Here’s what corporate buyers can expect from green tariffs

Posted by Laura Arnold  /   August 03, 2018  /   Posted in Uncategorized  /   No Comments

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Caitlin Marquis, Manager, Federal and State Policy, Advanced Energy Economy

Here’s what corporate buyers can expect from green tariffs

Caitlin Marquis

Editor’s Note: This is Part II of a two-part series on utility renewable energy programs. Part I describes the rise of renewable energy tariffs and core elements that meet the needs of corporate buyers. 

To date, utility renewable energy offerings aimed at meeting the needs of large commercial and industrial (C&I) customers have had mixed success. These programs, which have evolved over the past five years, vary greatly. Last week, we discussed six essential elements for program success — but how well does the reality measure up, and what still needs to be done to meet customers’ needs?

To answer those questions, let’s first take a step back and look at the broad categories of programs referred to as "green tariffs," which can be split into four main types:

Sleeved PPA programs allow large customers to purchase energy from an off-site renewable energy project, with the electricity and terms of the power purchase agreement (PPA) or contract "sleeved" through that customer’s local utility and delivered to the customer. There are different options to bill customers under a sleeved PPA program, including riders that charge the PPA price and credit the customer back based on avoided cost to the utility; the market value of the renewable project, or some other metric; and tariffs that charge customers for the various unbundled services they use, including the transmission and distribution charges, generation and capacity from renewable energy, and any generation and capacity not supplied by renewable energy. Examples include Public Service of New Mexico’s Schedule No. 47 in New Mexico, NV Energy’s Green Energy Rider in Nevada, and Rocky Mountain Power’s Schedule 32 in Utah.

  1. Subscription programs serve multiple customers from the output of one or more renewable energy facilities owned or contracted by the utility. These can look very similar in structure to sleeved PPA programs but generally provide customers with flexibility in terms of subscription size and length and may provide pricing information upfront. Examples include Puget Sound Energy’s Green Direct in Washington, Xcel Energy’s Renewable*Connect in Minnesota and Colorado, Georgia Power’s C&I Renewable Energy Development Initiative (REDI) program, and Consumers Energy’s proposed Large Customer Renewable Energy Pilot (LC-REP) program’s Option A in Michigan.
  2. Market-based rates replace the generation portion of a customer’s bill with a variable rate based on wholesale market prices. The market-based rate does not itself supply renewable energy, but it can work in parallel with a virtual PPA between a customer and a renewable energy project or a renewable energy offering from the utility, providing a more direct correlation between the customer’s electricity rates (per kilowatt-hour usage) and the variable market price of the renewable energy and capacity sold into the wholesale market. Examples include Dominion’s Schedule Market Based Rate (MBR) in Virginia, Omaha Public Power District’s Schedule No. 261M (PDF) in Nebraska, and Consumers Energy’s proposed LC-REP Option B in Michigan.
  3. System resource REC purchases allow customers to purchase the renewable energy certificates (RECs) and any other environmental attributes from projects procured to meet system needs, with the customer’s participation enabling the development of new renewable energy to meet the needs of all customers. The first such program is Dominion’s Schedule Renewable Facility (RF), developed in partnership with Facebook and approved in 2018.

With so much variety, it might seem that customers have all the choice they need.

Indeed, compared to just three programs across the country in 2013, 20 offerings are available or pending approval. Instead of programs appropriate for only the largest C&I customers, there are now several program structures, including options that work for smaller customers or customers with more dispersed loads. There is also significant variety within the four broad categories, as noted above. On a whole, the trends are positive.

However, some stumbling blocks remain. Let’s take a look at a few recent programs illustrative of both the progress made and the challenges ahead:

  • Georgia Power’s Commercial & Industrial Renewable Energy Development Initiative (REDI), which will deliver a total of 177 megawatts of renewable energy to four customers, highlights the importance of finding solutions that work for both customers and utilities. The program was developed through Georgia Power’s integrated resource planning process, with resources for the program procured alongside solar resources to meet the utility’s other customers. As such, both participants and the utility are assured that the REDI program is being served by cost-competitive resources, and if a customer decides to leave the program, that portion of the project can be used to serve system needs without causing any harm to other ratepayers. However, C&I customers that missed out on the first offering will have to wait for a second round before they can purchase renewable energy in Georgia.
  • In Virginia, Dominion’s Schedule MBRSchedule RF and proposed Schedule Renewable Generation (RG) cover all four program types, provided that the proposed Schedule RG is finalized in a way that allows it to serve as both a sleeved PPA program or a subscription-style program (AEE has intervened in this case, alongside Virginia Advanced Energy Economy and the Mid Atlantic Renewable Energy Council). However, these programs still leave gaps in the market, because Schedule MBR and Schedule RF are limited in size and eligibility, as described in more detail in a recent policy brief by AEE and Virginia AEE.
  • Consumers Energy in Michigan has proposed a Large Customer Renewable Energy Program that speaks to the importance of variety and the challenge of being an existing load customer. The program is under review by the Michigan Public Service Commission in a case that AEE has intervened in alongside the Michigan Energy Innovation Business Council and the Institute for Energy Innovation. Under Option A, customers have a subscription-style offering, and under Option B customers can opt for a market-based rate program. The inclusion of two options under one proposal reflects a growing recognition that there is no such thing as a one-size-fits-all solution. However, each program has challenges. Most important, existing Michigan customers are just about out of luck. Option A is already nearly fully subscribed (it was provisionally approved for one year back in 2017), and Option B is only open to customers bringing new load. Hopefully, an expanded Option A would rely on a competitive solicitation process to ensure that it provides a cost-competitive renewable energy offering. Also troubling is the fact that Consumers, in its application for permanent approval of Option A, restricted customers to a term of either three or 20 years, giving limited flexibility.

So where do things stand for companies, large and small, that want renewable energy to power their operations?

For some, the growing number and variety of options are making it possible to choose the energy they want. For others, the utilities that serve them still do not offer programs that fit their needs or impose barriers and restrictions that make it impossible for them to participate.

The good news is that demand continues to build, and utilities and their regulators are rushing to respond. Innovation in renewable energy tariffs is not over. Rather, it is just beginning.

6 essential elements of successful utility renewable programs

Caitlin Marquis

Editor’s Note: This is Part I of a two-part series. Part II will discuss program types and trends in more depth, as well as highlight recent developments and key challenges. 

Corporate demand for renewable energy is no longer a fringe issue talked about on the sidelines of the clean energy industry — it is a mainstream phenomenon, and growing quickly.

As of 2016, 71 companies out of the Fortune 100 had set a clean energy or sustainability target, and these companies aren’t just talking the talk. By mid-2018, corporate buyers had signed contracts for over 11 gigawatts (GW) of projects since 2014, and put in hundreds of installations onsite.

These numbers sound impressive, and they are. But the potential is much greater — 450 GW, if half of commercial and industrial (C&I) customers made the switch to renewable energy — and progress would be much faster if not for significant policy headwinds. Many companies are in states that are not allowed to choose the provider or the source of their energy other than their local utility. These customers cannot switch to renewable energy unless the utility offers a voluntary renewable energy option of some kind.

What’s available today? Utility renewable energy offerings start with renewable energy certificate (REC) purchase programs. These programs charge customers a set price per kilowatt-hour (kWh) in exchange for matching a portion of the customer’s use with RECs, which represent the renewable attributes separate from the electricity produced. They’re a valuable tool for residential and small business customers but are not well suited to the large C&I crowd, which is seeking greater value, clearer impact and the opportunity to hedge energy costs and even save money, in exchange for making a longer commitment and accepting more complexity or risk.

In response to growing C&I demand, utilities have introduced a variety of offerings under the umbrellas of “green tariff” or “renewable energy tariff” programs.

Broadly speaking, these options allow customers of vertically integrated utilities to purchase renewable energy from an off-site renewable energy project, with the project contracted and managed by the utility and paid for on the customer’s utility bill. To date, over 1 GW of projects have beensigned under green tariffs, with 500 more megawatts under negotiation. This should be considered a significant success, given that the first programs were approved in Virginia, North Carolina and Nevada only five years ago.

However, “green tariff” doesn’t mean the same thing in every state or utility service territory, with varying success the result. Think of it as serving 30 overpriced peanut-butter-and-jelly sandwiches to 100 school kids and calling it “lunch,” when many kids either can’t eat, don’t like or can’t afford to eat them — and a lot are too far back in line and miss out altogether.

This is what’s happened with green tariffs: While some programs have met customer needs at a competitive price, others have gone unused. In some cases, a program is able to meet the needs of certain customers but is either inaccessible or unattractive to others.

So, what does success look like? At a high level, the goal is the same as in the school cafeteria: affordable, appealing and varied options for customers to choose from. The team that supports Advanced Energy Economy’s Advanced Energy Buyers Group took a look at what’s worked and what hasn’t across the country. It all boils down to six essential elements of a successful utility renewable energy offering.

To meet the needs of corporate purchasers, utility programs should:

  1. Avoid adversely affecting nonparticipating customers: In corporate procurement of renewable energy, nobody’s asking for a free lunch. Companies are willing to pay their way to ensure that other customers are not affected by their voluntary purchases. The last thing they want is the blame for a tariff that is good for them, but at the expense of other, typically smaller, customers.
  2. Match program pricing to actual market prices and program costs: Similarly, when it comes to resource costs, administrative fees, system costs and other fees, companies are looking to pay what they owe, neither more nor less.
  3. Allow for competitive project selection: A competitive selection process keeps project costs down and supports the development of a healthy market for renewable energy.
  4. Facilitate development of new, additional renewable energy:Access to renewable energy that is new and additional to that already required of utilities is a threshold requirement for many customers, who consider this the measure of their sustainability commitment.
  5. Allow a range of corporate customers to participate: The list of companies committed to renewable energy runs the gamut from big box retailers to main street markets, from technology giants to university campuses, from manufacturing facilities to hotel chains. Meeting the requirements of such a wide range of customers means avoiding narrow eligibility parameters, such as provisions allowing only new customers to participate, setting load requirements based on non-aggregated (single site) load, or restricting eligibility to customers with high and/or consistent load.
  6. Include varied or flexible offerings to meet the needs of different customers: Given the range of customer needs and preferences, a one-size-fits-all solution is almost certainly impossible. To meet the needs of all customers, utilities should provide multiple offerings to meet different customer needs.

Of course, every state faces different considerations, and it’s unlikely that any two programs will be exactly alike. But utilities that follow these elements and consider input from a range of customers in the process of designing solutions are likely to meet success.

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