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What does "renewable energy" actually mean for businesses?

By Direct Energy Business
Renewable Energy

Energy pop quiz: does clean mean the same thing as green? What about alternative energy? And where does sustainability fit into all of this? 

If you’re confused, we don’t blame you. These terms are often used interchangeably, even though they may actually mean different things. 

But the term to pay attention to for the foreseeable future is renewable. A commitment to using 100 percent renewable energy has emerged as the gold standard for corporate responsibility with respect to energy use, and corporations are flocking to initiatives like RE100, REBA and the American Business Act on Climate Pledge to shore up their renewable street cred. So renewable energy is the name of the game.

But why now? Why are companies making Renewable energy such a priority in 2018? And practically speaking: what does a shift to renewables actually look like? How has the pursuit of renewable energy evolved up until this point? We’re here to discover the history of the term, and to explore how companies are achieving their renewable goals.

Where did the idea of Renewable energy come from?

All that is meant by Renewable energy (according to the Environmental Information Administration) is “energy from sources that are naturally replenishing but flow-limited.” So unlike traditional energy sources, which will eventually run out if we use them all, in the case of renewables, “there’s always more where that came from.” Without a real plan to replace fossil fuels like coal and oil, the United States could either deplete these resources or make them much more difficult to obtain. 

What about nuclear energy? It produces zero carbon emissions and has been in use for decades. In fact, by 1990, net electricity generation in the U.S. was about 20 percent nuclear, a level which we have sustained through today. However, nuclear accidents such as the 2011 incident in Fukushima Prefecture, Japan, have led to widespread public doubt as to whether nuclear energy is the most suitable replacement for fossil fuels. 

Enter renewables. 

Renewable energy has technically been around since, well, forever. Before coal landed on the scene in the mid-1800s, humankind was 100 percent renewable, in that we used biomass (just wood, really) for lighting, heating, cooking -- you name it. Renewables as we know them today have been in use since the early 20th century, in the form of hydroelectric power. Other forms, like solar, wind, and geothermal power came into their own in the second half of last century, partly in response to concerns about exhaustible fossil fuel supplies.

There’s much to admire about renewables. 

First of all, unlike fossil fuels, renewables aren’t exhaustible. Production of renewables will never decline on a massive scale because there’s no such thing as running out of sun, wind or hydroelectric power (at least not on a human timescale). These sources of energy will persist for as long as we need them to.

Second of all, unlike nuclear power, renewables do not involve radioactive material, and therefore pose much less of a risk. Additionally, they have the advantage of scalability; renewables range in scale from a couple of behind-the-meter solar panels on the roof of a home or school to commercial-scale wind farms that can generate enough power for whole cities. To put it simply, renewables are widely considered the best choice to eventually replace fossil fuels as our primary source of energy.

Where do Renewables Stand Today?

Today in the U.S., a greater portion of our energy comes from renewable sources than ever before (not counting the era before fossil fuels, when wood was the only game in town), and official sources predict that the popularity of renewables will only continue to increase in coming years. That said, renewables have a long way to go, and fossil fuels still play a large role in the overall picture.

As of today, the three most popular renewable energy sources are as follows:

Solar

Thermal energy from the sun is captured by panels and converted into electricity.

Wind

Turbine blades are moved by wind. The mechanical power generated by this process is converted into electricity.

Biomass

Organic matter (such as scrap lumber, forest debris or even manure) is converted into fuel, then burned to move a turbine and generate mechanical power, which is converted into electricity.

How can businesses get on board?

Businesses of all sizes and types should take note of the ascendance of renewables and explore which opportunities it may provide. The renewable craze offers a few different avenues for investment, depending on a company’s goals, energy needs and flexibility. Some approaches are as simple as making a purchase of credits to offset energy use from traditional sources, while others involve considerable long-term planning.

The following are a few of the more common renewable energy instruments used by companies today:

RECs

Good old-fashioned RECs (Renewable Energy Certificates) are simply certificates that are granted to producers of renewable energy (such as wind or solar farms) as proof that 1 MWh of renewable energy was produced. These certificates may in turn be purchased by anyone, from private homeowners to large corporations. 

The idea behind RECs is that they create accountability. When electricity from renewable sources is produced and fed into the grid, it combines with electricity produced by other sources, and becomes impossible to distinguish. RECs, however, are purchased either alongside or separately from electricity, and serve as a guarantee that a certain amount of electricity added to the grid was generated by renewable sources. In theory, a market for voluntary RECs – meaning those which are purchased voluntarily and not for legal or compliance reasons – would incentivize the development of new renewable projects.

Using RECs, businesses can legitimately offset up to 100 percent of their energy use. However, the energy that they actually use will continue to be mixed-source – which is true of anyone today who uses electricity that comes from regular electric lines. Furthermore, the voluntary REC market has been shown by some studies to create a negligible amount of additionality; in other words, purchasing RECs does not, in most cases, lead to the generation of more renewable energy than if the RECs had not been purchased.

Renewable Power Hedge

A Renewable Power Hedge is a contract between a buyer and a seller. The seller (often an energy supplier) strikes a deal with a renewable energy project (a wind or solar farm, for example), and the buyer then purchases a given amount of energy from them. The buyer usually specifies how much of their load they wish to cover, as well as which energy source they wish to use and where the project should be located geographically. The deal is typically done using the vendor’s credit, to limit the risk taken on by the customer.

Renewable Power Hedges are preferable to RECs in that buyers know which particular energy project they are buying from. When a buyer can claim that all or a portion of their electricity comes from, for example, a wind farm near their service location, they enjoy more credibility as a renewable-friendly organization than they would if they had simply purchased RECs. 

Grid Connect PPA

Like a Renewable Power Hedge, a PPA (Power Purchase Agreement) is a contract between a buyer and a seller. The seller, a power producer, either operates a renewable energy project already, or is planning to construct a new one. The buyer then purchases electricity from the project at an agreed-to rate.

The difference between a Grid Connect PPA and a Renewable Hedge is that a PPA is a direct contract with a power producer, while a Power Hedge is a contract with a power vendor or reseller.

And it gets better. PPAs are frequently structured so that the buyer does not incur capital expense for financing a new project. The buyer pays for nothing aside from the electricity itself and some standard utility fees, at a rate negotiated with the seller.

The drawback of a PPA is that they require a long commitment -- ordinarily 15-20 years. So while buyers usually don’t incur capital costs to bring a project online, market shifts could render their negotiated price for electricity (through their PPA) less attractive at some point down the line.

Behind-the-Meter Solar

If a business has the flexibility, the ambition, and the facilities suitable for an on-site solar installation, then they’re in luck; it has never been cheaper to purchase and install solar panels in the U.S. 

With this option, a business creates additionality of the sort that can be seen from the boardroom window by colleagues and clients alike, and allows for some independence from the grid. The electricity comes from those panels right there

And, behind-the-meter solar can lead to cost savings in two different ways: your facility’s electricity bill could be lower each month, as the “meter” will only register the electricity you obtain from your utility and not that which your solar panels generates; plus, you could pay less in transmission & distribution charges, since those are also measured by the “meter”.

New solar, while affordable now compared to prices in recent years, remains somewhat expensive. In some cases, a capital investment may be required. In other cases, a business may finance their installation via an energy partner. In any case, such projects typically require a commitment of up to 20 years. Any business that wants to pursue this route, therefore, should be ready to dedicate the requisite time, capital and planning.

Where Businesses Can Start

It is not easy to make a deliberate shift away from how we’ve been thinking about energy for decades. But, one way or another, companies are doing it.

Learn more about sustainable energy strategies that could work for your organization. Together, Direct Energy Business and our sister company Centrica Business Solutions put you in control of your energy and help you to create business advantages.

Discover Renewable Strategies

Posted: September 11, 2018

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