Big Companies Drive Clean Energy Development. Can Small Businesses Do The Same?
This piece was first published in Forbes on May 26, 2020. It is reprinted with their permission.
Large companies are a major driver of renewable energy growth in the U.S., with Google, Amazon, and 100 or so other big energy users collectively signing a fifth of new clean energy power purchase agreements in 2018, second only to electric utilities themselves. Companies strive to fund clean projects and decarbonize their energy supply to shore up their social license to operate. Think about the pressure that America’s tech titans have been under to reduce the carbon footprint of server farms and retail delivery networks. Businesses also want direct access to renewable energy, which in a growing number of regions is now cheaper than power supplied by the local utility.
Smaller companies, however, are more limited in their options to decarbonize. They lack the financial heft to fund green energy projects through PPAs, the organizational scale to operate dedicated energy procurement departments, and have little incentive to dive into the business of energy generally.
A new report from the REBA Institute, an affiliate of the Renewable Energy Buyers Alliance, looks at what it will take to enlist smaller companies in greening the country’s energy supply. REBA, whose membership includes many of the largest commercial and institutional energy consumers, aims to more than double the amount of renewable energy backed by commercial and industrial businesses to 60 gigawatts this decade, and to ultimately make it possible for more companies to achieve aggressive clean energy goals.
“Big corporate buyers have pioneered PPA’s,” says Bryn Baker, REBA’s director of policy innovation. “But the curve of who can easily participate in this falls off when you get to the Russel 1000 index and beyond.”
“Smaller companies, and the mom and pops, don’t have the bandwidth to become exclusive energy buyers. And you even have large energy buyers saying we’re not in the energy business and don’t want to be.”
Many companies that have wanted access to clean energy have resorted to purchasing renewable energy credits (RECs), the focus of greening efforts over the past 15 years or so. But RECs are an added cost. “As renewables have become cheaper, companies want the underlying benefit of the energy, not just the environmental attribute that RECs represent,” says Baker.
In its Renewable Energy Policy Pathways Report, the REBA Institute identifies three pathways to grow the universe of companies that have the ability to procure clean energy. Each of these pathways already exist, but need to be accelerated to allow businesses to reach truly ambitious clean energy targets, including the 100% clean energy goals being pursued by over 200 companies. REBA notes that commercial and industrial customers consume half of the country’s electricity.
Introduce Consumer Choice
Electricity consumers’ ability to buy carbon-free power is limited where there is only one retail electricity supplier. In these areas electric utilities may offer “green tariffs” that give customers the option to pay to get some additional portion of their power from renewable generators. REBA Institute’s research estimates that renewable energy demand could grow by 50-150 gigawatts by 2030 if commercial and industrial energy users could shop for their power among competitive retail suppliers where competitive supply doesn’t now exist. The option could also help states lure new businesses that prioritize access to clean energy by making sure everyone who wants clean energy can get it.
But the strategy comes with challenges. Efforts to enact retail electricity competition have faced political resistance, which is why competitive retail isn’t universally available. There’s also the risk that a large number of electricity customers may in fact shift to clean energy, leaving many perfectly serviceable fossil fuel plants with nothing to do. REBA estimates that resulting stranded assets could raise the cost of electricity 15% in the short term, but that effective management of stranded asset risk and competitive supply could lower electricity costs by as much as 11% once assets are paid off.
REBA Institute also notes that retail choice works best where states participate in competitive wholesale electricity markets. These markets count a large and diverse ecosystem of generators that expand the options to source clean energy. Competitive wholesale markets can lower costs for everyone, spread risk, and help to ensure that companies with really aggressive clean energy targets have access to the quantity of clean electricity they need, smaller companies included.
Expand Utility Subscription Programs
Consumer choice may be the best way to grow clean energy capacity and democratize consumption, but where retail choice isn’t available, or isn’t likely to be enacted anytime soon, the next best option is to expand existing utility green tariff programs. The result would be a doubling of commercial and industrial-backed clean energy development through 2030, with little net impact on energy prices, says REBA. Stranded assets would still be a problem, and states would need to step away from policies that punish utilities for abandoning assets before their useful lives are up.
Grow State Clean Energy Requirements
A rising tide floats all boats, and more ambitious renewable portfolio standards would narrow the gap between companies’ clean energy targets and the baseline of clean energy in a given state’s energy mix. Yet RPS’s represent a partial solution, at best, since they don’t explicitly provide commercial and industrial companies with the tools to pursue more aggressive clean energy goals, as retail choice and utility clean energy programs do.
Regardless of the challenges that lie ahead, Baker notes the determination of companies to push their own climate targets, even during the COVID-19 outbreak.
“Despite COVID, we found that 70% of corporate energy buyers are staying the course on energy procurement,” she says. “And 6% are picking up the pace. They’re committed to their long term decarbonization goals.”