Are Apple and Google Disrupting America’s Century-Old Energy Market?
Apple made news earlier this year when it signed an $848-million “direct access” deal to bypass Pacific Gas & Electric Co. and buy clean energy directly from a third-party solar provider. For Apple, the big win was a contract that locked in affordable energy for the next 25 years.
But the deal also set a historical precedent for corporate renewable energy purchases that may, over time, have huge financial implications for traditional utilities.
Energy deals break new ground
With its solar contracts, the iPhone maker is insulating itself from the price volatility that accompanies fossil fuels, in addition to getting power for less than half the cost. Going forward, it can count electricity as a fixed, predictable cost — an attractive proposition that is sure to spark interest among other large buyers of electricity.
Apple’s investment in First Solar’s PV Flats, a 2,900-acre solar array in Monterey, California, also suggests that corporations are ready to take procurement of energy to a new level.
On the heels of Apple’s deal came news that Google signed a 20-year purchase agreement to buy half of the energy produced at the soon-to-be refurbished Altamont Pass wind energy facility. The wind turbines there will power the company’s sprawling Googleplex headquarters in nearby Mountain View, California – again, effectively bypassing the local utility.
Wind is already competitive with coal in many markets and just like Apple, Google will enjoy stable prices for the next two decades.
Companies think beyond cheap energy credits
Corporate procurement of renewables is nothing new, of course. For years already, companies such as Intel and IKEA have purchased renewable energy credits, or RECs, to meet their sustainability goals.
Over time, however, these credits became so popular that we now have a glut of nearly worthless RECS with some going for as little as 75 cents per kilowatt-hour. As a corporate procurement activity, they now amount to little more than “greenwashing” because the low prices undermine the REC market as a force for new investments.
This criticism has prompted some investors such as Whole Foods and PepsiCo to scale back and instead focus on more tangible, onsite renewable projects at their own facilities.
Or, as in the case of Apple and Google, to think outside the box. Large power purchase agreements, like the ones the companies just announced, may prove to be a game changer.
Such deals give renewable energy providers the collateral they need to approach a bank or other investor about financing the construction of their plants. And it helps them get a cheaper line of credit which, in turn, will bolster additional investments in renewables.
Energy providers respond
Historically, power purchase agreements have been long-term commitments of up to 30 years.
But now that model is changing, too, further broadening participation in new and innovative clean energy programs.
MP2 Energy, a retail electric supplier in Texas, for example, recognized the limitations of the longer contracts. The company developed a landmark, two-year solar energy procurement proposal that attracted Rice University, and the parties announced a contract in February 2015.
Today, corporate buyers of energy are trying new ways and they’re finding energy providers willing to experiment. From Apple to Rice University, a growing cadre of large buyers are making smart business deals that also help pave the way for renewable energy development.
As more buyers of energy move in this direction, pressure will build on utilities to find new business models – and new revenue streams that are not based on volume sales or on the construction of new, fossil-fired plants.
Or they may soon be looking at a major corporate exodus to their competitors in the clean energy business – and at a major disruption of the market they’ve owned for more than a century.
Gavin Purchas is the director of California Clean Energy at the Environmental Defense Fund. He came to EDF as the policy director for the Clean Energy team’s Idea Bank. Gavin leads EDF’s Clean Energy work in California and oversees EDF’s various regulatory engagements, partnerships, research and analysis to help make California’s energy sector cleaner, more efficient and modern.
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