Finance, Industrial, Sourcing Renewables - March 19, 2018 - By 3Degrees
Close collaboration leads to green tariff that works for businesses and utilities
Data centers are a fast-growing source of energy consumption. While today they consume 2% of the electricity in the US, by 2030 that figure is expected to grow to 10%.
Switch, a technology infrastructure corporation that designs, builds and operates the world’s highest-rated and most advanced data centers, wants to ensure this tremendous growth in energy consumption occurs in the most sustainable way, a commitment that has been part of the company’s culture since its founding in 2000. To that end, Switch has publicly committed to using 100% renewable energy in its data centers, thereby minimizing its carbon footprint.
In addition to sustainability, Switch is also committed to supporting the economic health and development of the communities where they operate. These two commitments often intersect and as a result, Switch’s main mechanism to meet its renewable energy goals has been green tariffs, which are utility programs that allow (mostly commercial) customers to get some or all of their electricity from local renewable resources.
"We like using green tariffs to meet our renewable energy goals for a number of reasons," said Switch executive vice president of strategy, Adam Kramer. "We are committed to supporting the development of new, local renewable resources and we want to develop a renewable energy option that doesn’t just address our needs and our load, but that also creates opportunities for other businesses."
In 2016, Switch was looking to build a new data center campus and there was a specific site in Michigan that was particularly attractive. Before committing to the site, they reached out to Consumers Energy, the local energy provider, to see if they would be open to developing a green tariff. Consumers Energy said they were, and Switch committed to the site.
Green tariffs can be powerful tools for both businesses and utilities if designed correctly. But many green tariffs are developed by utilities without much input from their customers, sometimes in response to a legislative requirement and not customer desires. This results in tariffs that work for few companies and are undersubscribed. For the Consumers Energy green tariff, everyone involved was determined that this green tariff would be different.
Once Switch committed to the Michigan location, they brought in their energy advisor, 3Degrees, to help with the tariff. 3Degrees brought deep expertise in working with corporations on meeting their renewable energy and greenhouse gas goals as well as more than a decade of experience working with utilities. Using this knowledge, 3Degrees developed a draft tariff as a starting point for discussion. From there the three parties evaluated a number of options from a variety of angles including long-term and short-term cost analyses as well as potential interest from other companies.
"For us, a green tariff had the potential to jump-start economic development in our service territory," said Teri Van Sumeren, executive director of energy efficiency and renewables at Consumers Energy. "But in order to do so, it had to be attractive to current and potential commercial and industrial customers. It was great to work with Switch and 3Degrees to develop an approach that worked for both our business customers and for the utility."
Early in the process, Consumers reached out to General Motors, one of their largest customers, to get their feedback. They quickly became an early and enthusiastic supporter of the tariff. "We have been working with Consumers on energy efficiency and renewable energy for many years," noted Dane Parker, vice president, Sustainable Workplaces for General Motors. "When companies join together to advocate for clean energy, we help accelerate the pace of change while making progress on General Motors’ commitment to source 100 percent of our electricity needs from renewable energy sources by 2050."
The resulting tariff is unusual in that it was designed to offer a lot of flexibility for customers. This was intentional and in keeping with Consumers Energy’s desire to encourage economic development as well as with Switch’s interest in building solutions that serve the larger community, not just itself.
For example, the tariff enables customers to subscribe their load to a new Consumers Energy renewable resource, but also includes a "bring your own PPA" option. This option allows commercial customers who have already signed a renewable PPA to pay for their Consumers’ load using a market-based electricity rate instead of the standard regulated rate from Consumers. It also enables the customer to better pair the energy sales from their renewable PPA to their energy purchases from Consumers, creating less volatility in their electricity supply economics.
The flexible, inclusive nature of the tariff appears to be working as intended. Switch and General Motors have very different electricity use profiles in Michigan, yet both signed on to the tariff as soon as it was made available.
As other companies and utilities consider green tariffs, there are some helpful lessons from this success:
- When businesses and utilities work together collaboratively, it can result in an attractive tariff for both parties.
- Businesses that think beyond their own specific needs have an opportunity to move the entire market forward by helping to create solutions that work for lots of companies.
- Green tariffs can support a region’s economic development goals and can create co-benefit for the utility and its community.
- It can be helpful to have an experienced consultant for in-depth quantitative analysis and to help bridge the gap between the utility and the business.
According to Erin Craig, vice president of the energy and climate practice at 3Degrees, "Switch and Consumers Energy have created a new model for developing an effective green tariff that serves the need of businesses, the utility and the community they serve."
3Degrees makes it possible for companies to take urgent action on climate change by working with them to build and implement customized renewable energy and carbon mitigation strategies.
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