In 2016, the number of renewable tariff programs was doubled by utilities across the country to meet skyrocketing demand from large corporate customers. There were only five regulated utilities that offered contracts through which large buyers could obtain renewables-generated power at the end of 2015. None had all the attributes corporate customers generally seek. Five were added in 2016, and observers say they mark a tremendous improvement.
Breakthrough Tariff Structures
Being invented by utilities as they go, these breakthrough tariff structures differ in a variety of ways. However, all of them allow utilities to sell green utilities to key customers without imposing costs on other ratepayers.
The opportunity to provide additional load by serving the demand of large commercial customers is real — as is the risk of losing that revenue if companies forgo utility service. According to a recent report from Ceres and partners, 215 companies have renewable energy, emissions or efficiency goals in the Fortune 500, and 60 of the Fortune 100 have them.
Renewable Energy Record for Corporate Customers
Large corporate customers contracted a record 3.2 GW of renewable energy in 2015. Previously to 2015, over 21 percent of the 16.4 GW renewables were added the U.S. grid, according to a report from World Wildlife Fund (WWF), World Resources Institute (WRI) and the Edison Electric Institute (EEI). Since 2015, more than 450 MW of new solar were contracted through the five less-than-perfect tariffs. In addition, over 500 megawatts of deals are currently under negotiation.
The five new tariffs in 2016 have already accelerated that growth, as Facebook announced recently its planned New Mexico data center will utilize the tariff just introduced by Public Service Company of New Mexico (PNM).
What is a Green Tariff?
Until recently, regulators kept green tariff prices above retail electricity rates to prevent any cost shifting to utility customers not receiving the renewables-generated electricity. These emerging structures let large customers contract at more equitable prices, according to WRI Director of Utility Innovation Letha Tawney. However, they are still highly varied, relatively complicated one-offs.
Generally, these tariffs provide a way for utilities to contract with the customer to provide renewables-generated electricity “at a competitive, long-term fixed price that reflects the direct cost of generating and delivering [it],” according to Tawney and colleagues. “This allows customers to mitigate the risk of future fossil-fuel price fluctuations in their electricity bill.”
Additionally, this tariff transfers the Renewable Energy Certificates (RECs) to the customer, which confirms the power purchase’s contribution to the customer’s sustainability commitment.
Both tariffs and riders are included in variations, according to Tawney. A tariff is a charge at the cost of the renewables-generated electricity instead of at the retail rate, while a rider is added to the bill and typically includes both the cost of the renewables-generated electricity and a credit for the fossil-fuel-generated electricity it replaces. Tariffs and riders both allow a contractual relationship between the owner of a renewables facility, the utility and the customer. New tariffs for RMP, PNM and Dominion have these structures.
The Design of a Tariff
The WRI, WWF and a core group of corporate-scale electricity customers collaborated to formulate six Corporate Renewable Energy Buyers’ Principles to guide utilities and regulators. They define what the Principles’ 62 corporate signatories want in a contract based on a renwables tariff.
The first three principles are that corporate buyers need the widest possible range of resource options. Those resource options are required to be cost-competitive and must come through longer-term, fixed price contracts.
An “additionality” principle requires that the resources procured for the corporate customer must be “additional” to the existing generation of the utility so that the investment adds new renewables to its portfolio.
The tariff structure requires relatively simplified and standardized third-party financing through power purchase agreements (PPAs) and/or facility leases.
Lastly, the tariff should be structured to allow the customer to work with regulators and the utility to innovate new procurement options that share the new costs and benefits of renewables to the system but do not impose costs on other customers. According to Tawney, the PSE, PNM and RMP tariffs were the first to meet all six buyers principles.
Commissions Moving like Lighting
The proliferation of renewable tariffs and the speed with which regulators are approving them are both impressing Tawney. The doubling of proposals across the U.S. is a sign that utilities are searching for products that meet large customer needs and indicate that large commercial and industrial customers are assisting with driving renewables growth.
The regulatory approvals are coming at what for utilities commissions is the lightning-like speed of months instead of years. This shows that commissions are more familiar with the tariffs, understand their importance to utilities and understand that properly structured tariffs will not shift costs to other customers.
MAS Field Services is a field service company within the energy industry eager to be a part of the ever expanding goal of American energy independence. Whether it’s title for minerals on an oil and gas or solar project, leasing large acreage for a wind farm, or obtaining right of ways for long haul transmission and pipelines, MAS can get the right people in the right place. We are excited to tap the local oil and gas reserves needed to keep our way of life moving forward, capture the overwhelming wind and solar resources on local soil needed to help power America, and tackle the challenge of bringing those resources from production to consumption. Contact us with the link below for more information!