Offsite Renewables 101: How Energy Markets Work

In this 20-minute webcast, we discuss:

• What is an energy market and why should I care?
• Why would a customer buy renewable energy from an offsite project?
• Do I get to claim the environmental benefits if it’s not located onsite?
• What other benefits does an offsite project offer?

Watch the recorded webcast:

Webcast Transcript:

Hello everyone and welcome to Solar Tea Time!

I’m Craig Noxon, VP of Enterprise Sales and we have a very special guest expert for this month, Drew Dickson, Managing Director, Business Development at Duke Energy Renewables. Drew and Duke Energy Renewables will be our guest in our new four-part series of Solar Tea Times discussing offsite renewables. Today we are focused on how energy markets work.

Before we get started, a little housekeeping. I wanted you to all be aware that your line is muted but you can type questions inside of the webcast under the questions tab. We will try to answer questions at the end of the webcast or we will get back to you via email. OK, that’s it for the logistics. Let’s get to the topic of the day, tips from Cal Poly on going solar.

Drew, welcome to Solar Tea Time. We appreciate you and Duke Energy Renewables joining us. Since Duke Energy fully acquired REC Solar back in December, we’ve been working closely together on new ways to bring both onsite and offsite solar and wind to customers as well as microgrids and storage. We’ve gotten a lot of questions about the benefits of doing onsite vs offsite so we thought it would be great to have you on as our expert to help explain.  So, without further ado, let’s start talking about offsite! First Question:

What is an energy market and why should I care?

• The vast majority of electrical generation operates in the wholesale market

• • • Conventional fossil-fired generation, wind, large solar – everything except for distributed resources (behind the meter)
  • The utility or retail provider who serves your load either generates their own electricity or purchases it in the wholesale market
  • Markets are regionalized
    • some traditional vertically integrated utilities operate their own wholesale markets that may just cover part of a state or parts of several states where they serve load
      • examples – western US (except CA), southeast
    • Other “organized” markets can cover many states – for instance the Southwest Power Pool (SPP) covers parts of 14 states from Oklahoma to the Canadian border
  • These organized markets have transparent pricing, liquid trading hubs, and offer coordinated regional transmission planning and efficient dispatch of connected generators to serve load at the lowest cost
  • These organized markets allow for independent generators to build power plants and sell power into the market or to third parties – opening an avenue to non-traditional energy buyers to access the wholesale power market

Why would a customer buy renewable energy from an offsite project?

• • The simple answer is because on-site renewable generation doesn’t work everywhere
  • Solar or wind resource varies from location to location – as do retail rates
  • Incentives, tariffs, rebates differ dramatically from location to location  and utility requirements differ too – a large multi-unit retailer may have dozens or even hundreds of utilities to work with
  • Leased locations or uncertainty about how long a location may make sense
  • Energy-intense facilities with not enough rooftop or adjacent land to cover full load
• Another reason is that offsite renewable energy projects are larger – tens or hundreds of MW
  • Allows a customer to purchase RE at scale – one project could cover all the load in a particular market – or the entire country
• It’s important to note that an offsite RE purchase in the wholesale market doesn’t flow directly to your meter or cut out your regulated utility – they still have the monopoly to serve your load inside their franchise. And in deregulated retail markets your selected retail provider will still serve your load, but can price the wholesale RE purchase into your monthly bills.
• Regardless whether you’re in a regulated or deregulated retail market (or a mix) – a wholesale RE purchase creates a hedge against wholesale energy costs – and since retail rates are partially driven by wholesale costs – a hedge against your retail rates, albeit, not a perfect hedge.
  • similar to hedges you may use in your business to hedge other commodities like fuel or agricultural products

Do I get to claim the environmental benefits if it’s not located onsite?

• Absolutely! Offsite RE projects generate Renewable Energy Credits (RECs) and those RECs and other present or future environmental attributes can convey to the buyer of the electricity – “bundled”, (or “unbundled” to a third party who purchases just the RECs and not the underlying energy)
• The RE purchase can also include the “marketing rights” – the exclusive right to market or advertise the RE purchase so there is no confusion or competing claim on the RE attributes
• RECs are generated by registration in state compliance programs (e.g. Maryland RPS), or by certification with an NGO like the Green-e certification from the Center for Resource Solutions.

• • RECs from state compliance programs are usually created, tracked, traded, and retired in a web platform offering transparency for participating parties
    • Example: ERCOT, PJM-GATS
  • RECs from a voluntary registration program (e.g. Green-e) are usually created, tracked, and reported with paper forms and compliance attestations
  • Either way, the purchaser of the REC can claim all the RE attributes and use those credits toward RE or emission reduction targets

What other benefits does an offsite project offer?

• • Large impact – large scale – quickly meet RE goals
  • “Additionality” – agreement to purchase RE causes project to be built –changes the grid mix
  • Fewer projects/contracts to manage (1 offsite vs. dozens of onsite)
  • No capital investment – fixed price energy purchase
  • Hedge value (discussed before)
  • Positive NPV in many markets (wind and solar growing)

Thank you, Drew, for sharing your insights and helping our audience better understand offsite. We’re excited for offsite 201 occurring next month where we will discuss why customers pursue offsite and strategies you can use to deploy it.

Well, it’s time to wrap up this month’s Solar Tea Time. If anyone would like to talk to REC Solar or Duke Energy Renewables more about going solar or offsite renewables, feel free to email us. You can also email us if you have questions that you would like answered in future Solar Tea Times.

On behalf of everyone at REC Solar, Cheers!