In 2010, Google signed its first renewable power purchase agreement (PPA), procuring 114MW of wind energy from the Story County II wind farm in Iowa. Over the next four years, this revolutionary sustainability strategy grew 10-fold.
In 2014, tech and retail giants like IKEA, Walmart, Microsoft, Yahoo, and Google combined to procure 1.18GW of renewable energy—and industrial giant Mars corporation entered the fold by signing a 201MW PPA with the Mesquite Creek wind development in Texas.
This still feels a bit like an anomaly. After all, industrial companies are some of the biggest consumers of energy, and as such, are typically afforded electricity rates well below commercial, transport, and other sectors.
But this is no anomaly. In 2015, the amount of renewable energy contracted under corporate PPAs and Virtual PPAs skyrocketed to 3.23GW, according to the Business Renewables Center. And the logos that you’ll find currently supporting renewable energy through purchase agreements include some of the nation’s biggest industrials, such as Corning, Dow Chemical, and P&G.
Facing mounting pressure (by consumers, investors, and employees alike) to address climate change, an increasing number of US industrials are joining 2/3 of the Fortune Global 500 by setting sustainability goals. But making a commitment to sustainability and energy efficiency does not mean making financial sacrifices. As Andrew Winston, an expert on corporate environmental practices and co-author of the recently released brief on enterprise energy strategy with Enel X and PwC, explained in his recent Harvard Business Review article, "Almost every company that I talk to, regardless of sector, is finding [renewable] deals at or below their current energy prices."
"Execs at industrial companies often believe that they can't find renewables cheaper than their rock-bottom power rates," Winston added. "They're wrong—and they're losing money because of it."
Need proof? Just see how Mars' Global Sustainability Director Kevin Rabinovitch explained the financial case for the 201MW wind-power PPA the company signed in 2014.
"Wind in the US, and particularly in Texas, has tremendous economics," Rabinovitch said in an interview with Windpower Monthly at the time. "With cost parity to the fossil fuel alternative it makes sense, not just environmentally."
Sustainability and price parity are only two of the factors driving industrials toward renewable PPAs. Another important motivator is risk management.
Looking at the US Energy Information Administration’s Annual Energy Outlook for 2016, it’s easy to see why. Forward prices and projections only show rates for the next five years. After that, electricity prices become little more than modeling outputs dependent upon highly volatile variables like oil prices and worldwide economic growth. Assuring a fixed cost for a sizeable portion of production costs can make sense as a long-term strategy for energy-intensive companies like industrials.
Winston’s article offers a number of tips to industrial organizations as they embark on their efforts to capture the unique advantages of renewable PPAs and Virtual PPAs, including researching successful practices in your industry and seeking third-party insight into the accounting and financials.
While all of his recommendations are salient steps for success, I’d add one more critical factor to the list—figure out how purchasing renewables impacts the rest of your energy procurement strategy.
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