Month: June 2020

Meaningful climate action must address anti-racism and equity

2020 has been a year of disruption. The ongoing, systemic oppression of Black Americans, including police violence, highlights how much work needs to be done to bring true equity to our society. This has been an awakening for me. We all must do more, and we all have to do better. And, as 3Degrees’ CEO, I have an obligation to do everything I can. Here are some of my reflections:

As a U.S.-headquartered company in the clean energy industry – which is historically dominated by white men 3Degrees is part of a messy, complicated, and unjust history of systemic racism. White supremacy has been woven into the fabric of the United States and, whether we’ve even realized its existence or not, white people like me have benefited from it. We all have an urgent responsibility to recognize the characteristics of white supremacy culture and help dismantle it. That will require a constant, unyielding devotion to racial justice, inside and outside of our business. We have a part to play in changing the future, and as CEO I am committed to making changes — both in our organization and in our industry.

Diversity is one of 3Degrees’ company values. This June, the 3Degrees team has been discussing what it means to be an anti-racist organization, particularly in the context of our mission to make it possible for businesses and their customers to take urgent action on climate change. Last Friday, we paused business for a day to provide employees with a day of reflection and action in honor of Juneteenth. The fight against climate change is intertwined with dismantling the racist systems in America and indeed throughout the world. As we shared in a public statement earlier this month:

We recognize that climate change has a disproportionately negative impact on Black people, Indigenous people, and other people of color. Urgent action on climate must also acknowledge, explore, and advance equity and inclusion in marginalized communities. Our efforts to date have fallen short. The lack of racial diversity at 3Degrees and throughout our industry, especially in leadership positions, contributes to a void in recognizing problems and developing solutions. This is one reality (among others) that we are committed to changing.

I am on my own journey to be an anti-racist leader, which includes learning more about the history of racial oppression and unpacking my own biases. When an employee-led group focused on diversity, equity, and inclusion formed in 2016, I enthusiastically supported the concept, but I didn’t really know where it was headed or what my real investment would need to be. Suddenly I found myself in discussions on new topics, terminology, and a requirement to define what diversity means for our company. These discussions frequently pushed the boundaries of my comfort zone and tested my decision-making, risk aversion, and commitment to doing the tough work. 

As our work continues, I’m more aware of why I get uncomfortable and I’m pushing myself to share openly. I’m learning to be a better listener and to accept feedback. I’m ready to invest more of my own time and company resources to make change happen. I know the team at 3Degrees is with me in this work, and I look forward to what we will do together — within our organization, our industry, and with our partners and clients — to dismantle white supremacy and build an equitable future for people and the planet. I invite you to join me.

Impacts and opportunities for VPPAs resulting from COVID-19

COVID impacts VPPA

Drastic changes to energy markets from COVID-19 have highlighted the market risks for corporate buyers considering virtual power purchase agreements (VPPAs). A combination of decreased electricity demand and all-time low natural gas prices has led to a noteworthy decline in wholesale electricity prices in some markets, which is bad news for VPPA offtakers. Corporate buyers that are not hedged against these price swings are seeing dismal contract financial performance so far in 2020, but there is reason for optimism.

Assessing 1H 2020 damage

In some markets, wholesale power prices have dropped by over 20% since February 2020 compared to the two year average. ERCOT has fared better than others, such as PJM. In spite of the rough start this year, prices in May and June rebounded slightly as businesses reopen and summer demand increases, but this good news may be short-lived if there is a resurgence in COVID-19 infection rates. The charts below illustrate how 2020 has compared to with 2016-2019 in ERCOT and PJM.
RE prices 1

Let’s look at the impact of the first half of 2020 on existing projects. 3Degrees examined the year-to-date performance of active projects in popular VPPA areas such as ERCOT North and PJM Dominion. A key (and expected) observation was a steep reduction in realized electricity prices, which has no doubt been painful for corporate buyers expecting greater revenue. When compared to 3Degrees’ pessimistic forecasts, we found that the realized prices fell between our “downside” and “black swan” scenarios. 3Degrees’ consulting practice helps clients and their finance teams manage VPPA expectations with a conservative, data-driven approach to electricity price forecasting, which has proven highly valuable in the COVID-19 era.

Renewable Energy Pricing 23Degrees takes a conservative, data-driven approach to VPPA financial analysis using market-based forecasts and custom scenarios. Our ‘Black Swan’ scenario has so far proven to be a reasonable worst case estimate for corporate buyers weathering extreme events, such as COVID-19. 

Expectations for future corporate PPA performance

Despite the underperformance of active projects this year, new-build projects in some markets are still projected to see cost-neutral to positive contract values over the long-term. Even if the COVID-19 rebound is drawn out until 2023, our adjusted downside scenario, which accounts for two years of “black swan” impact, estimates a drop in contract values of only $1-2 per MWh compared to pre-COVID estimates. The chart below shows our projections under several forecasts with differing views on the duration of depressed market prices.

VPPA Contract Value

Seeking potential opportunities amid uncertainty

Lengthy renewable energy procurement and project development timelines limit opportunities for buyers who want to act quickly. The current market turbulence has created unique prospects for those that are nimble and opportunistic. First, buyers may benefit from lower PPA prices in the near term. For some sellers, low interest rates are reducing financing costs thereby enabling lower PPA prices, while others may be forced to reduce margins in response to reduced corporate PPA demand and fierce competition amongst developers. Another opportunity for buyers may be shortened transaction timelines. Nervous buyers may cancel or pause procurements and leave competitive, well-vetted projects on the table, providing a potential opening for nimble buyers to seize great projects that are “back on the market.”

Given the long-term nature of VPPA transactions, it is likely that at least one market shock will occur during a contract term. Discussions around risk can help buyers anticipate and plan for worst-case scenarios. As the energy market impact of COVID-19 is likely limited to the near-term, corporate buyers who are just now considering or beginning their procurement are well positioned to benefit from the market rebound and better understand the downside risks.

Corporate buyers who are just now considering or beginning a VPPA procurement are well positioned to benefit from the market rebound and better understand the downside risks. Contact our consulting team to explore current corporate PPA opportunities.

 

Amid uncertainty, an opportunity for utilities to better serve large customers’ renewable energy needs

wind turbines in a field of yellow flowers

At 3Degrees, we work with a wide variety of organizations, including large corporates and utilities, to help them meet their renewable energy goals. So over the past few highly challenging months, we’ve had many conversations with leaders from both sectors on how to best approach their current and future renewable energy needs in the face of COVID-19. With visibility into these strategic trends, we see a unique opportunity for utilities to design and deliver renewable solutions that drive even more value for their largest customers.

COVID-19’s impact on C&I renewable energy strategies

For corporations, municipalities, and other large energy users, renewable energy purchasing is driven by long-term carbon reduction goals and years-long strategies for achieving those goals. As we assess the market today, there is good news: despite the sharp economic downturn that COVID-19 has ushered in, we haven’t seen any organizations step back from their long-term sustainability goals. It is encouraging to see that organizations are continuing to pursue these goals, especially those that have made public commitments such as signing on to RE100 or setting a Science Based Target.

While long-term renewable energy goals remain intact, every company is being impacted by economic uncertainty.

Many companies are taking a second look at their near-term strategies for procuring renewable energy, looking to manage cash flow risk in the face of a potentially slow economic recovery. And utilities are well-positioned to help meet these evolving needs.

Utility solutions designed to serve large customers’ renewable energy needs

A key opportunity for today’s future-focused utility lies in offering renewable energy solutions to their larger customers that deliver on needs for lower risk and meaningful impact, while also passing regulatory muster. This is a challenge, but it’s a challenge worth undertaking, as demonstrated by utilities whose green tariffs have helped them attract new load, secure long-term commitments, and garner high praise from some of their largest customers. Look to successful green tariffs already on the market, including Xcel’s Renewable*Connect, DTE’s MIGreenPower, PGE’s Green Future Impact, and more.

Well-designed utility solutions have always been appealing to large customers who appreciate the ease of contracting and the ability to make financial commitments on-bill, directly tied to their load. All the better for the customer if those commitments support the local economy and the region’s renewable resources.

In today’s climate, large organizations have even more reasons to look to utility solutions for their renewable energy commitments. And utility leaders have good reason to invest in designing more solutions that will appeal to their largest buyers. That appeal shows up in several key ways:

  • Risk mitigation. Many VPPAs are structured in such a way that customers hold risk over many years in return for potential savings, and while most utility-offered solutions come at modest premiums, they don’t typically require customers to hold significant risk. Lower-risk solutions like green tariffs may be attractive to more large energy buyers today as uncertainty shapes their own risk appetites. Meanwhile, wholesale energy market prices are now subject to another new pricing input: COVID-related demand shifts and declines.
  • Deferred costs. Many municipalities and large buyers are grappling with lower near-term budgets due to COVID-19, while maintaining their long-term renewable energy commitments. In this time, utilities may find these customers are ready and willing to make long-term commitments that don’t require immediate investment. By designing solutions today, utilities could secure customer commitments that send positive signals to regulators, helping new programs get approved and initiating job-creating construction on new renewables. This is the kind of win-win solution that utilities can offer to meet customers’ long-term goals and short-term budget challenges, while also serving utility goals.

For future-focused leaders, acting now to deliver attractive renewable energy tariffs for larger utility customers can bring big upsides : helping to retain and attract C&I load, strengthening relationships with this important customer segment, and enabling the utility to reach its own decarbonization goals over the long term.

The opportunity for utilities to serve green power solutions to their large customers has existed for years, and this moment has only expanded that opportunity, offering a triple win for utilities’ customers, for themselves, and for the planet.

3Degrees can help your utility design these solutions. Get in touch with our Utility Team to get a conversation started.

This article was originally published on Utility Dive

The Strategic Value of Voluntary Renewable Programs for Gas Utilities (webinar)

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Gas utility leaders can get a broad understanding of voluntary renewable programs in this webinar, featuring 3Degrees’ Amanda Mortlock and Center for Resource Solutions’ Rachael Terada.

The panelists discussed various program approaches including renewable natural gas and carbon offsets, strategic value for utilities with a well-designed program – including case studies from three major gas utility programs, and the latest on development of Green-e® certification standards for RNG.

View the webinar

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