As More Large Corporations Go Green, Utilities are Feeling the Loss

May 2, 2018
Welcome to the often vexing nexus of energy and environmentalism

Rising numbers of Fortune 500 companies are pursuing aggressive renewable energy goals for sustainability or resiliency. At the same time, utilities increasingly face a fundamental question around the buildout of green infrastructure: invest significantly to keep these large customers and risk controversial rate cases, or watch helplessly as these large-scale grid defectors go it alone and take substantial revenues with them. The latter could inspire other customers to follow suit, raising prospects that remaining ratepayers - many already financially strapped - could be asked to pay even more.

Welcome to the often vexing nexus of energy and environmentalism, where the caravan of big businesses publicly committing to greener ways of keeping the lights, servers, computers and production lines on is growing. And that should be a clarion call for engagement between utilities and the regulators whose constructs often are seen as lagging behind the advances in renewable and distributed energy resources.

While some large companies have said they’d power a portion of their operations with renewable energy, many others have taken an all-or-nothing approach. A “RE100” listing by The Climate Group and CDP (formerly the Carbon Disclosure Project) shows that more than 120 companies have announced plans for their electricity to come entirely from renewable resources as part of a global corporate leadership initiative. That combined electricity demand eclipses 161 TWh - enough to easily supply entire nations such Egypt or Poland, according to the environmental groups.

Those making that pivot are among corporate world’s most recognizable names and admired brands: Walmart, Ikea, Apple, General Motors, eBay, Procter & Gamble, Facebook, Starbucks, Google and Hewlett Packard, to name but a handful. Heavyweights in insurance, brewing and banking also are creating roadmaps that rely heavily on renewables for their energy futures.

Making the ambitious switch to alternative electricity sources can give companies greater control over their energy costs and bolster their competitiveness. It also can cut their carbon footprints by being emissions-free - a movement that resonates with the public at a time of growing appetite for clean energy and of concern about climate change.

If their utilities can’t supply them with the green energy they crave, some companies are considering going it alone by installing their own solar arrays, wind farms, energy storage, microgrids and other resources. Each asset effectively equates to less revenue for the local utility and possibly more instability for regular ratepayers.

In February, for example, data technology company Switch announced it was partnering with Capital Dynamics - the nation’s second-biggest owner of solar projects - for solar farms that will produce one gigawatt of power in sunlight-rich Nevada, eventually amounting to the nation’s single-biggest solar project portfolio. Switch said the project will generate some of the world’s lowest-priced solar power for Switch and several clients and provide enough energy to power nearly 1 million homes.

Other companies are going the route of power purchase agreements (PPAs) - particularly beneficial in that while they don’t require massive upfront capital investments, they offer the prospect of lower energy costs.

When navigating all of it, companies generally consider three legs to the project stool: Does it make economic sense, does it increase reliability and resilience, and does it contribute to the business’ sustainability? Each can drive the decision-making toward alternative energy, with many treating microgrids or DER as more of an insurance policy against outages than as a capital project. Timing for these questions is ripe, as the cost of renewables and batteries continue to decline.

As this unfolds, utilities looking to modernize their grid by relying on more renewables - and, in turn, potentially curbing the frequency of defections by green-minded businesses - must sell regulators on the investment’s prudency. Those overseers, after all, watch closely to ensure that ratepayers aren’t paying more than they should and that everyone gets equal access to reliable power.

With regulators’ help, utilities must be nimble to make changes that align with growing clean-energy mandates. Failing to do that could drive away sizable business clients - large electricity consumers - with the financial means to turn to renewables or distributed generation. Those defections from the grid inadvertently would make the system more expensive by spreading its fixed costs among fewer customers and adding to the network’s complexity.

Making a meaningful difference would require profit-driven utilities and the regulators who monitor them to reinvent their dynamic. Utilities must successfully balance what they’re able to do in a bureaucratic framework with being agile enough to adjust to a changing energy landscape. Conversely, regulators must have open minds and a deep awareness of DER trends - and the consequences of when utilities are forced to watch from the sidelines as some of their largest customers set new courses.

Black & Veatch has offered guidance to utilities, modeling scenarios in which they can best make their case to regulators that they should be allowed to amend their business models to nimbly serve green-energy clients without putting their other customers at risk. With outside engineering and consulting, utilities can assess their exposure to and potential fallout from client shifts to renewable energy, then present for regulatory consideration a plausible, comprehensive game plan that accounts for assets such as rooftop solar or backup generation.

The greatest benefit comes when utilities and regulators work together to optimally balance the needs of residents and their largest enterprise customers. Rather than wait for regulators to change the rules of the game, utilities are better served by opening a constructive, data-driven dialogue that outlines how they can reliably supply reasonably priced clean energy to both corporates and rank-and-file ratepayers. Doing so further cements the utility’s leadership position in front of and behind the meter.

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