Cities hope ‘virtual power’ puts climate goals in reach

Source: Benjamin Storrow, E&E News reporter • Posted: Friday, June 15, 2018

Corporate America has emerged as a leading buyer of renewable energy in recent years. Now, U.S. cities are getting in on the act.

Boston Mayor Martin Walsh announced an initiative last week aimed at bolstering municipal renewable procurements nationwide. By working together to purchase large amounts of renewable energy, Walsh hopes cities can cut the costs of wind and solar, stimulate the economy, and meet the terms of the Paris climate accord.

“We can do more than just address the problem of climate change, we can build a healthy, thriving future by working together,” Walsh said in a statement announcing the initiative.

The mayor’s first step is getting more information on cities’ energy demand. His next step, a plan for acquiring more wind and solar, follows in the footsteps of a strategy pioneered by technology giants like Apple Inc., Google and Inc.

The approach hinges on something called a virtual power purchase agreement. VPPAs, in industry-speak, amount to fixed contracts with a company or city agreeing to purchase a wind project’s or solar farm’s output.

VPPAs offer two primary benefits. One, by securing a customer for their electricity, they make it easier for developers to attract the capital needed to get their project off the ground.

Second, the buyer collects the renewable energy credits associated with the project. That allows the buyer to offset the carbon emissions associated with its electricity use.

“What’s already been done on the corporate side is the inspiration,” said Joseph LaRusso, the energy efficiency and distributed resources finance manager in Boston’s Environment Department. “The means by which they’ve acquired renewable energy is the model.”

VPPAs have helped steer large amounts of renewable energy onto the grid in recent years. Corporate contracts announced in 2017 alone amounted to 2.89 gigawatts of new renewable capacity, according to the Rocky Mountain Institute, a nonprofit that supports a transition to clean energy.

By comparison, the U.S. Energy Information Administration estimates the United States added 25 GW of new electricity generation in 2017, with roughly half of that coming from renewables.

City governments, while smaller power buyers than tech companies, can provide a meaningful boost to renewables, said Steve Abbott, a Rocky Mountain Institute analyst.

Of the six cities to sign on to Walsh’s initiative, the inclusion of Los Angeles and Orlando, Fla., is particularly notable, he said. Both operate municipal utilities.

“If a city in that situation wanted to make their entire community renewable, that could get to a large scale very quickly,” Abbott said.

There are nevertheless limits to VPPAs as a climate strategy. VPPAs essentially turn corporations or cities into electricity traders.

A wind farm, for instance, still sells electricity into its local power market. The company or city collects the revenue generated by those sales, but it isn’t necessarily receiving the power produced by the wind farm.

Many corporate renewable contracts are struck with developers in areas of the country with the strongest renewable resources, like the wind-rich Great Plains.

The practical implication: Buyers are essentially offsetting their carbon emissions with renewable contracts rather than powering their facilities directly with wind and solar.

It also means cities could miss out on other direct benefits of renewable projects, analysts said. If Boston, say, were to strike a deal with a wind developer in Kansas, the city would miss out on the direct benefits, like the construction jobs and pollution reduction associated with the project, they noted.

Jesse Jenkins, an energy researcher at the Massachusetts Institute of Technology, reckons VPPAs are an important mechanism for bringing more renewables online.

Yet renewable contracts fall short of matching a buyer’s energy consumption with actual renewable supply. How to solve that conundrum represents the next frontier for cities and corporations alike, Jenkins said.

In his estimation, climate-conscious mayors should be more focused on matters over which they have direct control, like transportation, housing and urban density. The power sector is generally overseen by state and federal regulators.

“If someone is declaring climate leadership with this, but not leading on transportation, housing and land use policy, they’re not really leading,” he said. “If they want to do both, that’s great.”