Energy transition means big companies showing greater interest

Big business is big business. Pilita Clark writes a good article in the Financial Times that big US companies are showing greater interest in renewable energy. This must definitely be a sign that the energy transition is truly underway.

 

Big US companies spearhead renewable energy drive

When General Motors buys electricity for the Texas plant that makes hundreds of its Chevrolet and Cadillac trucks each day, it normally does a deal with a local power utility lasting at most a couple of years.

But five months ago the US carmaker did something very different, signing a 14-year agreement with a wind farm company, EDP Renewables North America, for enough electricity to make more than half the trucks it produces each year.

The deal makes GM one of a fast-growing number of big US companies buying green power to cut their emissions of carbon dioxide, and potentially make savings on their energy bills. In doing so, these groups are reshaping the way renewable energy is purchased, and helping green power generators build more projects than they otherwise might have done.

However, some businesses still find it difficult to do deals to invest in renewable energy, and an initiative backed by 60 companies including Facebook and Microsoft was launched on Thursday to make it easier.

Silicon Valley technology companies led by Google were the first in the US to plough into green energy in a significant way, but now the trend has spread to some of the country’s biggest manufacturers and retailers, including GM, Lockheed Martin, Amazon and Walmart.

In total, 24 large US companies bought 3.6 gigawatts of power in 2015 and the first quarter of this year — more than three times the amount purchased by seven groups in 2014, according to the Rocky Mountain Institute, a US non-profit organisation trying to accelerate these renewable energy agreements.

“The growth was spectacular and took everybody by surprise, nobody expected that,” says Hervé Touati, a Rocky Mountain Institute managing director.

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The long-term power-purchasing agreements that big companies are signing with wind and solar farms are important for renewable-energy generators trying to build new projects.

By guaranteeing future revenues, the purchasing deals help bolster the generators’ efforts to persuade lenders or investors to finance projects that might otherwise fail to get off the drawing board.

Until now, wind and solar farm developers have typically sold most of their electricity to big state or privately owned utilities that in turn sell it on to their customers.

But this is now changing. Along with universities and cities, big companies are making so many long-term power-purchasing deals with renewable-energy generators that in 2015 they for the first time outstripped utilities doing such agreements in the US.

According to the American Wind Energy Association, the new class of buyers accounted for 52 per cent of wind generating capacity sold via power-purchasing agreements last year, up from 23 per cent in 2014 and 5 per cent in 2013.

Companies that strike long-term purchasing deals with wind and solar farms do not typically use the power coming directly from these generators. This electricity is normally fed into the grid that supplies power to households and businesses, including those companies that have agreements with the renewable generators.

For GM, two reasons were behind the Texas windpower deal, which followed a similar one in Mexico last year. It helped the company meet a public commitment to boost renewable-energy use, but it also offered considerable savings, according to Rob Threlkeld, global manager for renewable energy at GM.

“The nice thing about wind, solar and renewables in general is they don’t have a [fossil] fuel component,” he says.

That meant GM was able to fix a set price for its electricity, knowing it would not be affected by any future rises in the price of a fuel such as gas.

“For the windpower purchasing agreements we’re looking at about $2m a year [in] savings, averaged over the term of the contract,” says Mr Threlkeld.

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Lockheed says its decision in February to sign a 17-year agreement to buy solar power from Duke Energy Renewables in the US was partly driven by a commitment to lower greenhouse gases. But the company saw a financial benefit from falling renewable-energy prices, says Scott Stallard, senior manager of environmental stewardship at Lockheed.

“Historically, renewables generally weren’t that economically feasible but we saw that prices were coming down both on the wind and the solar side,” he adds.

Whether companies will continue to do such deals at current rates is unclear.

Numbers jumped in 2015 as lawmakers weighed whether or not to extend important US federal government tax credits for wind and solar investors.

The tax credits were renewed in December but will be gradually phased down, putting pressure on renewable energy generators to keep lowering their power production costs.

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The Rocky Mountain Institute is hopeful this will happen.

“The cost of electricity production dropped, respectively, by 61 per cent for wind and 82 per cent for solar over the past six years, and further improvements are in the works,” says Mr Touati.

In addition, he adds, natural-gas prices in the US that have been at historic lows could rebound, making corporate wind and solar power purchasing agreements even more attractive in many markets.

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