Renewable Energy Tariffs, Part One: Meeting the Needs of Participating Customers

This post is Part One of a two-part series on design of utility renewable energy tariffs. Part One addresses the needs of participating customers, and Part Two (next week) considers the needs of nonparticipating customers.

Followers of the advanced energy sector are, by now, very familiar with the trend of leading companies, cities, universities, and other organizations choosing to source their electricity from renewable energy. To date, the majority of renewable energy projects contracted to meet this demand have been in restructured states, where companies face few regulatory barriers to signing a power purchase agreement (PPA). That’s not to say, however, that states with traditionally regulated utilities are doomed to miss out on the headline-grabbing, job-creating, tax-income-generating benefits of corporate renewable energy deals. On the contrary, utilities in vertically integrated states are developing programs to allow voluntary renewable energy procurement, often termed renewable energy tariffs, or “green” tariffs. But the experience to date of these renewable energy tariffs has been mixed, with some failing to generate much interest from corporate purchase because of their cost or terms, and others questioned for their impact on utility customers who are not part of the program.

A recent policy brief from AEE and new report from AEE Institute consider best practices for design of renewable energy tariffs that meet the needs of both corporate participants and for other utility customers. This post explains what we mean by “renewable energy tariffs,” and walks through the needs and preferences of corporate participants. Next week’s post will dive into detail on designing programs with all customers in mind, including nonparticipants.

There are a few different types of utility offerings that fall under the umbrella of “renewable energy tariff” or “green” tariff. Under subscription-style programs, the utility procures renewable energy for the program and customers can simply subscribe to it. Under what is called “sleeved-PPA” programs, the utility essentially passes a PPA with a renewable energy facility through to an individual customer. Another program type that’s gaining popularity is a market-based rate, which allows customers to peg the rate they pay for electricity to wholesale market prices of renewable energy. Some utilities are pursuing a range of offerings, and in all cases the details vary based on state-specific circumstances.

Since the introduction of the first renewable energy tariff offerings just five years ago, there have been 13 programs approved or pending approval across 10 states. These programs aren’t just being introduced, they’re being used, too. According to the World Resources Institute, nearly 1 GW of renewable energy is now installed, in development, or under contract due to utility renewable energy tariffs.

However, not all renewable energy tariffs are created equal, and some come much closer to meeting the checklist of corporate needs and wants than others. It occurred to us at AEE that such a checklist could be useful to a utility looking to develop a renewable energy tariff, or a regulator trying to assess a utility proposal. AEE’s policy brief, Essential Elements for Next-Generation Renewable Energy Tariffs, draws upon the collective wisdom of our members to deliver just that.

To meet the needs of corporate purchasers, such programs should:

1. Avoid impacting nonparticipating customers. The good news about corporate procurement is that nobody’s asking for a free lunch. Companies are willing to pay their way to ensure that other customers are not impacted by their voluntary purchases, and the last thing they want is the blame for a tariff that is good for them, but at the expense of other, typically smaller, customers. For more on this, check back for next week’s post about AEE Institute’s new paper, Making Corporate Renewable Energy Purchasing Work for All Utility Customers (or, for even more, read the paper itself).
2. Make program pricing reflect actual market prices and program costs. When it comes to price, as noted above, companies are looking for a fair price, not a bargain. When it comes to resource costs, administrative fees, system costs, and other fees, companies are looking to pay what they owe, neither more nor less.
3. Allow for competitive project selection. A competitive project selection process keeps costs down and supports the development of a healthy market for renewable energy. For sleeved-PPA style programs, the ability to directly seek out a project and negotiate terms is also important to customers.
4. Facilitate development of new, additional renewable energy. Access to renewable energy that is new and additional to that already required of utilities is a threshold requirement for many customers, who consider that the measure of their sustainability commitment. The 65 signatories to the Renewable Energy Buyers’ Principles—representing an estimated aggregate demand of 48 million MWh annually by 2020, equivalent to the energy use of about 4.5 million households—agree that they need “access to new projects that reduce emissions beyond business as usual.” 
5. Allow a range of corporate customers to participate. The list of companies committed to renewable energy runs the gamut from big box retailers to main street markets, from technology giants to university campuses, from manufacturing facilities to hotel chains. These varied customers have different goals and commitments, different load profiles and resource preferences, different appetites for risk and capital expenditure, and different needs in terms of contract flexibility, length, and structure. Some of these companies already have operations in a given state, while some represent new load. Meeting the requirements of such a wide range of customers means avoiding narrow eligibility parameters that restrict access to dedicated renewable energy resources.
6. Include varied or flexible offerings to meet the needs of different customers. Given the significant range of customer needs and preferences noted above, a one-size-fits-all solution is almost certainly impossible. To meet the needs of all customers, utilities can incorporate flexibility into program offerings—or provide multiple offerings to meet different customer needs.

All policy prescriptions come with some fine print, and AEE’s brief concludes by advising consideration of these six elements “as part of an inclusive program design process involving a broad range of stakeholders, from utilities and corporate purchasers to residential customer advocates and state economic development offices.” With that warning, utilities, policymakers, and regulators can set about satisfying the needs of the growing group of corporate customers asking about renewable energy.