Corporate Procurement Options

Solar has come full circle. At least it appears that way after listening to some of the largest companies talk at last month’s GreenBiz VERGE conference in San Francisco. What I mean by that is that when companies started adopting solar decades ago, it was primarily for environmental reasons. The economics just weren’t there. But after advances in technology that have reduced the cost of installed solar by 70 percent since 2010, policy changes, incentives and low-cost financing options solar started saving companies a lot of money.

So the low cost of solar and the price stability companies secured through Power Purchase Agreements took center stage for years.

Environmental Drivers

But now the environmental benefits of adopting solar, renewable energy and energy storage are holding more weight for companies again. While the cost benefits still top the list of reasons why most companies invest in renewable energy, companies are more concerned with sustainability and reducing carbon. It’s good to see this shift, because it reflects that companies are listening to what consumers want.

There’s also added pressure from competitors who are also focusing efforts on sustainability and investors who down look at the long-term risk conventional energy presents.

A survey by Unilever found that of its hundreds of brands, those such as Dove, Hellmann’s and Ben & Jerry’s, which have integrated sustainability into their purpose and products delivered nearly half of the company’s global growth in 2015. They’re also growing 30 percent faster than the rest of the business. Unilever also reported that 78 percent of U.S. shoppers feel better when they buy products that are sustainability produced.

Keith Weed, Unilever’s Chief Marketing and Communications Officer said:

“This research confirms that sustainability isn’t a nice-to-have for businesses. In fact, it has become an imperative. To succeed globally, and especially in emerging economies across Asia, Africa and Latin America, brands should go beyond traditional focus areas like product performance and affordability. Instead, they must act quickly to prove their social and environmental credentials and show consumers they can be trusted with the future of the planet and communities, as well as their own bottom lines.”

Commercial Energy Consumption and Renewable Energy Adoption

Let’s take stock of where the commercial sector stands when it comes to energy. Commercial buildings account for nearly 19 percent of the total consumption from the End-Use sector (Jan-May 2017) and have been the slowest segment to adopt solar energy when compared to residential and utility. However, in Q2 commercial adoption was up by 10 percent and 2017 corporate procurement had surpassed 2016 as of mid-September (Business Renewables Center Deal Tracker).

It’s clear that the biggest companies are stepping up. Through the initiative RE100, 111 companies have committed to power their operations with 100 percent renewable power. WWF and Ceres’ Power Forward 3.0 report shows that almost half of the Fortune 500 and a majority of the Fortune 100 now have climate and energy targets.

Ways Companies Can Procure Solar

1. Own

This is the most typical way to procure solar: install it on your roof, parking lot or nearby ground and receive net metered credits for the generation on your utility bill. Of course, the projects necessitate that you have a facility that will support an installation in terms of space, load and facility ownership. Installing solar offsite is only available in certain states, namely Massachusetts, New York and Illinois. This enables companies to build larger systems and get better economics as a result.

A 3.9MW roof-top solar project on a warehouse in Boston

2. Finance

Financing an installation can be done through a Power Purchase Agreement (PPA), Operating Lease, or Property Assessed Clean Energy (PACE).

A PPA gives customers a way to receive the financial benefits of operating a solar project without having to assume the up-front costs. With a PPA, the PPA provider who finances the projects (system owner) owns the solar producing asset, with an experienced developer like Borrego Solar there to design, permit, finance, construct, operate, and maintain it for the system owner for the term of the PPA. The system owner will take advantage of federal tax credits, which offset about 30% of the system costs. In turn, the system owner will sell the host customer (you) any electricity that the system produces over a 20-year contract period. The cost for that solar energy is locked in at the start of the contract, so the customer no longer needs to worry about the fluctuating costs of retail energy from its utility, and the rate is usually below the current retail rates, which results in a considerable energy savings.

An Operating Lease is a financing mechanism whereby the system is owned and operated by the lessor. The benefit of this option for the university is that it includes an indirect capture of the federal Investment Tax Credit (ITC). An operating lease can be structured on a fixed monthly basis or as a variable payment to match seasonal variation of solar production.

PACE is a good option for smaller commercial projects. PACE–or “Property Assessed Clean Energy” –enables commercial property owners to purchase solar energy using long-term, low-cost, 100% financing from a private lender, the cost of which is folded into property tax payments. Municipalities in nearly every corner of California have adopted PACE programs because they allow property owners to go solar and save money on energy costs without the upfront investment, while providing additional tax revenue that benefits the local economy. PACE financing is very low risk—a PACE loan aligns with the life of the system and won’t be granted unless the system is cash flow positive from the start. Projects that cost between $500,000 and $15 million are eligible.

Download our one-pager on PACE here>.

3. Purchasing Renewable Energy Credits (RECs)

When companies aren’t able to source the clean energy directly, they can purchase RECs to meet Scope 2 emission reduction and sustainability goals. RECs are an accepted way that clean energy is tracked and traded globally and allows companies to claim environmental benefits of the solar while supporting deployment of renewable generation.

A REC verifies that one megawatt hour (MWh) of renewable power was generated by a clean energy facility and added to the electric grid. A REC is created in a one to one ratio so companies can be confident that the number of RECs owned matches with the amount of clean energy generated on a MWh basis.

To verify the greenhouse gas (GHG) emissions offset by the RECs, companies hire third party auditors to verify the GHG accounting for MWh usage and RECs purchased. This enables companies to get a 0-factor emission.

REC=1MWH, so if you buy 500RECs you can assume 0 factor for 500MWH

It’s important to note that there are issues with purchasing RECS. Some people criticize how green they really are. You can read more here.

4. Green Tariffs

Since companies can only procure a limited amount of solar directly, green tariffs are another way, just as RECs are, for companies to procure solar. To meet the most ambitious targets, like a 100 percent renewables goal, companies are turning to their local utility to provide solutions. A green tariff is a price structure, or an electricity rate, offered some utilities that allows eligible customers to source up to 100 percent of their electricity from renewable resources.

Through a green tariff, companies can purchase both the energy from a renewable energy project, at a large-scale, and the associated Renewable Energy Certificates. See a full list of green tariffs offered from the World Resources Institute here and here is a map. WRI data shows that across 10 U.S. states, utilities now offer 13 green tariffs.

According to WRI, over the past four years, even regulated U.S. utilities have begun to offer new, large-scale renewable energy options to customers. To date, customers have contracted for approximately 900 MW of new renewable energy under five of the tariffs.

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