Business | Renewable-power struggle

REBA is a new lobby for corporate buyers of clean energy

Its members face problems in the nascent market

Virtually there
|NEW YORK

AMERICA’S PRESIDENT has little interest in fighting climate change. Not so its companies. Last year businesses tapped more than 8.5 gigawatts of clean energy in America, nearly triple the level of 2017, according to BloombergNEF, an energyresearch firm. Although more than 150 big corporations around the world have set targets to buy all their power from renewable sources, America accounts for 63% of corporate purchases of clean gigawatts. On March 28th green-minded companies there transformed the Renewable Energy Buyers Alliance (REBA), a non-profit organisation, into a fully fledged lobby group to further the cause.

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REBA now wants corporate purchases of green electricity to ramp up dramatically. In a sign of how broad the clean-power movement has become, its members include big names in technology (Google), carmaking (General Motors), banking (Citigroup), media (Disney) and more. But REBA’s creation also hints that, as firms race to go green, they are running into a number of problems. In the process of collectively solving them, they could reshape power markets.

For companies, clean power often looks like a no-brainer. The costs of electricity from wind and solar farms have plunged by about 70% and 90%, respectively, since 2009. Going green lets companies burnish their environmental credentials with investors, workers and customers.

The reality is more complex. The simplest way for a company to source clean electricity is to blanket its property with solar panels. Walmart has been doing this since 2007, harvesting the sun’s rays from the vast roofs of its megastores. Such schemes generate only so much energy, however. Google’s electricity demand, chiefly from its ravenous data centres, is nearly that of Estonia. Companies must therefore buy their renewable power from third parties.

In a normal procurement process, companies would seek bids from a variety of suppliers. Electricity is different, particularly in places with a regulated, monopolistic supplier—which is true of many American states. Two-thirds of corporate purchases of renewable electricity in America are therefore virtual, in what amounts to a swap. A company buys energy for its operations as usual from a local utility. It also signs a virtual power purchase agreement (VPPA) for electricity with a renewables provider in a deregulated market, which could be in another state, typically paying a fixed rate. The company then resells this clean electricity, at variable wholesale prices, into that faraway grid, thereby helping to offset its overall carbon footprint.

You would expect plunging prices for renewables to benefit those who buy it. In a VPPA, they could lose. That is because, in a market flooded with cheap renewables, wholesale prices at which a company resells clean kilowatt-hours could drop below the fixed rate set in the VPPA. “A lot of companies have buyers’ remorse when signing these contracts,” says Kyle Harrison of BloombergNEF.

An alternative is to buy clean electricity directly, either from a renewable project or from a utility. This can work well. America is dotted with wind turbines that twirl exclusively for Google. General Motors has signed deals to buy renewable power from utilities in Michigan and Ohio. Even if a utility offers such options, they may only be available to large users or be capped, says Michael Terrell, who leads energy-market development at Google.

If a company balks at a utility’s terms, abandoning the provider can be difficult if not impossible in a market with few alternatives. If a utility does lose a big corporate buyer, it may need to shift costs to its remaining customers. This is something regulators are understandably keen to avoid. MGM Resorts, a giant casino company, used to buy electricity from Nevada’s utility, NV Energy, but reckoned it could both lower costs and obtain more clean power if it purchased electricity elsewhere. MGM left NV Energy in 2016, but only after paying the utility $87m to do so. The utility, owned by Berkshire Hathaway, spent $63m to help defeat a ballot initiative last year that would have created a more competitive power market.

REBA’s prime objective is to expand companies’ ability to choose clean electricity, says Miranda Ballentine, its chief executive. That may mean seeking better contracts, disseminating best practices (like ways to mitigate the risks of VPPAs) and, critically, opening electricity markets to more competition. Take Walmart, which wants to stop buying power from utilities in Virginia, both to lower costs and boost its renewable portfolio. In February the state’s utility commission denied the retailer’s request, arguing that its departure could pass nearly $70m of costs onto the utilities’ remaining consumers. The company has asked the commission to reconsider. Walmart, too, is a member of REBA.

This article appeared in the Business section of the print edition under the headline "Power struggle"

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