Corporate Green Power Procurement

There are several strategies available to companies interested in procuring green power. In regulated states retail options such as procurement of renewable energy certificates and participation in green pricing programs are viable options for corporate customers. In deregulated states competitive markets have attracted green power marketers with custom green power products and services. There are also opportunities in several restructured regions to contract directly with green power projects in wholesale markets. For corporations interested in substantial investments in green power, equity participation or actual project development may be viable options. The Green Power Market Development Group is continuing to explore strategies for procuring green power. We will be providing case examples and technical papers in the coming months as we continue to develop the business case for green power.

The Business Case for Green Power

When a company procures green power, it buys more than just electrons. In particular, it secures a wide variety of benefits which a company otherwise might have to pay for through contractual means or through other budgets within the corporation. Specifically, green power can offer some or all of the following benefits:

Green power can help stabilize corporate energy costs. Although green power typically has higher initial capital costs, technologies such as solar, wind and geothermal do not require fuel purchases. Consequently, ongoing payments for electricity from these sources are immune to fluctuations in fossil fuel prices. As such, these green power technologies offer energy managers a means of diversifying their energy portfolios, ensuring some degree of cost stability in the face of future fuel price uncertainty. Whether this physical hedge is preferable to a financial hedge that is secured contractually will depend on the forward prices for conventional electricity. For instance, at the end of 2001 low forecast prices for fossil fuels such as natural gas ensured that financial hedges were the more attractive option in the near term. Given the traditional volatility in fossil fuel markets, however, this is unlikely to remain the case.

Green power can provide a hedge against the uncertainty of future environmental regulations and/or the development of emissions credit markets. Green power technologies emit less conventional pollutants, such as SO2, NOx, mercury, particulates, and less greenhouse gases (GHGs), such as CO2, than conventional fuel sources. Public pressure for environmental improvement makes it likely that new regulations will emerge to reduce these emissions. Depending on the precise form of new policies, this pressure either could lead to increased costs for fossil fuels (especially coal) or could spawn new market mechanisms that offer financial rewards to customers and developers of emissions-free technologies (e.g., wind farms). Either way, green power would benefit relative to conventional energy sources.

For example, green power technologies either would be immune to certain regulatory proposals limiting greenhouse gas emissions or would benefit directly. One possible measure is a carbon tax placed on fuels in proportion to their carbon content. This would drive up the price of electricity from fossil fuel sources yet have no impact on carbon-free renewable sources. Another regulatory proposal is to develop emissions credits markets [(so-called "cap and trade" systems)] for carbon and other greenhouse gases, and to extend existing markets for SO2 and NOx. Under such a system, developers and buyers of low- or no-emissions electricity would receive valuable emissions credits which could be sold in the appropriate market.

Some forms of green power can provide the multiple benefits of on-site electricity generation. A number of green power technologies, such as solar photovoltaic systems, micro-turbines, and fuel cells can be co-located with electricity loads. As such, these technologies could provide 'peak-shaving' benefits, provide a secure back-up and uninterruptible power supply, and reduce transportation/transmission losses. Some technologies, such as combined heat and power and fuel cells, could also enable further efficiency benefits by generating waste heat in addition to electricity.

While the factors discussed above can all have a quantifiable monetary value, other potential benefits of green power appear to have monetary value that may be more difficult or impossible to quantify. These other benefits are rooted in a number of factors that can enhance a company's overall public profile and stakeholder relationships. For example, all of the companies who participate with WRI in the Green Power Group have cited a desire to be seen as corporate leaders as one of the reasons for their participation. Support of new technologies that provide broad social benefits is a time-honored way of demonstrating corporate leadership and engendering goodwill amongst a company's stakeholders. Though leadership in itself can be an important element for companies, the benefits of leadership can be manifest in the following specific ways:

Green power purchasing can appeal to certain consumers. Leadership efforts may be linked directly to corporate PR as part of a company's efforts to 'green' its image or appeal to certain customer groups. As consumers become increasingly more conscious of corporate environmental performance, green power purchases provide an opportunity for corporations to build leadership and trust in the public eye while differentiating themselves from their competitors. This strategy can be particularly effective for companies that sell products directly to the public, but less likely to be successful for upstream companies. Indeed, 'green' purchases can be tied directly to certain products as part of a branding strategy to earn greater market share or to develop a new market niche.

Green power purchases can strengthen relations with local communities. A commitment to green power can improve relations with the local community - establishing a company as a good community actor and strengthening its license to operate. In some cases, where a company's green power purchase displaces existing or prospective conventional energy generation in the local area, the community could be a direct beneficiary of the avoided pollution - enjoying cleaner air because of the company's action. A link between company and community could also be made explicit if a large corporate load creates the base demand for a green power project in a local area and the surplus power becomes available for purchase by local businesses and consumers.

Green power purchases can facilitate relations with state and federal regulators. By taking a proactive approach to addressing environmental issues, companies that use green power will be positioned better to engage environmental decision-makers and will be viewed with more credibility when meeting with legislators and regulators.

Green power purchases can enhance relations with employees. Employees are an important audience for all companies. By buying green power, a company signals its concern for a broader set of issues that may be important to its employees. Such steps can improve employee morale and aid in attracting high quality employees.

The relative importance of these benefits likely will vary by technology and by company, and not all benefits will be relevant to every case. However, these benefits introduce extra dimensions to the energy procurement process, which corporate energy buyers should take into account.