Renewable Energy Finance: Best Options for Enterprises
So your organization is interested in buying renewables to address climate change and reduce emissions.
But with so many renewable energy financing options available – renewable energy credits, renewable energy power purchase agreements (PPA agreements), virtual power purchase agreements (VPPAs), on-site and self-owned projects, green bonds, etc. – you're probably wondering where to start.
Don't worry, clean power finance isn't as complicated as you may think.
Keep reading to find out how other enterprises are financing their renewable energy projects. We'll walk you through the most popular clean power finance options as well as sustainable energy trends for today and tomorrow.
Why Are People Shifting Investments to ESG Leaders?
Before we really dive into the details of renewable energy finance, it's important to look closely at recent investment trends.
Amid growing concerns of climate change, many people are starting to shift their investments to companies who are Environmental, Social and Governance (ESG) leaders. ESG is a three-pillar measurement system that examines a company's sustainability and societal impact.
By investing in organizations' ESG funds, people are empowered to use their personal and organizational funds to make sustainable decisions at scale.
In fact, according to the American Council on Renewable Energy, demand for ESG investment has increased exponentially over the past few years, with Sustainable, Responsible and Impact (SRI) investing totaling close to $12 trillion in the United States.
What does this mean?
Many people have a keen and ever-increasing interest in environmental and societal issues. And they're investing in companies whose commitment to sustainable energy matches their own.
Enterprises Seek Financing for Clean Energy
Enterprises are responding to this growing interest in sustainable energy by adding renewables to their investment mix.
A 2019 Smart Energy Decisions survey showed greenhouse gas and energy cost reduction were listed as the top two reasons for purchasing renewable energy – an indication that lowering their carbon footprint has become more critical to companies.
So the larger question for many companies isn't whether they should add renewables – it's how to figure out which renewable energy finance option works best for them.
Renewable Energy Finance: Insights on What's Working
Source: Smart Energy Decisions
Today, most companies rely on the following five clean power finance models:
- On-site, self-owned
- Renewable Energy Credits (RECs)
- Power Purchase Agreements (PPAs)
- Virtual Power Purchase Agreements (VPPA)
- Utility green tariffs or green bonds
Let's take a closer look at each financing option:
On-site, Self-Owned Projects
The Home Depot used an on-site, self-owned project to cut electricity costs and reduce emissions.
On-site, self-owned renewable energy projects are financed by companies through large upfront capital investments. These projects are typically driven by return on investment followed by risk mitigation and sustainability.
Many large energy users take advantage of on-site, self-owned projects, such as solar generation or solar-powered microgrids, to meet sustainability goals, add resiliency and hedge against the rise of future utility prices.
When considering on-site, self-owned projects, organizations must consider the following:
- The location of their site and utilities that service them
- Available space (e.g., rooftops, unused ground, parking spaces)
- Size of energy loads and spikes in energy demand
- Visibility of the project (e.g., a solar carport)
Think this option may work for your organization? You're not alone.
Fifty-nine percent of the SED survey respondents currently have on-site, self-owned projects and 58% are considering them for future renewables.
In fact, an on-site, self-owned renewable energy project is helping The Home Depot reach its sustainability goal of cutting emissions by 50%.
Renewable Energy Certificates
RECs helped manufacturer UPM Raflatac achieve its zero emissions goal in less than a year.
You've likely heard the term RECs before, but do you know exactly what they are and what they do?
When a company purchases a Renewable Energy Certificate (REC), it's essentially claiming ownership rights to 1 megawatt-hour of electricity from a renewable energy source. RECs are a kind of currency – they can be bought, sold, or traded – and give enterprises the ability to reduce or eliminate carbon emissions even if the company can't build renewables on-site.
The use of RECs has declined in recent years and this may continue as new clean energy finance options become available. Even so, some commercial enterprises still favor its use as a means to quickly finance renewable energy projects.
For example, RECs helped UPM Raflatac achieve its zero emissions goal in less than a year.
On-site Power Purchase Agreement
Energy generated through the Lapetus Solar Energy Project is being sold under a multiyear PPA to Electric Reliability Council of Texas (ERCOT) service territory.
Interested in a renewable energy finance option that offers immediate emissions reduction, energy price predictability, and no operational risk for your business?
You may want to consider a Power Purchase Agreement (PPA).
Through on-site PPAs, developers arrange the design, permitting, financing, and installation of a solar energy system on an enterprise's property. The enterprise provides little to no upfront investment.
Power is generated at a fixed rate, which can be lower than the utility's retail rate – ultimately saving customers money. Also, the project financer owns and maintains the system so there is no operational risk for the enterprise.
For example, energy generated through the Lapetus Solar Energy Project is being sold under a multiyear PPA to the Electric Reliability Council of Texas (ERCOT) service territory.
So what is the outlook for PPAs?
While PPAs are still popular – in 2019, corporations bought a record amount of clean energy through PPAs – contract lengths are trending downward.
In 2017, the average PPA contract length was 20 to 25 years. By 2019, contract lengths of 10 to 12 years were common.
Virtual Power Purchase Agreement
Source: Christopher Kent, US Environmental Protection Agency (EPA) Webinar
A Virtual Power Purchase Agreement (VPPA) is a financial contract that provides RECs from a specific renewable energy source.
Physical electricity is not delivered via VPPAs, ultimately allowing companies to invest in renewables without the constraints of geographic location or building conditions. Instead, the electricity is delivered to the grid and companies pay a fixed price for the clean electricity produced.
Here's why enterprises may choose VPPAs:
- They quickly achieve renewable energy and greenhouse gas emissions reduction goals
- They add new renewable energy facilities to the grid, local jobs and economic growth
- They help companies insulate against increasing electricity costs by locking in fixed price
For example, a 15-year VPPA with Duke Energy Renewables is helping Ball Corporation reach its ambitious goal of reducing absolute carbon emissions within its own operations by 55%.
Utility Green Tariffs
Offered by electric utility companies, green tariffs supply companies with up to 100% renewable power from projects either owned by the utility or independent power producers in the region.
Larger commercial and industrial customers buy bundled renewable energy through the special utility green tariff rate – a move that allows enterprises to purchase green power beyond the typical alternative energy finance sources (i.e., RECs, PPAs, etc.).
Historically, large commercial and industrial customers have driven most green tariff deals. However, a growing number of municipal government agencies are also beginning to look toward green tariffs to procure new, large-scale clean energy.
For example, in May 2020, the City of Charlotte became the largest U.S. city to buy renewable energy through Duke Energy's Green Source Advantage program. Over a 20-year term, the off-site, utility-scale solar energy project is expected to create more than 400 new jobs and offset roughly 25% of the carbon emissions from city buildings.
People are Choosing Renewables and Corporate Procurement is Soaring
The trend continues. People are choosing to invest in renewables and sustainability, and enterprises are increasingly adding renewables to their energy mix.
Renewable projects are up, with Renewable Energy Buyers Alliance (REBA) data marking 2019 as a record year for corporate renewable deals.
No matter the size of your organization, Duke Energy Renewables can connect you to a clean power finance option that will help you reach your sustainability goals.
Submit the contact form on our website, and a Duke Energy Renewables consultant will contact you to discuss your clean energy and renewables finance needs.