Commercial, Industrial, Sourcing Renewables  -  March 10, 2017

Moody's: Primary driver of renewable energy demand has shifted to corporates, other new entrants

Corporate power purchase agreements and community choice aggregators are now primary drivers of demand for renewable energy in the U.S., replacing state mandates for greener power portfolios, according to a new report from Moody's Investors Service.

In a March 10 statement, the ratings agency said the shift has been driven by the economics of renewable energy having become attractive enough to spur demand from large energy users to "green" their power supply. The report, "US Power & Utilities: Economics, End-User Sustainability Policies Drive Renewables in a post-CPP World," details the convergence of the supply of cheap renewable power and the new demand from corporate PPAs and community choice aggregators, or CCAs.

According to the solar industry, corporate buyers made up an "unprecedented" 10% of all new solar capacity last year; the wind industry has reported that nonutility buyers, including major corporations such as General Motors Co., made up 39% of wind energy purchased through long-term contracts in 2016.

"Tax credits and ongoing equipment cost reductions have driven wind and solar generation costs down to historic lows," Lesley Ritter, an analyst at Moody's, said in a statement. "At the same time, we're seeing a variety of organizations make significant sustainability commitments."

According to Moody's analysis, the market for long-term renewable energy contracts with corporations has "grown rapidly in scale and breadth" since Google Inc. initiated its first corporate power purchase agreement in 2010. Today, corporate PPAs account for more than 7 GW of renewable energy capacity, the ratings agency said. 

Google, for its part, announced in December 2016 that it will reach its 100% renewable energy target this year. 

"Companies across different industries are turning their attention toward renewable energy as a means to meet their sustainability goals," Ritter added.

The ratings agency noted that local governments, too, have formed or are exploring the possibility of forming entities to procure renewable energy for their residents. A number of cities, from Los Angeles to Grand Rapids, Mich., are pursuing 100% renewable energy goals. 

But while corporations and other large energy users — a group refers to as "new market participants" in the energy space — are enjoying the benefits of increasing the amount of clean energy used in their operations, Moody's says the trend will have a negative financial impact on power generators and utilities.

Moody's said in a statement announcing the report: 

Due to the increase in the supply of cheap renewable power to the wholesale market, CPPAs and CCAs represent a credit negative trend for merchant generators. For investor-owned utilities, they pose a rate base opportunity cost and a breach of the monopolistic utility-customer relationship, a credit negative.

That being said, there is a bright side for utilities with renewable energy businesses, according to the ratings agency. Companies such as NextEra Energy, Avangrid, Sempra Energy and ALLETE Inc. are expected benefit from access to new market participants that provide a new avenue through which to contract the renewable assets they own, Moody's said.  

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