The shifting winds of near-term renewable energy demand drivers

Historically, U.S. renewable development was driven almost exclusively by renewable portfolio standards (RPS), state-level renewable mandates that have facilitated above-market compensation for renewable generation owners. In recent years, corporate demand has emerged as an increasingly important driver, with corporate off-takers accounting for more than 30% of the wind capacity power purchase agreements (PPAs) since 2015. This increase is often attributed to corporate sustainability commitments, but “being green” today is as much about economics as it is about environmental stewardship. As project economics have grown more compelling in recent years – particularly in the case of wind in the middle of the country – corporate investment has increased. With increasing disparity between the White House and left-leaning states’ clean energy policy agendas, declining power prices in wind and solar-rich regions, and the phasing out of tax incentives, the clean energy sector is poised for incremental support from the states via RPS, green solicitations, or other renewable demand drivers.

Wind development has exploded in the central U.S., where declining installation costs, capacity factors in excess of 50% for some projects, and the support of generous federal tax credits have more than compensated for the lack of binding RPS commitments in the central U.S. Texas and Oklahoma alone account for nearly 12.5 GW of new wind capacity since 2015, more than 50% of the U.S. wind capacity added in that time frame. Neither Texas nor Oklahoma features an (unmet) binding RPS, and the same can be said of Kansas, North Dakota, and Iowa, the states with the three next highest levels of wind capacity additions in the same time frame.

The primary driver behind this sustained surge in mid-America wind investment has been project economics, supported by low installation costs and improved technology. Since 2011, project capacity factors (led by projects in the wind-belt states mentioned above) have risen each year. U.S. projects installed in 2015 boast average capacity factors of 41% in 2016, higher than that of any other vintage. The seven wind projects (1,220 MW total) that came online in Oklahoma in 2015, for example, averaged an impressive 47% capacity factor in 2016.

Renewable investment interest from corporate off-takers, who account for an increasing percentage of the wind capacity that has come online, has grown along with expected returns on investment. Firms can strengthen their brand through sustainability investment, but the primary driver is economics. The corporate focus on “additionality” – renewable procurement that results in the addition of new renewable capacity – is often cited as evidence of a more stringent commitment to renewables, but it is as much a statement by corporate players that they believe they can go green and reduce their net energy bills at the same time. Why spend money on unbundled RECs (renewable energy credits), which by definition represent an additional cost on top of a company’s energy costs, when they believe they can fix their energy costs and earn a positive ROI by contracting with new projects.Read full article at Utility Dive

The preferred contracting mechanism is the “virtual PPA,” financial contracts through which a corporate off-taker keeps the green attributes from a wind project but liquidates the actual electrons (which typically far exceed the corporation’s local demand) through a wholesale market.

Without geographic constraint, corporations have focused their investment where the economics are most compelling, as one would expect – utility-scale wind in the wind belt….