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  • Blog: The emergence of green tariffs in U.S. electricity markets – why now?

    Priya Barua, Associate II – Energy Program at the World Resources Institute (WRI), shares her thoughts on how green tariffs are providing energy solutions in the United States.

    Large companies are buying more renewable energy than ever before. The U.S. electricity market saw a record 1.2 gigawatts (GW) of corporate large-scale Power Purchase Agreements (PPAs) in 2014. Corporations smashed this record in 2015, signing nearly 3.5 GW of new deals by the end of the year.

    Companies from a broad range of industries – including high tech, retail, manufacturing, healthcare, and hospitality – are driving this momentum as they seek cleaner, low cost energy that meets their ambitious sustainability goals and lowers exposure to long-term energy price fluctuations.

    As the price of renewable energy continues to fall, companies such as Google, Procter & Gamble, Owens Corning, Kaiser Permanente, and Starwood hotels are moving beyond the green power products of the last decade – which gave them access to renewable energy certificates (RECs) at additional cost – to new deal structures that allow them to access more of the benefits of utility-scale renewable energy projects, such as controlled costs and potential cost savings over the long-term.

    Currently, the vast majority of such deals are concentrated in a handful of states, like Texas, California, and Oklahoma, where there are competitive electricity markets. However, traditional utilities in regulated markets are becoming aware that they are missing out on a key opportunity if they don’t develop more attractive renewable energy options. Many companies will choose not to expand or invest in a certain service territory that does not offer the renewable energy options they want to power their operations.

    Win-win solution

    Green tariffs are one effective way for utilities in traditional, regulated markets to offer renewable energy services that are as attractive as other options available to buyers in more competitive markets.

    These green tariffs, also referred to as ‘riders’, allow eligible customers to buy both the energy and the RECs from a renewable energy project. These tariffs must first be approved by the state public utility commissions (PUCs). If implemented and designed appropriately, they have the potential to meet key customer needs as spelled out in the Corporate Renewable Energy Buyers’ Principles, while protecting other ratepayers from price increases.

    Green tariffs offer companies with ambitious sustainability goals – including those committed to RE100 – a number of energy incentives, including lower overall transaction costs, price predictability and the potential for cost savings over a long-term contract agreement, greater flexibility, and the ability to point to a specific, usually local, renewable energy project as their power source.

    Green tariffs benefit utilities as well. Utilities that do offer these options enable their large energy customers to meet their corporate renewable energy goals, demonstrate more direct impact on the development of renewable energy, and reduce their long-term energy risks.

    Collaborating with a large, credit-worthy customer in a long-term contract benefits utility investment decisions, particularly in this era of rapid change in the electricity industry. Additionally, utilities and corporate buyers working together on more customized solutions opens the opportunity for greater system efficiencies and the potential to align interests to accelerate meeting compliance obligations.

    Investments underway

    By the fall of 2015, over 350 megawatts (MW) of new renewable energy had been contracted between corporate customers and utilities under existing green tariffs. A partnership between Switch and NV Energy for example, has helped to shape Switch’s pathway towards 100% renewable power in Nevada.

    Meanwhile Google provided input into Duke Energy’s Green Source Rider in North Carolina, which has resulted a successful 61 MW solar deal for the IT giant, and enabled two other large energy customers to sign large-scale deals as well. Joe Dooley, State Policy Manager at Google shared the company’s experience on a recent RE100 webinar, Emerging trends in green tariffs in the U.S. market, on which I also highlighted successes and opportunities for RE100 companies across the country.

    Existing deals under green riders in Nevada and North Carolina, which range in size from 20 MW to 100 MW, are examples of the first generation of utility-offered green tariff products. Several other utilities, including Xcel Energy in both Minnesota and Colorado, are crafting new renewable energy products that offer even more of what customers are looking for.

    Xcel Energy’s proposed Renewable*Connect and Solar*Connect programs, which have been designed around the Buyers’ Principles, incorporate the potential for long-run cost savings. The fuel charge of the bill is replaced with the fixed charge of the renewable energy resource, together with flexible terms, no upfront costs, and safeguards to protect against other rate payer impacts. These types of advantageous solutions are likely to be replicated elsewhere.

    Collaboration is Key

    There are several studies, including the new report out today, that present various pathways for getting to 100% renewable energy in the U.S. Therefore, collaboration between utility and customer has never been more important. It is integral to developing the type of innovative solutions that can speed the transition to delivering more clean energy through the grid.

    Utilities and regulators in a number of states are now actively seeking inputs from large corporate customers to design new renewable energy products, and 2016 promises to be a year that brings many more innovative partnerships and solutions to the table.