Commercial, Industrial, Sourcing Renewables - March 8, 2017 - By Eric Alam
Making physical renewable power accessible to everyone
For the end user, electricity has always been about simplicity. Flip the switch and the light comes on or the equipment starts. At the end of the month, you pay a bill that you may or may not understand and it will keep happening. Of course, those involved in producing, buying, selling and moving the electrons to make it happen understand that it is a very complex business.
Nonetheless, the basic equation that makes it work remains the same. It's the job of those of us in the industry to make it simple for those who aren't.
When it comes to providing consumers meaningful access to renewable power, the industry has fallen short of this goal.
Rocks in a stream
Picture a stream. A rock is dropped into the middle of the stream. What happens to the water? The flow may be temporarily interrupted, but the water will find its way around the rock to continue its journey.
Market forces work the same way. The power markets have dealt with many rocks over the past 20 years and, while regulatory market infrastructure reform remains necessary, we need to understand that there are market solutions that can solve accessibility problems now.
For renewable energy to become a part of the mainstream of the energy marketplace, we need commercial, market-based thinking that addresses the core issue of making a complex industry easy to access for customers. The tools are there, and opportunity exists to create more flexible structures that better meet the needs of those buyers who are not a fit for the rigid requirements of long-term power purchase agreements or virtual power purchase agreements.
If you look at the landscape of the renewable energy space for commercial and industrial buyers today it looks something like this:
Pretty barren with lots of white space.
At one end of the spectrum, we try to explain the concept of an "offset" in the form of a REC, a piece of paper that magically creates green power even though you may not know where it comes from or when it was produced. At the other end, we tell commercial and industrial energy buyers that they could participate more directly by building their own project through a PPA. All they have to do is:
- Buy power like a utility, but without the safety net of a rate base.
- Make a 20-year credit commitment and learn what a "contract for differences" is.
- Tie up lawyers and accountants to wrestle with long form International Swaps and Derivatives Association agreements and the potential for derivatives reporting.
These are not easy tasks for most end users; but somehow, despite this landscape of limited choices, renewable power is finding its way into the market. Nearly every retail energy marketer has a "green" offering for residential and small commercial customers – just don't ask where the green part comes from – and a few leading large companies have executed well-publicized PPAs for about 7 GW of renewable energy since 2013.
Think about what could happen if we make it easy for all customer segments to be able to access meaningful connections to renewable energy generators.
We can make it easier
The complexity associated with variability of generation and trying to match fluctuating load curves will not go away, but wholesale and retail market tools that have solved this problem for brown power can be employed for renewable power to do what we in the industry are supposed to do: Make it easy.
Renewable energy is still a niche in the broader wholesale and retail energy markets, but some people are beginning to take notice and figure out more flexible and efficient solutions.
We need a product that sustainability leaders can believe in and energy procurement buyers can recognize and support. But how to start?
- Begin by contracting for physical energy and concurrent RECs from a local dedicated renewable generation source for a three-to-10-year term rather than a 20-year PPA
- Make a slice of the generation portfolio available for those who cannot digest the whole pie
- Contribute to additionality by addressing the generator’s need to find a home for existing merchant capacity as it rolls off its initial utility PPAs, thereby opening the path for new generation to be built (new power capacity won't be built if we can't place existing capacity)
- Create a direct contract and scheduling path that links wholesale renewable generation to the retail consumer, is auditable and supports greenhouse gas reporting requirements
- Manage generation variability through the wholesale side of the transaction and the retail balancing through the retail energy provider, allowing each market participant to do what they do best
While this requires coordination between the generator, the wholesale entity managing wholesale market risk and the retail supplier, the right intermediary can make this what it is supposed to be: Easy for the customer. And the benefits?
- Ensuring that the consumer understands where their green energy dollars are going
- Providing a sense of ownership over a specific, local renewable generator without the need to aggregate under community solar or wind projects
- Offering the benefits of a PPA or VPPA without the challenges and complexity
- Utilizing existing supplier relationships with the customer's retail provider
- Offering prices as flexible as that of any retail energy contract
- Offering shorter term contracts that offer less risk to the buyer and the seller
The message is simple: Don't try to fit your sustainability goals for renewable energy into one-size-fits-all structures that may not suit your needs. Instead, work with people who understand how the market really works, and push for better solutions. Renewable energy can become part of the mainstream rather than a complex, rocky tributary… if those of us in the industry are willing to make it easy for the customer.
Eric Alam has spent more than 30 years leading and managing businesses in the energy industry, with experience across sales, operations, wholesale trading, retail structuring, M&A and risk management. He is now CEO of Renewable Power Direct (RPD), a unique renewable energy marketer serving corporate and industrial buyers in the U.S. RPD is the only supplier offering variable term (2-7 year), fractional physical capacity (plus RECs) from utility-scale wind and solar facilities. Blocks of energy capacity may be purchased in 1 MW or greater increments. Fortune 500 energy buyers have chosen these contracts for green data centers, production facilities and corporate headquarters from California (CAISO) to Texas (ERCOT) to the mid-Atlantic (PJM).
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