United States: Report From The States

Continued growth of the corporate renewables sector will be heavily dependent on favorable policies at the state level. Earlier this year Advanced Energy Economy, a non-profit clean energy trade group based in Washington, DC, launched a program with the goal of spurring state policies to support corporate renewables. (Note: Sullivan & Worcester is a Member of AEE and provides support for AEE projects.)

In June AEE published Opportunities to Increase Corporate Access to Advanced Energy: A National Brief. The publication analyzed key state policy issues and provided a methodology for considering and advocating for supportive policy development. Following on the report, AEE has prioritized states where the greatest opportunities exist for promoting policy changes favorable to corporate renewables.

Most of major corporate deals to date have involved large, offsite projects. AEE notes that policies supporting growth in offsite corporate deals include utility renewable energy tariffs and direct access tariffs. Back-to-back power purchase agreements (PPAs) are another transaction framework which, while not necessarily directly dependent on a policy, could drive more offsite deals.

While offsite deals are attention-grabbing due to their size, the market in the distributed generation (DG) space also offers major growth prospects. Policies that could stimulate development in the corporate DG space supported by AEE include increasing project size limits, allowing third-party ownership and expanding net metering programs.

Participants in the corporate renewables market will benefit from a full understanding of the impacts of state policies in markets where projects are under consideration. They should strongly consider participating as AEE members and in support of the AEE state policy initiatives.

STATE POLICIES SUPPORTING OFFSITE GENERATION PROJECTS

Utility Renewable Energy Tariffs

Renewable energy tariffs, or green tariffs, are one mechanism by which corporates can procure renewable energy from offsite. Under these programs, customers enter into contracts to procure energy that is created by renewable generation sources. Historically, customers have had to pay premiums in programs like this, but advocates are pushing utilities to include competitive procurement and increased freedom of choice, which could make them more effective and in-line with a typical power purchase agreement arrangements in the future.

Direct Access Tariffs

Direct access programs, sometimes called retail choice programs, allow customers to purchase directly from a non-utility system operator rather than a utility as intermediary. However, the utility continues to provide transmission and distribution services. These programs can be effective in regulated markets

States identified by AEE with the highest potential for offsite deals if tariff policies were to be implemented include: California, Florida, Indiana, Michigan, Minnesota, Alabama, and South Carolina.
Of these, California may be the state where movement is seen in the near term. The state has long been at the forefront of promoting solar, and several of the largest offsite deals to date have been done there. Additionally, a 50% by 2030 RPS ensures that regulators and market participants alike will be looking to meet energy needs with renewable sources in large chunks.

Back-to-back PPAs are another mechanism which facilitates corporate purchases of offsite clean energy. Here, utilities agree to purchase energy from a particular renewable energy facility on behalf of a particular customer. They then turn around and sell a commensurate amount of energy to the customer at a pre-negotiated rate (hence the term 'back-to-back'). As the utility can ensure value creation, this structure may be a less objectionable path forward in some tricky markets than tariffs that have been proposed.

STATE POLICIES SUPPORTING DISTRIBUTED GENERATION

Policy-restricted system size limits

Many states place limits on the size of DG projects. The main reason cited is typically the ability to ensure that local grid infrastructure is capable of absorbing incremental electricity. Such limits can be problematic as permissible systems often produce less than co-located operations need, reducing the value proposition of going green at those locations. Absolute maximum size allowances could be raised without risk to the grid in many locations. Alternatively, system sizes could be pegged at the level of the co-located facility's consumption, as is currently done in New Jersey and Colorado, among other states. Some of the states with the greatest potential for replacing current consumption with energy from renewable sources with increased system size limits include: Texas, California, Michigan, Alabama, Kentucky, Tennessee and Indiana.

Other states, such as Pennsylvania, have moved to clarify interconnection sizing standards this year. However, among the states listed, there has been relatively little recent movement toward increasing DG system size limits.

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