Author: Amanda Mortlock

Amanda Mortlock is the vice president of utility partnerships at 3Degrees, where she helps electric and gas utilities design and implement leading voluntary renewable energy programs.

Utilities and Customers, Partners in the Clean Energy Future

 Integrated voluntary renewable products will help utilities go carbon-free faster, in partnership with customers.

The 2020s must be a decade of energy transformation like no other. This moment offers an opportunity for future-focused utilities — those pursuing aggressive decarbonization goals and deeper customer connections — to fully activate voluntary renewable energy products as an essential tool to advance and achieve their most pressing goals. To get there, leaders need to learn from the past and change the way they think about the voluntary market.

A crucial lesson from ten years of renewable energy expansion

Utilities have been responding to the growth and evolution of renewable energy for decades. From where I sit, some of the biggest threats to utilities have come from changes spurred by renewable energy, and some of the biggest utility advancements have come from responding to those changes.

In the last decade, we witnessed growth in the amount and variety of voluntary renewables available to end customers, alongside growing demand for renewable energy. We also saw non-utility players come forward to meet that demand, bringing a wide array of products from rooftop solar and VPPAs to community choice aggregation and API-enabled bill consolidators with add-on products. All told, utility customers across every segment have more renewable energy choices than ever before.

Amid this expansion of options, utilities have made significant progress in countering intermediation threats and responding to customer demand for renewable energy by developing their own innovative voluntary products. Leading utilities have developed robust green power and community solar programs, a wide array of green tariff approaches, and more.

These programs offer vast potential: to improve customer satisfaction, contribute to the clean energy transition, build internal innovation capabilities, and create a more equitable future for all. But the typical utility approach to voluntary products has limited that potential. These products are often designed on a one-off basis reactive to distinct customer demands, and without much consideration for how they can advance longer-term strategies. Voluntary renewable energy products can have a far greater impact when they are developed with a comprehensive approach.

Advancing utility clean energy with strategic voluntary products

After a decade of renewable energy advancement, it’s time for utilities to activate voluntary products as a strategic part of their decarbonization strategy.

This work has already begun. We work with utilities who use their voluntary programs to lower the cost of reaching 100% decarbonization targets for their region. They build new assets backed by demand from voluntary customers. They partner with residential, corporate, and municipal customers who want their own sustainability goals to enable equitable transformation for their region. These utilities have a head start, and others should follow their leadership.

With voluntary products integrated into their broader decarbonization strategies, utilities will also be better prepared to deploy new products that support emerging system needs related to distributed energy resources and electrifying transportation. While the path to more comprehensive and integrated voluntary programs requires new thinking, history shows us that it’s worth it, and now is the time to start.

Voluntary renewable energy can help utilities reach 100% clean targets faster

utility-renewable-energy-programs-100-percent-clean

There’s a groundswell of utilities across the U.S. pursuing decarbonization targets. Seventeen large investor-owned utilities have now pledged to reach 100% clean electricity or net-zero emissions, on timelines of 30, 20, and even just 15 years from now. While this clean energy transformation is essential in the fight against climate change, it also represents an unprecedented challenge to the energy industry. Utilities are fundamentally shifting their business models, changing the nature of energy generation, storage, and delivery, and they’re on a deadline. Simply put, we’re embarking on what Deloitte recently called “an energy transition like no other.”

To be successful in the shift to a clean energy future, utility leaders need to be resourceful, taking an all-hands-on-deck approach and using every tool in their toolbox to its fullest extent in order to reach these ambitious targets.

One such tool is the voluntary renewable energy market, which has growing potential to help utilities decarbonize faster, and to do it in partnership with their customers.

Sustained growth in the voluntary renewable energy market

The voluntary market for renewable energy has grown steadily since it first emerged in the early 2000s. According to NREL’s annual reports, the overall voluntary renewable energy market has grown around 20 percent annually the last few years, and shows no signs of slowing. The portion of that market served by vertically integrated utilities has grown steadily too, as utilities have seen the value of offering renewable energy options to meet residential and commercial customer demand. And new utility program types continue to emerge and add capacity. Notably, there’s been significant growth recently spurring from the emergence of green tariffs. Total installed capacity serving green tariffs has grown at least 43% since 2018, according to June 2020 data from REBA.

Leading utilities in this space — those who offer high quality renewable programs across their customer segments — are seeing their voluntary renewable energy programs contribute five percent and even upwards of 10 percent of their total retail sales. As these programs contribute more to utilities’ total energy sales, executive leadership can begin to see voluntary renewable energy as a powerful tool in their decarbonization strategy.

Of course, utility voluntary renewable programs won’t deliver significant returns on carbon reduction targets unless they are thoughtfully designed and built to scale. The voluntary market’s contribution to utility targets will depend on the structure and magnitude of the utility’s overall decarbonization goal, as well as on the design of the voluntary programs themselves. But with an intentional approach, voluntary renewable energy programs can and should help advance a utility’s clean electricity and decarbonization goals.

Rethinking the voluntary market’s contribution to utility decarbonization

Using the voluntary market to advance utility decarbonization goals is a significant shift in the way these programs were historically designed and tracked. In the past, voluntary renewable energy programs were held separate from utility renewable energy targets. Renewable portfolio standards representing 10 or 20 percent of a utility’s overall mix were the primary driver for clean energy. And the simplest way to prevent cross-subsidization between legislated renewable energy requirements and voluntary programs was to treat the programs as entirely separate.

But utilities are in a new era today. Mandated targets are increasingly approaching 100 percent, and many more utilities are setting similarly ambitious targets on their own.

As the stakes for decarbonization get higher, it’s both strategic and appropriate for the interaction between voluntary programs and utility targets to evolve. Policymakers are increasingly recognizing the role the voluntary market can play in a state’s path to achieving 100 percent clean energy, even explicitly carving out space for it. Similar thinking on the value of the voluntary market has led to creative program design that complements utility targets in many contexts. Utilities’ urgent need to decarbonize, coupled with the voluntary market’s growth, makes a compelling case for utility leaders to integrate their voluntary renewable energy programs into their clean energy plans.

So, what’s the best approach? There are multiple pathways for utilities with decarbonization targets to responsibly incorporate voluntary renewable energy programs into their plans, and they vary based on several factors, including the nature of the utility’s target, customer preferences, and program design requirements.

The team at 3Degrees is digging in, working on an in-depth report to help utilities align their voluntary programs to their clean energy targets. Sign up for our quarterly newsletter and we’ll send you the full white paper, Voluntary Renewable Energy Programs & Utility Decarbonization Targets, when it’s published later this year.

This article was originally published on Utility Dive.

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

For gas utilities, voluntary RNG programs can play an important role on the path to decarbonization

Renewable Natural Gas programs

Many natural gas utilities are currently developing strategic plans to reduce their greenhouse gas emissions or realize they will be asked to do so soon. Integrating renewable natural gas (RNG) is an important component of every utility’s plan to decarbonize, and many are considering whether to offer RNG as a voluntary, premium product to customers. We’ve traveled the country and engaged in conversations with key stakeholders from numerous gas utilities over the past year and, understandably, they are grappling with some significant strategic questions:

  • How do we know a voluntary RNG program is the right approach as we think about decarbonization?
  • It’s very early in the conversation and the landscape is quickly evolving. Would we be better suited to sit on the sidelines for a bit and wait to see how this pans out before making a decision about a voluntary RNG program?

While voluntary programs are not a substitute for a comprehensive approach to decarbonization, they can play an important role for any utility looking to lead. And, while the above questions are completely valid, our perspective is this: well-designed and implemented voluntary programs offer many benefits to gas utilities and can be a “no regrets” investment, even if the utilities’ broader decarbonization strategies are not fully cemented yet. Here are a few reasons why…

Address Customer Needs and Drive Increased Satisfaction

For utilities that are beginning to hear from their customers about desire for lower-carbon options, a voluntary program will make sense whether or not mandates for RNG are on the horizon. This is a lesson learned from the voluntary green power market — voluntary customers want to be leaders and mandated percentages of cleaner fuels will not be enough to keep leaders happy. For example, a municipal or corporate customer that has a set goal to be carbon neutral by 2040 is going to want to decarbonize a large percentage (even 100%) of its natural gas supply quickly, not be told there is a 5% mandate for RNG by 2030. In this way, voluntary programs complement mandates — they allow leaders to lead, and the rest of the customer base pays only for smaller, mandated volumes.

In addition, a voluntary RNG program can meet the needs of a utility’s residential customers. These programs provide residential customers with choice, which they value, and the data shows that when these customers are offered options, their CSAT scores jump. Thanks to successful green power programs on the electric side, we can be confident that there is a residential market for premium, green products from a gas utility.

Build a Platform for Learning and Development

Customers who participate in utility voluntary renewable programs are willing to pay a premium to move the market forward. At first, that may mean that the voluntary program enables the utility to gain operational experience procuring or developing RNG supply. As the program grows, it could also provide an additional vehicle to fund the development of new local projects or to support not-yet-mature technologies with pilot funding.

Exhibit Environmental Leadership

Given the broad range of options for gas utilities considering a decarbonization strategy, developing and launching a voluntary RNG program is fairly proactive. These utilities have the opportunity to help frame the nascent conversation about the role of gas with respect to decarbonization; additionally, talking about an alternative to fossil-based gas naturally leads to broader conversations with customers, stakeholders, and commissioners. A voluntary program broadens a utility’s overall decarbonization strategy, which is likely to include efficiency, pipeline upgrades, and possibly rate-based RNG over time.

 

Is a voluntary RNG program the be-all-end-all solution for gas utilities as they tackle decarbonization? Likely not. But for forward-thinking utilities, there isn’t going to be a single approach or solution, and a voluntary program can play an important, strategic role in a gas utility’s comprehensive decarbonization plan.

Best Practices for Voluntary RNG Programs

cows-biodigester-rng

What Gas Utilities Can Learn From Electric Utility Green Power Programs

As pressure to decarbonize our energy supply mounts, many gas utilities are considering how to integrate and scale renewable natural gas, and are considering a voluntary renewable natural gas (RNG) program for their residential and commercial customers.

While voluntary RNG programs are a relatively new development for gas utilities, these programs have many similarities to the voluntary green power programs that have been offered by electric utilities for decades. As such, there is much that gas utilities can learn from their electric utility counterparts in terms of best practices and risk mitigation as they consider whether and how to design and launch successful RNG programs.

Top ten key factors in creating a successful voluntary program

Thanks to the annual NREL Top Ten List, it’s easy to get a sense for which electric utility programs have been the most successful. But looking at those lists doesn’t tell you why those programs have achieved such success.

Here are ten specific lessons that will help gas utilities build a successful voluntary program:

1. Understand your customers

What customers value in a renewable product may surprise you, and in many cases it will vary by segment. Conduct market research to both validate demand and help you understand how different customers make price and value decisions. The most successful electric utilities often have different programs for commercial and residential customers.

2. Work with stakeholders

Environmental and rate-payer advocates can be staunch supporters or opponents of a program. Work with them early in your program design process to understand what they value, and help them understand trade-offs. The nationally renowned electric utility programs in Oregon were launched with the most robust stakeholder process in the country.

3. Certify

Voluntary certifications such as Green-e® Energy will soon be available for gas programs. Embrace the certification when it comes. Whether customers know about the certification or not, new markets need it to build trust.

4. Gain internal alignment

These programs will eventually require support from, or integration with, every department across the utility; anticipate this and make sure you have the cross-functional support you need.

5. Create value

Voluntary renewable energy programs create value for utilities in different ways, from customer satisfaction to, in some cases, direct profit. Internal stakeholders need to understand what value the program delivers initially, how to measure it, and whether it has the potential to deliver even more value over time. Electric utilities that extract value from their green power programs are more likely to invest in them; the same will be true for gas utilities.

6. Go local

Customers and stakeholders value local supply. While it may not be possible to start with 100% local supply, electric utilities have pioneered approaches that include program funding for small scale projects or a blend of local with lower-cost regional supply.

7. Include budget for start-up costs

Renewable programs tend to be funded by participants, which means start-up costs for items such as new billing system programming or the first year’s marketing and administration need an explicit funding strategy. Successful programs have found ways to ensure a good start through strategies like limited ratepayer funding, a shareholder investment, or accepting a long payback period.

8. Know your billing system

Updating your billing system to allow for an additional product can be very expensive. Be sure you understand what the billing system can accommodate at varying levels of investment early on in the process.

9. Engage customers

The utilities with the most successful programs give their customers many opportunities to learn about the programs and participate, and often lead with the green power program in their customer interactions. All of the top programs invest in direct sales and marketing channels, as well as awareness-focused marketing efforts.

10. Consider all procurement options

When designing RNG products, consider all options for procuring renewable natural gas. Similar to renewable electricity, it is most important that you obtain and retire the environmental attributes associated with RNG (“RNG attributes”). RNG attributes represent all of the environmental and other generation benefits that differentiate a unit of RNG from a unit of conventional natural gas. Procuring unbundled RNG attributes can offer the flexibility needed to get started and validate demand, while you work through the hurdles of physical supply.

 

Though there are some key differences between green power and RNG programs, such as the higher cost and lower availability of supply, as well as less customer awareness, adhering to these best practice principles will better equip gas utilities to successfully navigate these differences, lower their risk, and increase the likelihood of program success.

Many gas and electric utilities are already demonstrating real leadership in decarbonizing our energy supply. Offering voluntary RNG programs is one potentially powerful path forward that I’m confident will lead to benefits for customers, utilities, and the climate.

Maximizing the Value of Your Green Power Programs

Enrollment form green power program

Electric utilities face significant pressures as well as many exciting opportunities — decarbonization, transportation electrification, continuing digital transformation, changing customer preferences, increasing disintermediation (just to name a few). Every day, utility teams work hard to solve these challenges, as well as capitalize on the opportunities that they present. But many utilities fail to realize there is an underutilized tool in their toolbox that could be very effective in these efforts: voluntary green power programs.

What’s the true value of voluntary green power programs?

Having worked closely with utilities for over a decade, I can say with confidence that fully optimized green power programs provide a huge opportunity for utilities. When designed and implemented well, these programs offer numerous benefits.

Decarbonization

Green power programs enable utilities to partner with their customers to achieve utility or regional carbon reduction targets.

New revenue potential

These programs also provide the opportunity to achieve incremental revenue, whether from assets supported by the voluntary market or a regulatory-approved mark-up. While challenging to make happen, this is feasible and some utilities are already realizing these revenue gains.

New load

Green tariffs have become absolutely essential in attracting most significant new corporate load.

Customer satisfaction

As documented by J.D. Power research, when customers participate in a green power program – or are even just aware of it – customer satisfaction scores jump.

New sales opportunities

When most utilities envision the utility-of-the-future, they picture selling more than just electrons to customers. Green power programs allow utilities to start to build that muscle, and can even fund entire sales channels that can eventually be leveraged to support the sales of additional products.

Digital transformation

Green power programs provide the perfect opportunity for utilities to embrace a comprehensive digital sales and marketing strategy (most are just scratching the surface right now). With a low barrier to entry, highly targeted reach, and a great storytelling platform, a full digital strategy can help utilities explore new ground when it comes to connecting with customers where they are.

While it may not be possible to realize every one of these benefits, a well-designed suite of programs should be able to deliver on most of them collectively. Even a legacy program can be optimized to deliver increasing value.

Moving from the “Why?” to the “How?”

Frequently, utilities create individual green power programs that are reactive — designed to address a particular threat or to serve a specific client — which can make it difficult to scale the programs to reach their full potential. And without scale, most of the benefits listed above simply aren’t meaningful or even possible. 

Instead, utilities need to start with a proactive program design where an entire suite of green power programs is designed as part of a clear, intentional piece of the organization’s broader strategy. Critical factors in program design include:

Customer research

Green power programs are only successful if customers enroll. It’s essential to invest time in researching how your customers across different segments feel about critical elements of the program.

Renewables strategy and pricing

Based on this research, you’ll have a better sense of how your program needs to balance cost with impact. Customers want to have an impact with their purchase, but there is still a ceiling on the premium customers are willing to pay.

Stakeholder engagement

Working with environmental and rate-payer advocates early on in the program design process will help you understand what they value and, later, make it easier to secure their support. And engaging internal stakeholders is also critical to program success — if they understand the value the program delivers, they will be more likely to champion it throughout the organization.

Financial and strategic value

Utilities need to be intentional about the value they want a suite of green power programs to deliver. For example, if program profit is critical, this needs to be built into the program rates at the beginning.

Marketing investment

Green power programs are unlike other utility programs that often have fixed, regulatory mandated marketing budgets. In this case, the budget grows as the program grows — which is appropriate for a premium, subscription-based product. One of the most common mistakes utilities make is under-funding their marketing efforts in early years. Without investment, they can’t scale the program and ultimately deliver any of the benefits listed above in a meaningful way.

Green power programs sit at the intersection of decarbonization and customer satisfaction and thus provide a unique opportunity to utilities. By maximizing the value of these programs, utilities, their customers, and the climate all win.

Green power programs can stagnate. Here’s how one utility kept theirs relevant.

Construction working building new wind turbine at Huntington Wind Project

Subscribers to utility green power programs pay a premium on their electricity bill for renewable energy certificates (RECs) in order to support renewable energy projects and reduce their personal carbon footprint. Since the late nineties, utilities have launched REC based green power programs in response to customer demand or regulatory mandate. There are now over 850 of these programs, offered to over 25 million customers across the nation and they continue to be a popular way to make a positive environmental impact.

However, while the renewable energy market has changed dramatically in recent decades, many green power programs haven’t. With lower REC prices, the rapid growth of rooftop solar, and dramatic expansion of community solar programs, utilities are now considering how to evolve their existing programs in order to keep them relevant to customers and to the wider renewable energy market.

Pacific Power recently confronted this challenge with their Blue Sky program. Pacific Power’s Blue Sky Program Manager, Berit Kling, reports that “Blue Sky was first launched in 1999 and is still consistently ranked as one of the top REC-based programs in the country with over 110,000 residential and business customers currently participating in Blue Sky across the 6 states.” This level of customer support creates opportunities for impactful supply strategies. Oregon was a particular target for new procurement approaches as more than half of the Blue Sky customers live there.

“We know that our customers care about the environment and want to see more renewable energy in Oregon,” says Scott Bolton, VP of External Affairs and Customer Solutions at Pacific Power. “We worked closely with 3Degrees to develop a REC procurement strategy that has, in a single year, driven the development of 51 megawatts (MWs) of additional renewable capacity in the state of Oregon.”

The strategy was straight-forward. Scott Eidson, VP of Environmental Markets at 3Degrees reports, “We knew Pacific Power valued making a difference in Oregon so we looked for new projects that needed long-term REC purchase commitments in order to make the project viable.” In this scenario, a contract for RECs is similar in structure to a Power Purchase Agreement (PPA) in that it offers a guaranteed payment per megawatt-hour produced over a certain period of time. Today, most green power programs do not purchase RECs at a price or term that can really drive the development of new projects. This example suggests that perhaps they should be.

At a high-level, the approach was to:

  • Identify projects that had not yet been financed.
  • Work with developers to determine the REC price needed to secure financing or get the project built.
  • Sign long-term REC contracts to guarantee this income stream for multiple year periods.

Bolton reports that, “The specific renewable energy projects that have been developed due to this innovative approach are the Huntington Wind project, a 50 MW project in Eastern Oregon, and Blue Basin Power, a 1 MW solar project near Klamath Falls in southern Oregon.” Blue Basin is being developed in two phases; the 1 MW installation currently in operation, and a second 2.5 MW phase planned for 2017. Bill Eddie, CEO of OneEnergy Renewables, the project developer, describes how finding reliable funding for the projects was key in getting both phases of the project off the ground. “The first phase of the project was critical to break the ice as this is one of the first projects that has been built in the area…by partnering with Blue Sky, we were able to get enough revenue into the project to support financing.”

Not only does this approach directly impact the regional renewable energy landscape, but it creates a more tangible connection between program participants and the facilities they support—something that is often lacking in the traditional green pricing model. “Huntington will be the largest wind project to come on-line in Oregon since 2012. It’s great to be able to point to a large, high profile project like this and say, ‘Blue Sky customers made this happen.’ They can and should feel good about making a real difference in renewable energy development in Oregon,” says Bolton.

Pacific Power has been publicly recognized for this procurement strategy through awards from the Northwest Environmental Business Council and the Center for Resource Solutions (CRS). Jennifer Martin, Executive Director of CRS, commented that “[Pacific Power’s] innovative Blue Sky program…helps drive new development of clean energy generation and can serve as a model for new projects throughout the country.”

While the Blue Sky program is the second largest renewable energy program in the country, this model is replicable for green power programs of any size. Pacific Power isn’t alone in wanting to offer innovative solutions for customers though they are the first to pursue this strategy at such scale and success. Utilities with existing green power programs would be wise to consider how to leverage these programs to deliver new value to participants, the renewable energy market, and ultimately to the utility in the form of increased customer satisfaction and engagement.

This article was originally posted on LinkedIn.