The Spotlight

Corporate Procurement: A Lucrative New Frontier for Renewable Power

  06 Jul 2016  |    

Distributed power generation, for both residential and commercial use, has been in vogue for some time now. But recently, a number of large companies – including tech giants Google, Amazon, and Apple – have started taking a more ambitious approach towards procuring their own renewable power, according to a survey released last month by the professional services company PricewaterhouseCoopers in conjunction with the American Council on Renewable Energy.

The PwC survey sampled a broad cross-section of Fortune 500 companies, and 72% of them are “actively pursuing” renewable energy purchases. This isn’t a passing phenomenon, either. Among those surveyed that have already purchased or developed their own renewable power, 85% are in the process of further expanding their renewable energy portfolio.

But it’s not just the increase in the number of corporate procurers that bodes well for the renewable energy industry. In the past, most corporate procurement came in the form of an onsite installation, either through a direct technology purchase managed by the company or through a contract called an onsite power purchase agreement (PPA), under which the installation is managed by a third-party supplier. Those types of arrangements can help a building meet its sustainability targets and avoid major energy price fluctuations, but because they’re not usually located on the most energy-devouring facilities, they can only go so far in influencing electricity markets.

The onsite procurement market is still growing: of the companies surveyed that plan on buying renewables in the future, 47% will do so through direct installations, and that number jumps to 67% for onsite PPAs. But more promising for renewable energy proponents is the number of companies entering into offsite PPAs. The PwC report found that 80% of companies interested in buying renewables intend to include offsite PPAs in their portfolio. These agreements require electricity sellers to add renewable power to the grid as a whole, with the corporate procurer purchasing that energy at a predetermined rate. And since they can be built nearly anywhere on the grid, they generally produce more electricity than onsite projects, which by definition can only exist on a particular piece of property.

This trend can have a big impact on U.S. electricity markets. Unlike most households, 68% of the companies surveyed spend over $100 million on energy annually. If the PwC survey accurately reflects how Fortune 500 boardrooms are thinking, a lot of companies will soon start generating a lot of renewable power. Corporate demand for renewable energy has already grown quickly, jumping from under 1 GW in 2012 to around 7 GW of cumulative capacity last year, and the Energy Information Administration projects it to continue its upward trajectory in the long run. Looking ahead, companies may even look to sell the excess renewable power they generate. Apple has already announced its plans to do so via its new Apple Energy subsidiary.

BNEF procurement chart

Why the sudden jump in demand? For starters, with the costs of renewable power rapidly declining – and with the natural gas market predicted to become more volatile in the years to come – locking in a long-term renewable energy contract helps companies hedge against any potential increase in electricity prices. Furthermore, the long-term extensions of the production and investment tax credits for wind and solar have helped mitigate some of the risks associated with financing a large-scale renewable project. Add in the PR and political benefits of taking a proactive stance on climate change – 80% of the surveyed companies have an in-house emission reduction target – and corporate procurement becomes valuable for a company’s finances and its brand alike.

More broadly, there are a few steps that financiers and developers can take to ensure that the corporate procurement market continues to expand. 31% of corporations in the PWC survey would prefer that vendors tailor their contracts to individual purchasers, and 27% would like to see more options for potential projects, especially offsite.

To help lead the transition to commercial self-generated power, ACORE has formed a working group on corporate procurement.

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