic and sustainability benefits of a 150-page PPA that we’ve entered into,” said Chadwick.
Such simplified VPPAs are unlikely to solve all the challenges of decarbonization, but they will help accelerate the energy transition, said Laura Zapata, CEO and co-founder of Clearloop, a technology platform that helps companies and universities access clean energy and reduce their carbon footprints.
Corporations are “not experts on energy procurement and utility grid operations,” said Zapata on the panel. “The good news is that there are “instruments that have been created over the last decade, and other things that are coming,” to help meet those challenges.
“Fifteen to 20 years from now there is going to be an answer,” said Chadwick. The question is whether that will be too late.
This article originally appeared on GreenBiz.com as part of our partnership with GreenBiz Group, a media and events company that accelerates the just transition to a clean economy.
Featured photo: “Ben Chadwick (left) of Constellation Energy, Kelsi Doran of Cisco, and Henry Richardson of WattTime discuss new renewable energy procurement models Monday at GreenBiz 24 in Phoenix.” Source: Allison Fass/GreenBiz
