How Do Companies Buy Renewable Energy?

Renewable energy sources like solar, wind, hydro, geothermal, and biomass provide an alternative to fossil fuels. These energy sources are considered renewable because they are naturally replenished at a rate that is equal to or faster than their rate of consumption ^[1]. Companies are interested in buying renewable energy for several reasons:

Cost savings – In many cases, the cost of renewable energy has dropped below traditional energy sources like coal and natural gas ^[2].

Environmental benefits – Renewables produce little to no global warming emissions, which helps companies meet sustainability goals and demonstrate environmental stewardship.
Energy security – On-site renewable generation reduces reliance on the grid and exposure to utility rate increases.
Branding and PR – Buying renewables highlights a commitment to sustainability and corporate social responsibility.

Table of Contents

Onsite Renewable Energy

Many companies are choosing to install renewable energy systems like solar panels, wind turbines, and geothermal heat pumps directly on their own property. This allows them to generate clean electricity and heating/cooling onsite. According to the EPA’s Green Power Partnership Top 30 On-site Generation, the combined annual green power use from EPA partners using onsite sources amounts to nearly 1.5 billion kilowatt-hours. Major companies utilizing onsite renewables include Apple, Intel, and Walmart.

Onsite solar panels are one of the most popular options, providing clean electricity without emissions. As of 2014, leading retailers Walmart, Costco, and Kohl’s had a combined 216 MW of onsite solar installed, according to this article. Wind turbines and geothermal heat pumps can also be installed onsite where conditions allow. The upfront investment for onsite renewables can be high, but the long-term savings on energy bills make it financially worthwhile for many large companies.

Power Purchase Agreements

A power purchase agreement (PPA) is a contract between a renewable energy developer and a corporate buyer to purchase electricity generated from an offsite renewable energy project like a solar or wind farm. The corporate buyer agrees to purchase the power at a fixed price over a long-term period, usually 10-25 years. This provides the developer with a guaranteed revenue stream to finance building the project.

PPAs allow companies to purchase renewable energy in bulk even if they don’t have suitable space onsite for generating their own renewable power. The corporate buyer gets access to clean energy at a predictable, often lower price without having to own or operate the system themselves. The developer handles permitting, financing, building, operating and maintaining the system.

According to the World Business Council for Sustainable Development, corporate PPAs have become an increasingly popular way for companies to meet renewable energy and sustainability goals. Major corporations like Google, Apple, and GM have signed large renewable PPAs to offset their electricity usage. (Source)

Green Power Programs

One way for companies to buy renewable energy is through green power programs, which allow businesses to purchase renewable energy credits (RECs) or carbon offsets. RECs represent the environmental benefits of 1 megawatt-hour (MWh) of renewable electricity generation and can be purchased separately from the underlying electricity. This allows companies to claim they are using clean energy without necessarily changing their actual source of electricity. Carbon offsets work similarly, allowing companies to compensate for their emissions by paying for emission reductions elsewhere.

Participating in these programs can help support renewable energy financially, but has drawn criticism as well. As noted in the S&P Global article, purchasing unbundled credits “can make it look as if a company’s electricity emissions have become zero, when they haven’t.” There are concerns that companies may rely too heavily on offsets rather than pursuing actual emission reductions. The Harvard Business Review article also cautions that factors like REC price volatility and double counting can undermine the effectiveness of buying credits.

Still, participation in green power programs has grown substantially, with companies like Google, Microsoft, and Walmart among the largest corporate buyers. Thoughtful and transparent use of RECs can serve as part of a broader corporate clean energy strategy.

Community Choice Aggregation

Community Choice Aggregation (CCA) allows local governments to aggregate electricity demand within their jurisdictions in order to purchase renewable power on behalf of their residents, businesses, and municipal accounts.^[1] Through CCAs, local governments can procure more renewable energy than is offered by the incumbent utility, giving consumers and businesses access to cleaner electricity options.^[2]

CCAs are set up so that all residents and businesses are automatically enrolled in the program on an opt-out basis. This opt-out structure increases program participation, allowing CCAs to aggregate large customer bases and leverage that demand in renewable energy contract negotiations.^[3] By aggregating demand, CCAs can negotiate better rates and choose higher levels of renewable energy than individual customers could on their own.

The first CCA in California was launched in Marin County in 2010. As of 2019, 19 CCA programs were operational in California, serving over 10 million customers.^[3] The large size of some California CCAs has allowed them to significantly add renewable energy capacity and drive down costs through economies of scale.^[2] For example, in 2018 the Clean Power Alliance CCA serving Los Angeles and Ventura counties contracted for enough solar power to more than double the amount of solar in SCE’s service territory.^[2]

Thus, CCAs are becoming a powerful tool for local governments in California and beyond to meet renewable energy goals and provide consumers and businesses access to affordable clean power.

^{[1] https://en.wikipedia.org/wiki/Community_Choice_Aggregation}

^{[2] https://energy5.com/the-role-of-community-choice-aggregation-in-driving-solar-adoption}

^{[3] https://www.nrel.gov/docs/fy19osti/72195.pdf}

Green Tariffs

Green tariffs are special utility rates that allow large customers to source electricity from renewable energy projects through their utility provider. With a green tariff, eligible organizations sign an agreement with the utility to purchase renewable energy from a specific project, usually through a long-term contract. The renewable energy is fed directly onto the local grid that supplies the organization’s facilities [1].

Green tariffs have become an increasingly popular way for corporations to meet sustainability goals and access cost-competitive renewable energy. According to one report, over 20 GW of renewable energy capacity was contracted through green tariffs in 2021, driven largely by demand from major corporations like Google, GM, and Walmart [2]. Green tariffs allow companies to support utility-scale renewable energy projects that might otherwise not be feasible without a long-term buyer.

Green Energy Certificates

Green energy certificates, also known as renewable energy certificates (RECs), are tradable instruments that represent the environmental attributes of 1 megawatt-hour (MWh) of renewable electricity generation (Renewable Energy Certificate Market Size 2023 to 2032). RECs allow organizations to purchase renewable energy remotely and are used to track and trade renewable energy generation.

RECs provide a way to account for the generation of electricity from renewable sources like wind and solar. For every 1 MWh of renewable electricity placed on the grid, 1 REC is issued and can be kept, sold, or retired by its owner. The REC and the actual electricity are “decoupled” and can be sold separately. The electricity is added to the overall grid supply while the REC allows the environmental attributes and benefits of that renewable generation to be claimed (Renewable Energy Certificate Market Size Estimated to Reach $237.67 Billion by 2028).

By purchasing and retiring RECs, companies can support renewable electricity generation and make credible renewable energy usage claims. There are certification programs like Green-e that have standards for RECs to ensure they represent new renewable generation. The REC market provides flexibility for organizations to procure renewable energy from offsite projects.

Direct Access

Direct access allows eligible commercial and industrial customers to purchase electricity directly from third-party suppliers rather than the traditional utility in that region. This gives companies more options in procuring renewable energy from competitive suppliers.

In regulated electricity markets, customers must buy electricity from their designated utility company. With direct access, large commercial and industrial customers can shop for power from alternative providers and wholesale markets. Customers pay the utility for transmission and distribution services, while purchasing electricity separately from a supplier of their choice. Currently, only 6 states offer full direct access – Texas, Michigan, Illinois, Ohio, Pennsylvania, and New Jersey (www.chooseenergy.com/deregulated-energy-markets/us/states/). In addition, the Direct Access program in California allows a capped number of customers to participate (www.3phasesrenewables.com/faq-direct-access/).

The main benefit of direct access is the ability to directly procure power from renewable sources through power purchase agreements or competitive retail suppliers. This gives companies more control over their energy mix and prices.

Virtual Power Purchase Agreements (VPPAs)

A Virtual Power Purchase Agreement (VPPA) is a financial contract where a corporation agrees to purchase energy from a renewable energy project. Unlike a regular PPA, the energy is not physically delivered to the corporate buyer. Instead, the corporate buyer receives the renewable energy certificates (RECs) while the power is sold into the electricity grid. The VPPA provides financial hedging against energy market volatility. Corporations use VPPAs to meet sustainability commitments without having to build renewable projects near their facilities.

Per Jones Day, the VPPA market has grown dramatically in recent years as more corporations set renewable energy goals. VPPAs allow companies to support clean energy projects remotely. The physical electricity is sold into the local grid, while the corporation receives the environmental benefits. This provides revenue certainty for project developers and downside price protection for corporate buyers.

VPPAs are gaining traction globally as well. According to TwoBirds, corporate renewable activity rose significantly in 2022, with increasing preference for VPPAs over traditional PPAs.

Conclusion

In summary, there are multiple ways that companies can procure renewable energy to meet their sustainability goals and reduce their carbon footprints. The most popular options are onsite renewable energy generation, power purchase agreements, green power programs, community choice aggregation, green tariffs, renewable energy certificates, and direct access. The renewable energy procurement market is growing rapidly as more companies make commitments to transition to 100% renewable energy. According to Guidehouse Insights, the global renewable energy procurement market is estimated to reach nearly 1,800 terawatt-hours by 2025.

In the future, we can expect to see continued growth in corporate renewable energy procurement across all models. More companies will likely turn to creative solutions like virtual power purchase agreements to overcome regulatory barriers in certain markets. The falling costs of renewable energy technologies will further accelerate the transition. However, companies looking to maximize their renewable energy usage will need to pursue onsite generation and direct procurement options in addition to unbundled REC purchases. The companies that lead the way in renewable energy adoption will reap both sustainability and economic benefits.