Contributed By: Jake Hoheim, Cleantech Client Development Manager, Schneider Electric Energy & Sustainability Services
As retailers look to reduce their environmental footprint and grow renewable energy investments, staying up to date on the ever-changing renewables procurement landscape can be challenging. In this blog, we explore the retail opportunity for onsite renewable energy. We’ll explore trends from the EPA’s recent Commercial Buildings and Onsite Renewable Energy Report and look at SEIA’s recent solar industry findings.
How do retailers procure onsite renewable energy?
Retailers typically meet onsite renewable energy goals by either pursuing an onsite power purchase agreement or an owned onsite system.
1. Onsite Power Purchase Agreements
Onsite power purchase agreements (PPAs) are a contract between a retailer and a project developer, in which the project developer typically owns, operates, and maintains a renewable system for a term of 15-25 years. The retailer pays for all the system production at a fixed price for the life of the agreement. While onsite solar PPAs are the most common form of clean onsite generation, there also may be opportunities for retailers to enter PPAs for fuel cells and battery storage.
Onsite PPAs are ideal for retailers that prefer renewable energy projects to be financed externally, rather than allocating company CapEx. And because the agreement locks in a utility at a fixed price, onsite PPAs provide long-term electricity price stability and provides cost certainty for internal planning.
In addition, because the developer operates and maintains the installations – and gets paid for the kWh that is produced – the developer is incentivized to ensure the system operates as efficiently as possible.
Onsite PPAs also offer retailers the reputational benefits of supporting renewable energy. A number of retailers have executed onside PPAs, including Walmart, Target, Macy’s, The Home Depot, and Whole Foods.
RILA and Schneider Electric partnered on a quick guide to onsite PPAs for retailers here.
2. Owned Onsite Systems
Owned onsite systems are renewable energy assets that are developed or purchased by a company that also oversees the ongoing operations and maintenance of the system. Onsite systems allow retailers to offset their onsite grid electricity, reduce their carbon emissions, and provide savings opportunities. Companies that have a surplus of capital may see the most value in this structure because of the potential to have the highest return on investment in comparison with other onsite developments that involve third parties and leasing.
Owned onsite systems are ideal for retailers that prefer to own their property’s renewable energy assets and have readily available CapEx to invest. And because the assets are operated and maintained by the company, electricity is essentially free after the system is paid off.
If retailers have access to a rooftop, parking lot, or open ground space, they can take full advantage of an owned onsite systems’ potential by increasing the site’s property value and making money.
Owned onsite systems also offer retailers the reputational and visual impact benefits of supporting renewable energy. A number of companies have owned onsite systems, including IKEA, Walmart, and GM.
Explore more on owned onsite systems here.
What are current onsite renewable energy trends in the retail space?
The EPA recently surveyed 263,865 Energy Star Portfolio Manager properties and found that nearly 1% are currently generating onsite renewable energy. One percent may appear small at first glance; however, this statistic has increased ten-fold over the past decade. Onsite renewables are now supplying more than six times as much energy as they did in 2009—suggesting an overall trend towards smaller, onsite systems. In the retail category, specifically, retailers had the largest number of properties currently generating renewable energy, where onsite systems met an average of 36% of their respective electricity needs.
Further, the data set showed 60% of properties retained their renewable energy credits (RECs). Retail stores and hospitals were the only 2 property categories where it was more common to sell the RECs than retain them. More on the use-case and process for RECs here.
An effective approach taken by some is to pool facilities to create a portfolio of viable sites, which creates economies of scale that otherwise would not be obtainable. Developers in turn see this as a more attractive opportunity, ratcheting competitive tensions and allowing them to build more efficiencies into their bids—resulting in lower pricing for the retailer while achieving the type of programmatic progress toward their goals that otherwise may not be possible. We detail the full advantages and downsides of collaborative renewables sourcing in this quick guide with RILA.
What about solar trends overall?
In SEIA’s October 2020 Solar Means Business Report, Apple remained at the top of onsite and offsite solar procurement with 398.3 MW of solar installed. Amazon was in second with 369 MW of solar installed, and Walmart, Target, and IKEA led the way on installed solar capacity in the retail sector.
Regarding onsite solar, specifically, the report showed that Covid-19 has not had a major impact on U.S. corporate solar procurement. Some smaller companies have postponed 2020 onsite rooftop installations, but the pause is only expected to be temporary.
That being said, broader market uncertainty as a result of the pandemic is likely to remain a factor for tax equity and other investors inherent to a PPA and other third-party-owned PV systems. Coupling solar PV to take advantage of the federal investment tax credit (ITC) with storage is an increasingly viable option in markets, such as California with high demand-based charges.
A report released earlier this year by RILA also offers insight into which states are leading for corporate clean energy procurement to help guide companies in their efforts to boost commercial and industrial (C&I) renewable electricity usage across their operations in the United States.
More global markets are also emerging as options for companies with multinational operations – we outlined this global procurement approach for RILA members here.
Are onsite renewables right for you?
Like any renewable energy initiative, engaging company stakeholders is crucial to get buy-in and ensure there is a thorough understanding of the deal structure, benefits, risks, and implementation. Stakeholder groups that should be involved include Facilities, Procurement/Energy, Finance/Accounting, and Risk Management.
Engaging with independent consultants as well as several NGOs and coalitions can help companies accelerate the adoption of renewable energy and provide expertise.
To learn more about onsite renewable energy opportunities, if they’re a viable option for your company, and next steps for moving forward, contact our team here.