Recently New Jersey and California took monumental steps to remain nationwide leaders in clean energy. New Jersey increased its Renewable Energy Standard to make it one of the most aggressive standards in the nation while at the same time supporting its nuclear industry and seeking to diversify its energy sources.  California implemented a first of its kind rule, requiring all newly built residences to have solar energy. Both of the states continue their track record of being leaders in clean energy.

New Jersey

On May 23, 2018, New Jersey Governor Phil Murphy signed into law Assembly Bill 3723 (the “Renewable Energy Law”).  This law reaffirms New Jersey’s commitment to being a leader in clean energy.  The Renewable Energy Law increases New Jersey’s renewable portfolio standard from 20.38% by 2021 to 50% by 2030 aligning with the standards in California and New York (and only surpassed by the 75% standard in Vermont and the 100% standard in Hawaii).  Further, the Renewable Energy Law provides for a wind down of the New Jersey Solar Renewable Energy Credit program (“SREC Program”) by 2021 and requires the Board of Public Utilities to study how best to replace the SREC Program.  Additionally, the Renewable Energy Law reduces the amount of energy required to come from solar technologies from 5.1% at the solar carve out’s peak in 2023 down to 1.1% by 2033.

In addition to the changes to the renewable portfolio standard, the Renewable Energy Law seeks to further diversify the state’s energy portfolio. To accomplish this, the Renewable Energy Law targets offshore wind and storage capacity as areas of growth over the next decade by increasing the state’s offshore wind requirement from 1,100 megawatts to 3,500 megawatts and setting, for the first time, an energy storage goal of 2,000 megawatts by 2030. The renewed commitment to offshore wind can already be seen in the Fisherman’s Energy wind project, which is a 24-megawatt project off the coast of Atlantic City that has been stalled for years, but New Jersey Assembly Bill 2485 is currently working its way through the legislative process, which would allow construction to begin on the project.  Finally, the Renewable Energy Law allows for additional avenues for individuals and communities to access renewable resources by creating a community solar program and doubling the state’s net metering cap.

In conjunction with the Renewable Energy Law, Governor Murphy also signed into law Senate Bill 2313 (the “Nuclear Law”) which provides $300 million in subsidies to New Jersey’s nuclear power industry. The Nuclear Law was passed and signed, in part, due to a report from Public Service Electric & Gas (“PSEG”) warning that without receiving additional government subsidies, PSEG would have to close both the Salem nuclear power plant and the Hope Creek nuclear power plant, which combined provide approximately 36% of New Jersey’s energy. In supporting New Jersey’s nuclear industry and reaffirming its commitment to renewable energy, New Jersey has recommitted to being a nationwide leader in clean energy.

California

Not to be outdone by New Jersey, the California Energy Commission (“CEC”) adopted its tri-annual new building standards (the “Standards”) on May 9, 2018.  The Standards which will take effect on January 1, 2020, require all newly built residences to include solar systems (the “Solar Standards”).  Additionally, the Standards update the required thermal envelope standards (i.e. the standards that govern the roof and walls of a building), ventilation requirements and nonresidential lighting requirements.  The CEC anticipates that the greenhouse gas emission reductions attributable to the Standards will be equivalent to taking 115,000 fossil fuel cars off the road. Additionally, the CEC estimates that the Standards will cost the average homeowner an additional $40 per month on a typical 30-year mortgage, but will save families on average $80 per month on electric bills.

While the CEC trumpets the Standards, there are concerns that the added capacity will exacerbate the state’s “duck curve” – a reference to the steep drop in net load during midday hours, followed by a sharp ramp-up at dusk as solar generation fades and electricity consumption spikes.  California ISO predicted (prior to the Solar Standards passing) that in 2020 an approximately 13,000-megawatt daily ramp-up will be required to offset the lost energy from solar panels as the sun sets. With the Standards, the CEC included a compliance credit for energy storage which can be used to offset the amount of solar PV required by up to 25%.  It appears this storage option is intended to help mitigate the steep ramp-up otherwise required at the end of each day.

Previously several states and cities have thought about and even implemented solar requirements for newly constructed buildings.  The cities of Sebastopol, Santa Monica and San Francisco in California, as well as South Miami in Florida, have all required solar systems on newly built homes.  Washington D.C. and states such as New Jersey and Massachusetts have considered legislation requiring buildings to be solar-ready, but have not taken the step of mandating solar on buildings.  However, California is taking a historic first in requiring newly built residences to include solar systems.

The Standards require all new residences (which includes major renovations on buildings under three stories) to include a solar-power system of a minimum of 2 to 3 kilowatts, depending on the size of the structure.  Such solar systems can be provided either on each home individually or, if a home cannot support solar, through a larger community solar garden that serves multiple residences.

So far this year, New Jersey pulled its renewable energy standard in line with other clean energy leading states while seeking to expand wind and solar technologies and California created a first of its kind law, requiring solar on all residences starting in 2020.  What city or state will pass the next law to become a leader in clean energy?

 

 

 

 

No longer reserved for tech giants such as Google, Amazon, and Facebook, financial instruments such as synthetic power purchase agreements (PPAs) are becoming popular among smaller to mid-sized corporations as a tool to reduce energy cost volatility while meeting clean energy goals.  In what began as a movement to limit corporate carbon footprints and which initially took the form of the purchase of renewable energy credits, more and more companies are procuring renewable energy through the purchase of solar and wind power.  Last year, 43 companies spanning 10 different countries contracted roughly 5.4 gigawatts of clean energy – significantly surpassing global annual volume in 2016 and beating the prior record set in 2015.  [source: BNEF}

Corporate buyers procure renewables, in large part, through synthetic PPAs with terms of 10 to 20 years, akin in length to more traditional, physical PPAs.  These synthetic deals are often structured as contracts for differences whereby: (1) the parties set a strike price, (2) the power producer sells power into the market rather than directly to the corporate counterparty and (3) the price at which the power sells into the market is settled against the strike price.  If the sale price in the market is higher than the strike price, the corporate counterparty realizes the positive difference, while the power producer is protected from the downside if the power sells in the market at a price lower than the strike price.  These contracts for differences often, but do not necessarily, include the sale of renewable energy credits and allow corporations to effectively purchase renewable energy far away from where the companies may have demand for physically delivered power.

2018 is shaping up to be another banner year for these deals.  The Business Renewables Center tracks publicly reported corporate procurement in the United States. Year-to-date, BRC is reporting 21 U.S. deals totaling approximately 2.04 gigawatts, which puts 2018 on course to set a new record for U.S. annual corporate procurement.

BRC’s tracker also evidences a steady expansion of the companies participating in this market.  Technology companies such as Google, Amazon, and Facebook were early drivers and remain among the top corporate users of renewable energy in the world.  But the market is rapidly diversifying as more businesses seek predictable clean energy costs.

To some extent, this diversification is the natural evolution of a maturing marketplace.  But there are three important drivers further fueling that growth:

  • The U.S. announcement of its intent to withdraw from the Paris Climate Agreement has spurred hundreds of companies to ratchet up their clean energy goals, including through initiatives such as We Are Still In. The RE100, a coalition of companies committed to go 100% renewable, now touts 131 partner companies – more than doubling the number in the last two years.  As more and more companies set increasingly robust sustainability goals, additional business are employing offsite corporate procurement as a strategy to reduce emissions and source clean energy.
  • Increasingly, in regulated markets, utilities are stepping up to provide green tariffs that allow corporate customers to source renewable energy directly from projects in the same service territory. While synthetic PPAs are well-suited for deregulated wholesale electricity markets, corporate customers have demanded greater clean energy sourcing options from vertically integrated utilities. Since the first green tariff was proposed in 2013 by NV Energy, the World Resources Institute now reports 21 green tariffs across 15 states either in place or under negotiation.
  • New deal structures are emerging to open the market up to smaller corporate purchasers. During the last 18 months, we have seen several innovative structures to enable greater participation by companies that themselves may not have appetite for the entire offtake of a project.  Structuring options include syndication of the PPA to a purchaser’s suppliers and partners, as well as a consortium approach that allows otherwise unrelated parties to aggregate their renewable energy demand while preserving the simplicity of a single counterparty to the PPA.

No longer just the domain of tech giants seeking to green their enormous energy consumption, the corporate renewable energy market has grown dramatically in recent years.  With 2018 U.S. deal volume on track to be the highest ever, the maturing market is fast expanding to new participants, including smaller consumers and increasingly those in vertically integrated territories.