POLICY BRIEF: EXPANDING MISSOURI S CORPORATE RENEWABLE ENERGY MARKET

Transcription

1 ADVANCED ENERGY ECONOMY the business voice of advanced energy POLICY BRIEF: EXPANDING MISSOURI S CORPORATE RENEWABLE ENERGY MARKET Based on Analysis by Meister Consultants Group November, 2015 Overview An increasing number of major corporations have set sustainability targets that involve powering their operations with renewable energy. This translates into significant demand for thousands of additional megawatts of renewable energy, and represents a tremendous market opportunity. Missouri s strong business sector and high renewable energy potential mean the state is well-positioned to capture the economic benefits of this trend, but barriers that prevent willing buyers and sellers from transacting are preventing market growth. This brief identifies policy solutions that can help expand the market, and provides quantification of the market potential. Corporate Buyers Want Renewables Leading corporations nationwide have demonstrated their desire to purchase renewable energy. As of 2014, 43% of Fortune 500 companies and 60% of Fortune 100 companies have set climate and/or clean energy targets 1, and as of September 2015, 43 major corporations have signed on to the Corporate Renewable Energy Buyers Principles (see appendix). The priorities identified by these businesses include both more choice in renewable energy procurement and access to third-party ownership and financing. 2 Companies that have expressed an interest in using renewable energy and have a presence in Missouri include 3M, Cargill, Dow, General Mills, GM, Ikea, Microsoft, Nestle, Nike, Proctor & Gamble, Sprint, Unilever, and Walmart. Access to renewable energy is a particularly high priority for the tech sector. Several tech companies have signed the Corporate Renewable Energy Buyers Principles, and there are advocacy groups that produce report cards on the sustainability of tech companies operations. Leading companies such as Apple, Facebook, and Google have made headlines with their efforts to ensure the energy consumed by their data centers is sustainably produced, and these companies have gone on record as stating that clean energy policies in the states where they have sited facilities are important to their businesses Washington DC San Francisco Boston

2 Missouri s generation mix is comprised of more than 80% coal. If the state is to compete for the jobs and economic benefits that accrue from investment by the tech industry, it must provide more sustainable energy supply options that tech companies have identified as a priority. If it does not, Missouri is automatically putting itself at a competitive disadvantage to states with more sustainable options. Renewable Energy = Economic Development In November 2008, Missouri voters approved a Renewable Energy Standard, which requires the state s investorowned electric utilities to generate at least 15% of their electricity from renewable energy resources by The RES gradually ramps up over time, requiring Missouri utilities to procure 5% of their electricity from renewable resources in 2014 and 10% in The RES has led to over $200 million in investment in solar power by Missouri utilities, leveraging at least an additional $200 million in private investment. 4 Primarily due to these incentive programs, the rate of solar installations in Missouri ramped up in 2012, and through 2014 the state had installed over 100 megawatts (MW) of solar. 5 Missouri ranked 23 rd in the nation in installed solar capacity through 2013, the last year for which data is available. 6 There are currently more than 110 solar companies at work throughout the value chain in Missouri, employing 2,500 people. 7 Wind energy in Missouri has also expanded, and the state currently has six projects totaling 459 MW. These projects represent almost $1 billion in capital investment, and yield $1.4 million annually to landowners in the form of lease payments This calculation is based on the typical incentive offer of $2/ per watt, and solar prices that average between $4-$5 per watt statewide. 5. Installation capacity through 2012 from Interstate Renewable Energy Council (2014). Installation capacity through 2014 from 6. Interstate Renewable Energy Council (2014). U.S. Solar Market Trends Available at:

3 Corporate Renewables = Missouri Jobs Nationwide, corporate renewable energy purchases tend to be fairly large, with projects averaging 18 MW in size. 9 A single 18 MW solar energy development in Missouri would result in 608 job-years 10 (each job-year equal to one job lasting for one year) of employment and spur $36 million in economic development, and a single 18 MW wind facility would result in 107 job-years and $13 million in economic development. 11 This economic growth would have the additional benefit of an increase in taxable revenue for the State of Missouri. Opening Missouri s market to enable corporate renewable energy purchasing would attract significant private investment, which could be leveraged to grow the state s clean energy sector and yield substantial economic development. Missouri s Market Opportunity Large-scale commercial and industrial (C&I) customers consume a lot of energy in Missouri. Large corporations with more than 500 employees account for roughly 22,000 GWh of the state s annual electricity consumption, 12 which is more than a quarter of Missouri s annual total. It would take around 10,100 MW of wind and solar to meet this demand with 100% renewable energy. 13 Missouri s Renewable Energy Market Remains Largely Untapped Missouri has ample renewable energy resources its wind and solar resources rank 14 th and 19 th nationally 14 but the bulk of the state s potential has yet to be harnessed. For example, Missouri enjoys roughly the same wind energy resource as its neighbor Illinois, yet more than eight times as much wind energy capacity has been installed in Illinois as in Missouri. Iowa, which enjoys a wind resource that is two-and-a-half times greater than Missouri s, has more than 12 times as much installed wind energy capacity as Missouri Bloomberg. U.S. Corporate PPA Project Database Economic development studies typically report employment impacts in terms of job-year (the number of jobs created by a project multiplied by the number of years those job impacts are expected to endure), to account for both short-term construction job as well as long-term operational jobs. 11. Calculated from National Renewable Energy Laboratory (NREL) Jobs and Economic Development Impact Models, available at: Economic Development in this context refers to the total economic activity that a project s development would drive in a state, including both project-related spending and salaries, as well as the induced market impacts resulting from that spending. 12. Market Analysis for Corporate Renewable Energy Purchasing, Meister Consulting Group, September 2015, based on U.S. Energy Information Administration and Census Bureau data. 13. Assuming that renewable energy resource development would be divided between wind and solar and assuming a wind capacity factor of 34% (national average 2014 capacity factor, per U.S. EIA (2015). Electric Power Monthly. Available at: and a solar capacity factor of 19.3% (NREL (2012). U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis. Available at: NREL (2012). U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis. Available at: State-level technical resource potential from: NREL (2012). U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis. Available at: nrel.gov/docs/fy12osti/51946.pdf. Wind energy installation data from: American Wind Energy Association (2015). U.S. Wind Industry Fourth Quarter 2014 Market Report. Available at: 3

4 As noted above, Missouri s emerging solar industry has made progress, but large corporate power purchasers are shut out. Large-scale solar is rare in Missouri, and businesses must make substantial and extraordinary commitments to purchase solar. For example, in 2015, IKEA constructed a 1.3 MW solar array at its St. Louis location, the largest in the state to date. While impressive, this project was only possible because of IKEA s $2 billion commitment to pursuing renewable energy for all of its facilities worldwide, 16 which enabled the company to self-finance the project. Many other prospective corporate market participants are unwilling or unable to self-finance, own, and operate renewable energy projects. Reducing policy barriers that stand in the way of other approaches to renewable energy development is critical for Missouri to gain the economic benefits and satisfy the desires of its biggest corporate citizens who seek to power their facilities with renewable energy. Market Growth Blocked by Policy Barriers Missouri could become a national leader in renewable energy development, but market growth is blocked by the absence of key policies. Fortunately, solutions exist. Missouri could enable market growth by enabling Third-Party Ownership of renewable energy projects, and by modifying its Net Energy Metering policies to lift the restrictive limit on system capacity. Neither of these options involves government mandates or tax incentives. Rather, Missouri can position itself to capture the economic benefits of corporate renewable purchases simply by eliminating outdated regulatory barriers. Third-Party Ownership Financing and maintaining a renewable energy system can be a significant barrier for many potential renewable energy customers, but Third-Party Ownership policies address these difficulties. Third-Party Ownership refers to a generation facility developed, installed, owned, and maintained by an entity that is not the utility or the end user of electricity. This third party is usually a renewable energy developer that sells the system s electricity to the end-user, typically under a long-term contract for a flat per-kwh fee for power, effectively replacing some or all of the end user s electricity bill. An example of this is when a solar company retains ownership of solar panels they install on customers roofs. This approach allows the customer to avoid the upfront capital cost of the installation and simply buy the output

5 The availability of Third-Party Ownership varies from state-to-state, as it often requires specific approval by the state legislature or judiciary. 17 Nationwide, 24 states and the District of Columbia permit Third-Party Ownership of renewable energy systems. 18 In 20 states, including Missouri, the legality of Third-Party Ownership has not been clarified, and an affirmative approval is needed to unleash the ownership arrangement (the option is specifically prohibited in five states). 19 In states that have enabled Virtual Net Metering, customers can purchase power from third party-owned systems that are not located on the customer s property, making renewable energy feasible for customers that do not have suitable sites for wind or solar. Third-Party Ownership, especially when coupled with Virtual Net Metering, is useful for large C&I customers with sustainability goals. Due to the fact that these customers have high demand for electricity, it is impossible for many of them to generate enough clean energy using only on-site generation like rooftop solar to meet their sustainability goals. Being able to participate in off-site generation, owned and operated by a third party, is the only practical means for such companies to achieve their goals. Net Energy Metering Net Energy Metering (NEM) refers to the way that a renewable energy system owner is billed for power by their utility. Net-metered customers are charged only for the electricity that they consume over the course of the month, net of the total amount of electricity they produce and put back on the grid over the course of the month. For example, a customer that consumes 10,000 kwh in a month but produces 8,000 kwh from a renewable energy project is only billed for 2,000 kwh. NEM is a critical enabling policy for on-site renewable energy 95% of new distributed solar capacity is installed through net metering tariffs, for example. 20 Some states limit the size of renewable energy systems that can qualify for net energy metering. In Missouri, this limit is 100 kw. For reference, a typical residential home could completely meet its energy needs with a 5-10 kw rooftop solar system. However, for large electrical customers in Missouri many of which have electricity needs that would require a renewable energy system well over a megawatt in size the 100 kw limit is highly restrictive. A company installing a renewable energy system large enough to meet any significant portion of its energy needs would not be able to benefit from net metering, reducing the system s value. The recommended best practice is to allow customers to net meter renewable energy projects sized to produce the full amount of energy that they consume annually. States that have implemented this approach include Arizona, Colorado, Georgia, New Jersey, and Ohio. 17. For detail on the legal and regulatory challenges that Third-Party Ownership faces, see NREL (2010). Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners. Available at: The states that explicitly prohibit Third-Party Ownership are Florida, Kentucky, Oklahoma, North Carolina, and South Carolina. Details available at: Interstate Renewable Energy Council (2014). U.S. Solar Market Trends Available at: 5

6 Recommendations: Policy Solutions to Reduce Market Barriers Enable Third-Party Ownership Third-Party Ownership is critical to corporations that want to procure renewable energy. Large businesses use significant amounts of electricity, enough to benefit from large renewable energy projects. For a variety of reasons, these companies may not want to finance, own, and operate their own generation source, and would prefer to contract with a third party. Third-Party Ownership can apply to both wind and solar projects, and to on-site or off-site generation. As such, Third-Party Ownership has broad implications for expanding Missouri s renewable energy market, and in particular, for unlocking Missouri s wind and solar energy potential. Lift the Limit on NEM System Capacity Solar works in Missouri but not for large businesses. Missouri s Renewable Energy Standard has helped the emerging solar market, and the state s Net Energy Metering policies receive a respectable B grade from regulatory observers, rating well for protecting customers from hidden fees and for customer ownership of Renewable Energy Certificates. 21 However, the glaring flaw in Missouri s solar policies is the 100 kw system size limit. This limit prevents large businesses from procuring renewable energy at a scale that is worthwhile for them. Lifting the limit would open up tremendous opportunities for corporate customers to meet their electricity needs with renewable energy and stimulate significant growth in the solar market. Conclusion Missouri s current policy framework blocks the state s biggest corporate citizens from obtaining the renewable energy they want, and chokes investment in the state s renewable energy infrastructure. Allowing Third-Party Ownership and lifting the overly restrictive cap on Net Energy Metering will create opportunities for Missouri to realize substantial economic benefits from renewable energy development. Meeting just 1% of the energy needs of large corporate buyers with new wind and solar resources would drive approximately $220 million in project-related and induced economic development, and would create nearly 2,000 job-years of clean-energy-driven employment. 22 These policy changes would eliminate market barriers and increase the state s attractiveness to major companies that value sustainability, positioning Missouri to capture the economic growth and private investment that can come from corporate renewable energy purchasing. 21. Vote Solar (2015). Freeing the Grid 2015: Best Practices in State Net Metering Policies and Interconnection Policies. Available at: org/#state-grades/missouri 22. Employment and economic impact figures are calculated using NREL s JEDI models, and assume an even split between new wind and solar capacity that serves 1% of the 22,000 GWh annual electric consumption of large corporations in Missouri. 6

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