August 2019 ANALYSIS OF COMMERCIAL AND INDUSTRIAL …...A loss of industrial load, energy efficiency...

August 2019

ANALYSIS OF COMMERCIAL AND INDUSTRIAL WIND ENERGY DEMAND IN THE UNITED STATES

Dan Shreve

Head of Global Wind Energy Research

Power & Renewables

Contents

Analysis of commercial and industrial wind energy demand in the United States August 2019│ 2

CONTENTS

1. Executive summary ................................................................................................................... 5

2. Seismic shifts in the United States Power Market .................................................................... 7

3. C&I Buying behavior ................................................................................................................ 12

3.1. Branding 12

3.2. Investor pressure 13

3.3. Peer pressure 14

3.4. Harnessing CSR to guard against business risks 15

4. Quantifying Demand ............................................................................................................... 18

4.1. Population under consideration 18

4.2. Available options for decarbonisation 19

4.3. Examination of corporate climate change initiatives 22

4.3.1. CDP companies with a defined renewable energy target 22 4.3.2. Fortune 1000 companies not in the CDP 25

5. Examination of the potential market share of wind energy versus solar energy ................... 30

6. C&I wind and solar demand forecast through 2030 ............................................................... 34

A. Appendix A .............................................................................................................................. 38

Contents

Analysis of commercial and industrial wind energy demand in the United States August 2019 │ 3

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About the Analyst


ABOUT THE ANALYST

Dan Shreve, Head of Global Wind Energy Research | Wood Mackenzie P&R

[email protected]

Dan heads Wood Mackenzie’s global wind research practice. Dan joined Wood

Mackenzie in 2017 following Woodmac’s acquisition of MAKE Consulting, where Dan

headed MAKE’s operations in the Americas. Dan has a long experience in the renewable

energy industry, serving in a number of engineering and strategic management roles. Prior

to joining MAKE, Dan worked as the Global Wind Energy Market & Competitive

Intelligence Leader at GE Energy.

Dan has advised executive teams at the wind industry’s most successful firms for over ten

years, authoring major market reports and leading the execution of consulting projects.

With a solid background in engineering, sourcing and business administration, Dan

supports clients’ business objectives by providing in-depth supply chain insights and

techno-commercial advice. In addition to these services, Dan also manages and executes

market assessment, business strategy and due diligence projects. Dan is a fixture on the

wind energy conference circuit, and his views on issues impacting the wind industry issues

are regularly sought after by the global media.

Dan graduated as a mechanical engineer from Worcester Polytechnic Institute and

subsequently graduated from the US Naval Nuclear Operations Office Program where he

served as a civilian staff instructor for three years. Dan also has an MBA from the

University of New York. Dan works out of our office in Boston, U.S.

Executive summary


1. EXECUTIVE SUMMARY On June 19, 2019, the Environmental Protection Agency (EPA) finalized the repeal of the

Obama administration’s Clean Power Plan, placing added pressure on state legislatures

and corporate America to lead the fight on climate change.

United States commercial and industrial (C&I) firms have answered the bell, signing

agreements facilitating the buildout of more than ten GW of renewable power generation

through 2018. This comes after a record setting 2018, where more than six GW of power

purchase agreements (PPAs) were inked by industry leaders such as AT&T, General

Motors and Facebook. Wood Mackenzie estimates that up to 85GW of renewable energy

demand exists within the Fortune 1000 through 2030.

Figure 1.1 F1000 annual C&I renewable energy procurement requirements (TWh)

Source: Wood Mackenzie, DAA50 scenario (See section 3.3.2)

Activity within the C&I sector has been on the rise for years, due in large part to consumer

buying behaviour and the excellent project economics and hedging opportunities afforded

by production tax credit (PTC)-enabled wind and investment tax credit (ITC)-enabled solar

projects. The scale and breadth of C&I procurement is spreading as financial instruments

supporting the sector become more sophisticated and help limit the risks of corporate

power purchase agreements. Pioneering companies like Microsoft, Google and Facebook

have blazed a trail for scores of companies seeking to shrink or eliminate their carbon

footprints and served as a catalyst for the development of peer groups such as the RE100

and EPA Green Partners Program. These programs have become increasingly important

7.5

29.6

2020

0.3

1.1

31.5

0.5

2021

44.31.2 0.51.5

41.6

1.21.8 41.2

34.9

1.1

2024

43.8

1.7

2023

1.1

1.1

0.3

44.3

1.7

34.9

42.0 42.6

2022

5.0

10.0

1.2

20272025

0.5

2026

1.0

2019

0.3

40.4

2028

0.5

34.0

2029

1.1

2.3

0.546.2

2030

16.2

38.2

49.1

44.8 45.6 46.0 45.4

23.7

22.8

Estimated renewable energy targets Converted GHG goalsDefined renewable energy targets

Executive summary


to the development of the C&I sector as corporate branding is increasingly harnessing the

environmental stewardship activities of industry leaders around the world.

The question at hand is whether this momentum can be maintained over the long term. A

myriad of challenges lies ahead, most notably the loss of the PTC, which lessens the

economic attractiveness of wind energy projects and further exposes those plants to the

vagaries of a power grid undergoing a substantial transition towards increased renewables

penetration. C&I demand has been focused thus far in areas where renewables

penetration is highest, and thus will be exposed to increased volume and shape risk, which

can prove highly detrimental to project economics.

Storage is emerging as a potential remedy to this situation, however storage deployment

trends are favouring solar power over wind given ITC access, smaller project size and a

more predictable generation profile.

A separate but similar concern is the ability to engage smaller electricity consumers.

Transactional costs associated with C&I engagement in the renewables sector are not

insignificant, and no clear line of sight exists to the development of “cookie-cutter”

contracts. Credit risk also looms large for smaller companies and hedging that risk with

shorter engagements or increased yields may limit the attractiveness of the proposal for

the developer and end user, respectively. Utility green tariff programs may be able to solve

this issue and aid in catalysing C&I market growth.

Finally, there is an interesting dynamic associated with the greening of the grid via RE100

initiatives. A sweeping federal initiative on decarbonization would serve as a short-term

disruptor to the C&I movement. However, any such federal action would create a ground

swell of new renewables demand that would far outstrip the current outlook for C&I

focused renewables procurement. This RE100 scenario is not considered in this report.

In summary, many of the puzzle pieces are in place. Corporate peer pressure is building,

especially in the United States where the failure of federal policy has galvanized the efforts

of industry leaders. The cost of renewable energy continues to fall, offering a tremendous

long-term hedge against power price inflation. The advent of new financial instruments is

further reducing operational risks associated with renewable energy power generation and

allowing smaller corporations to join the fray. The energy transition is progressing, and the

electrification of transportation, HVAC and a variety of industrial processes will

increasingly focus corporate attention on how they procure power. Wind is well positioned

to take advantage of these opportunities.

Seismic shifts in the United States Power Market


2. SEISMIC SHIFTS IN THE UNITED STATES POWER MARKET The energy transition is upon us, representing an epochal shift to decarbonise and create

a more sustainable global economy that will fundamentally alter energy markets, end-use

industries and consumer behaviors. Many industries seeking to decarbonise will primarily

focus on power, harnessing low-cost utility-scale wind and solar energy in the near-term

while working to electrify new and existing operations in the long-term.

The United States’ power sector is navigating the leading edge of this energy transition.

Energy efficiency and growing adoption of distributed generation have already made an

impact, keeping annual net load growth below one percent over the past decade. This

trend is expected to continue through 2040 with net energy for load expected to increase

at 0.7% per annum during the forecast period. The mass adoption of electric vehicles

(EVs) is included within this analysis, and although electrification of the transport industry

represents upwards of 350 GWh of new annual load in 2040, it remains insufficient to spur

substantial load growth.

Figure 2.1 Evolution of US power generation mix

Source: Wood Mackenzie, NERC

Consequently, the evolution of the US electricity supply mix through 2040 will be shaped

by decarbonisation efforts. The drive to decarbonise with low-cost renewable power

generation is already well underway, with wind and solar plant additions expected to be

nearly double those of fossil-fired generation in CY2019. In April 2019 generation from

renewables outperformed coal in the United States for the first time, highlighting this

dynamic. The low levelised cost of electricity and associated tax benefits for wind and

0

1,000

2,000

3,000

4,000

5,000

6,000

2019 2023 2027 2031 2035 2039

TW

h

Wind Onshore

Wind Offshore

Solar Utility

Solar Distributed

Pump Storage

Other Renewable

Other Non-Renewable

Nuclear

Municipal Solid Waste

Landfill Gas

Hydro

Geothermal

Gas Steam

Gas Peaking

Gas Cogen

Gas CC

Fuel Oil Steam

Distillate

Demand Response

Coal

Biomass

Offshore wind becomes

a major player on the

East and West coasts.

Hybrid systems become status quo,

creating a virtuous relationship

between solar and storage

Snowball Repositioning Long-Term Energy Transition

States and utilities adopt aggressive plans

and targets, laying the groundwork for a

massive expansion of renewable energy

Onshore wind build slows with the twilight of the PTC; solar

continues to make inroads into new markets

Markets restructure and redesign to

emphasise flexibility, diversity

benefit and clean backstop

Despite competitive dispatch costs

relative to natural gas, high fixed

costs and consumer preferences

perpetuate coal’s decline

Federal carbon pricing supports

coal-to-gas switching and raises

natural gas prices, making

renewables even more attractive

Gas combined cycles complete

transition to primary baseload

technology while peakers are still

utilised for renewable energy lulls

Reliability structures and markets

break down as new renewables

chase out legacy generators



solar, coupled with low-cost shale gas resources, have

prompted the acceleration of coal and nuclear power

retirements. Wood Mackenzie is forecasting more than

200GW of new coal and nuclear retirements through

2040 as median wind and solar LCOEs converge around

USD 25/MWh. This market dynamic is driving debate on

how quickly the next phase of the energy transition can

be achieved.

State renewable energy standards are providing support

in the absence of near-term federal energy legislation.

The U.S. government’s inability to formulate a cohesive

federal energy policy focused on the reduction of green

house gases (GHG) has prompted states such as New

York and California to set ambitious targets to reach

100% clean energy by 2050. Other states are certain to

follow suit, as renewable energy deployment is

increasingly regarded as a competitive differentiator for

states seeking to attract new business investments. The development of the offshore wind

energy market in the Northeast illustrates this competitive dynamic, in which

Massachusetts’ pioneering effort to carve out 1,600MW of offshore wind energy touched

off a flurry of similar carve-outs from its regional neighbors.

Although state programs are on the rise, there is little hope for any comprehensive energy

legislation from the Trump administration. However, energy is taking a prominent role in

the early run-up to the 2020 presidential campaign, most notably in the recent discussion

on the so called Green New Deal (GND). There are currently no plans in place for a GND,

and while Wood Mackenzie has provided an opinion stating the timelines and scope of

the GND are not realistic, we nevertheless believe that deep decarbonisation is a foregone

conclusion that the US power market will have to adapt to. In this vein, a federal carbon

tax introduced in 2028 has been built into our baseline forecast, supported by a substantial

increase in utility-scale storage assets to cope with ever-increasing levels of variable

energy resources (VERs).

Figure 2.2 U.S. LCOE trajectories (USD/MWh)

Source: Wood Mackenzie



Figure 2.3 US power demand by RPS policy status, 2019


Note: Trifecta = One political party holds the governorship, a majority in the state senate, and a majority in the state house.

Public policy and technology advancement established the foundation for the energy

transition, enabling wind, solar and increasingly energy storage to mature to a point where

they are disrupting traditional power markets. There is a similar dynamic occurring on the

demand side of the equation. Specifically, the role of non-traditional commercial and

industrial (C&I) power buyers has become more pronounced in the US, with power-hungry

technology firms such as Google, Facebook and others pioneering new power

procurement methods. This trend is expanding to an ever-increasing pool of business

leaders working feverishly to position their brand around environmental stewardship and

sustainable business practices. The procurement of renewable energy fits well into both

efforts, with the added bonus of providing long-term certainty around electricity prices.

There has been no better time to engage in such activities, given the pricing and

availability of utility PPAs is exceptionally low, with wind energy PPA rates in ERCOT

plunging to USD 16/MWh in 2018.



Figure 2.4 Wind PPA prices, Q4/2018 (USD/MWh) Figure 2.5 Solar PPA prices, Q4/2018 (USD/MWh)

Source: Wood Mackenzie, Level10 Source: Wood Mackenzie, Level10

This low power price environment is changing the face of renewable asset ownership.

Corporate offtake agreements have been a lifeline for many wind projects and are

increasingly an area of focus for leading wind developers and independent power

producers (IPPs). Developing strategic relationships with C&I buyers allows developers

and IPPs to access financial resources outside of their traditional utility customer pool.

This latter point is important as utilities are engaging more aggressively in the renewables

space, leveraging their lower cost of capital and deep power market expertise to bring

their own wind and solar assets online. Utilities are also anxious to work with C&I firms,

demonstrating their willingness by the rapid proliferation of green tariff programs in recent

years.

Figure 2.6 United States wind project offtaker type for installed projects (GW)




As power generation, supply and procurement continue to evolve, there will be more and

more attention paid to the C&I segment. This asset owner group already claims 9% of the

total installed wind power base in the United States, the vast majority of which has been

built in just the past four years. In CY2018, C&I buyers represented about 20% of the total

US wind market. To better understand the potential within this buyer segment, it is critical

to understand its behavior in the market.

C&I Buying behavior


3. C&I BUYING BEHAVIOR The principle of stewardship says that organisations have an obligation to serve society

and satisfy the public's needs, given that the wealth and power they have springs from

their activities within that society. That overarching philosophy is guiding business

practices today and subsequently the impact those business practices have on the wind

industry.

3.1. Branding

The term greenwashing was coined by environmentalist Jay Westerveld in 1986.

Corporate greenwashing was enabled by limited public access to information and

expansive advertising campaigns portraying unscrupulous corporations as caring

environmental stewards, even as they were engaging in environmentally unsustainable

practices.

The tides changed quickly in the 1990s as consumer buying behavior shifted. Numerous

polls have since identified environmental stewardship and the availability of

environmentally sustainable products as key decision-making criteria for consumers’

purchases. Consumer desires have been met, with innumerous certification bodies

springing to life to ensure corporate claims are indeed being carried out.

Figure 3.1 Picture from Budweiser’s Super Bowl ad campaign

Source: Anheuser Busch

There are still several recent instances of greenwashing, but, by and large, corporate

transparency is on the rise with more and more companies harnessing the power of “green

marketing”. Green marketing consists of marketing products and services based on

C&I Buying behavior


environmental factors or awareness. An excellent example is the above-pictured ad

campaign run by Anheuser-Busch during the 2019 Super Bowl. These green marketing

campaigns are an effort to highlight Corporate Social Responsibility (CSR) activities within

the corporate world. The Financial Times defines CSR as a business approach that

contributes to sustainable development by delivering economic, social and environmental

benefits for all stakeholders. Stakeholder theory outlines a view of capitalism that stresses

the interconnected relationships between a business and its customers, arguing that a

firm should create value for all stakeholders, not just shareholders.

In short, companies around the world have embraced the concept of environmental

stewardship and view it is a competitive differentiator for their businesses. CSR teams are

working to ensure that corporate business practices are well aligned with the values of

their client base, thus creating positive stakeholder value through the delivery of

sustainable products and services.

3.2. Investor pressure

Alongside branding concerns and a desire to satisfy customer sentiment is the investor

pressure mounting on publicly traded companies. Activist investors have wrought havoc

on Wall Street for years and have now set their sites on companies slow to embrace the

green movement. Illustrating this point, the US SIF Foundation’s 2018 biennial Report on

US Sustainable, Responsible and Impact Investing Trends, found that sustainable,

responsible and impact investing (SRI) assets now account for $12.0 trillion—or one in

four dollars—of the $46.6 trillion in total assets under professional management in the

United States. This represents a 38 percent increase over 2016. These SRI assets cover

a wide range of issues, but climate change is a central theme of many funds. Climate

change was the most important specific environmental, social and governance issue

considered by money managers in asset-weighted terms; the assets to which this criterion

apply more than doubled from 2016 to 2018 to $3.0 trillion.

Their activities are yielding fruit. Royal Dutch Shell was the first oil major to establish short-

term greenhouse gas reduction targets and, most notably, link them to executive pay.

Shell was one of the principal targets of Climate Action 100+, a green-minded coalition of

310 global investors controlling more than $32 trillion US in assets. Shell was already a

leader among oil companies, making a promise last year to cut its net carbon emissions

in half by 2050. However, the new deal commits the company to three- to five-year goals

updated on an annual basis, with the results reported transparently. Reaching those

targets will soon be tied to the compensation of as many as 1,300 senior Shell employees.

87% will

purchase a

product

because a

company

advocated for

an issue they

cared about,

and 76% will

refuse to

purchase a

company’s

products or

services upon

learning it

supported an

issue

contrary to

their beliefs

-2017 Cone

Communications

CSR Study

C&I Buying behavior


Figure 3.2 Shell New Energies activities in the renewables sector


3.3. Peer pressure

There is no clearer illustration of the power of consumer taste and need for transparency

than the formulation of the Carbon Disclosure Project (CDP), the related RE100 and the

US EPA’s Green Partnership Program. These two groups form the backbone of green

marketing for Fortune 500 companies, pitting company against company for bragging

rights on who can successfully eliminate their carbon footprint. It is no surprise that some

of the most innovative (and power hungry) corporations in the United States have

harnessed the reach of these programs to proclaim their environmental leadership. More

surprising is the ever-increasing number of smaller C&I buyers entering the fray and

working to apply pressure to their peers in other industries that may not be quite so energy-

intensive. The data below highlights just how quickly the ranks have swelled in the RE

100.

SEP OCT DEC JAN FEB MAY MAY DEC JAN FEB FEB

Demand

response

2017 2018 Q1/2019

E-mobilityResidential

retailer

DER

developer

Residential

retailer

DER

developer

Thermal

storageSolar E-mobility

Energy

storage

Demand

response

C&I Buying behavior


Figure 3.3 Cumulative RE100 signatories by year Figure 3.4 US C&I market activity thru CY2018

Source: Wood Mackenzie Source: Wood Mackenzie

The efforts of the RE100 companies are significant, and the operating scale of many of

these companies afford them the luxury of having dedicated teams assigned to

sustainability efforts. Their activity in the sector helps plow the road for other smaller

companies also seeking to reduce their carbon footprint and tout their environmental

stewardship. The EPA GPP by itself has more than 1,600 companies reporting,

representing over 50 TWh of annual energy use. It, too, has seen its ranks grow

substantially in recent years, with new members ranging from small academic institutions

to leading companies of the Fortune 500.

3.4. Harnessing CSR to guard against business risks

Outside of consumer branding and activist investor campaigns, there is the need to protect

business interests from the risks associated with climate change. The message from a

recently updated IPCC report rang alarm bells globally: the world now has 12 years to limit

greenhouse gas (GHG) emissions or face severe impacts from global warming. The call

to action has been acknowledged in many respects — with states, local communities,

and global businesses adopting aggressive measures to limit their carbon footprints. The

charts below highlights that the overwhelming majority of companies see climate change

as a risk to their business operations.

15

50

87

118

155

0

20

40

60

80

100

120

140

160

180

2014 2015 2016 2017 2018

OfftakerGW under

contract# of PPAs

% of market share

(MW)

Facebook 2.2 24 14.1%

Google 2.1 15 13.7%

Amazon 1.1 14 7.3%

AT&T 0.8 4 5.2%

Walmart 0.8 10 5.1%

Apple 0.8 7 5.0%

Microsoft 0.6 5 4.1%

Exxon Mobil 0.5 2 3.2%

Equinix 0.4 3 2.4%

Zotos

International0.3 3 2.2%

Other 5.9 138.0 37.7%

C&I Buying behavior


Figure 3.5 Corporate views on climate change


The leading concerns amongst CDP respondents are heavily geared towards the short-

to mid-term risks associated with the regulation and pricing of GHG emissions. These

concerns are warranted, with Wood Mackenzie expecting the introduction of a carbon tax

in the 2028 timeframe, will increase administrative costs associated with compliance, and

more important, cause an escalation in operational costs for energy-intensive businesses.

Happily for the renewable energy industry, adoption of wind and solar power can directly

address this operational risk directly and in an economic fashion.

Companies are also evaluating the business opportunities that may exist to support the

fight against climate change. New products and services top the list, especially insurance

products or products that have lower emissions than current technology. Companies are

expecting climate change concerns to induce changes in buying behavior, and those

changing customer attitudes are also identified as a major opportunity to improve

competitive positioning. Enormous opportunity exists in the manufacture of renewable

power generation equipment and the services required to maintain those assets. US wind

demand alone is forecast to support in excess of 75 billion USD of investment through

2030. For other companies outside of this niche industry, harnessing renewable energy

can aid in maintaining client satisfaction through direct demonstration of environmental

stewardship.

The demand case for the C&I sector is robust. C&I firms recognise both the risks and the

opportunities associated with climate change and are actively working to address both.

Renewable energy procurement represents an excellent solution to address the

operational needs of C&I companies by reducing potential exposure to increased power

prices driven by GHG regulations. Renewables also improve corporate branding with an

Companies that believe there are inherent

climate-related risks with the potential to

have a substantive financial or strategic

impact on their business

Companies that currently include the

impacts/mitigation of climate change as part

of their business strategy

Companies that believe there are climate-

related opportunities with the potential to

have a substantive financial or strategic

impact on their business

85%15%

Yes No

95%

5%

Yes No

90% 10%

Yes No

C&I Buying behavior


increasingly educated client base and may improve revenue generation opportunities

through the sale of products directly related to climate change abatement. The question

remains, however, as to what extent companies are willing to go to reduce their carbon

footprint and what paths they will take to get there.

Quantifying Demand


4. QUANTIFYING DEMAND The core focus of this study is to determine the total demand for direct procurement

(physical and virtual offtake agreements, utility one-off deals and green tariffs) of wind

power by C&I firms in the United States. The analytical framework applied is centered on

the climate goals established by the largest corporations in the United States, their buying

behavior and how they react to power market dynamics stemming from the energy

transition. The primary output of the study is a forecast for wind energy supported by the

direct procurement activities of the US C&I sector through 2030.

4.1. Population under consideration

There are nearly 30 million businesses operating in the United States, consuming

approximately 2500 TWh of electricity per year. Total power consumption is expected to

grow modestly during this time, increasing to 2800 TWh by 2030. The opportunity for

renewables within this end user segment is substantial. For instance, if the power

demands of the C&I sector were to be met with 100% wind energy, it would require a fleet

of over 750GW of wind turbines across the US.

Despite that enticing figure, the serviceable market opportunity for direct renewable

procurement through 2030 is substantially smaller. For one, there are millions of

companies that simply do not have the scale and/or operational bandwidth to dedicate

time to renewables procurement. Small businesses comprise 99.7% of the

aforementioned population of businesses in the United States. 80% of those small

companies do not have employees. The energy use of these individual companies is

minuscule compared to corporate titans like Apple and Google who have blazed the trail

for direct renewables procurement. In light of the miniscule size of these smaller

companies, and the associated credit risk that may preclude them from pursuing a direct

renewables procurement program, this analysis is focused on the operations of public and

private Fortune 1000 (F1000) companies within the United States.

The estimated power consumption of F1000 companies represents approximately 48% of

total C&I demand in the United States. Despite a substantial uptick in renewables

procurement over the past five years, the overall penetration of renewables in the power

mix for these companies remains limited at ~5%. At nearly 1200 TWh, the non-renewable

power demand for these corporations represents an enormous opportunity. Assuming a

net capacity factor of 42%, this could equate to more than 300GW of new wind turbine

installations if all demand was focused on direct procurement of wind energy. The

question becomes how to mobilise that demand in a manner in which drives “additionality,”

in this case the construction of new wind farms

Quantifying Demand


Figure 4.1 Fortune 1000 power demand and renewable penetration


4.2. Available options for decarbonisation

The RE100 effort has been laudable in mobilising corporations’ decarbonisation actions.

The RE100 rankings continue to swell with YoY membership growth measured at 40% in

2017 and 30% in 2018. Membership continues to grow in 2019, and currently there are

175 members worldwide who are committed to 100% renewable power for their global

operations. The actions of these companies are pioneering new ways in which to deploy

private capital into the renewable energy market, most notably via virtual power purchase

agreements (VPPAs). Although VPPAs only represent ~20% of total global procurements

for the RE100, buyer behavior trends illustrate a growing preference for VPPAs.

Unfortunately, the population of US based companies within the RE100 remains rather

limited, representing only about 1% of total US C&I electricity demand.

In order to better understand the potential of the F1000, procurement preferences were

analysed from over 400 US-based companies reporting into the CDP’s 2018 climate

change survey, 80% of which are counted within the aforementioned F1000 population.

US electricity use within this target population is more substantial than the RE100,

representing ~15% of total C&I demand across the US. Buyer behavior within this group

is used as a proxy for the behavior of the F1000, where the activities of specific companies

within a specified business segment are applied to all F1000 companies within that same

business segment.

Revisiting procurement preferences within the CDP population, and adjusting for two

substantial outliers, a clear preference for VPPAs and REC procurement emerges.

Technology preferences are also quite clear, with wind energy making up the majority of

engagements for both REC and PPA procurement. The combination of VPPAs with wind

is not surprising given the maturity of the C&I market and engagement of predominantly

larger companies that tend to have correspondingly larger loads (>100,000 MWhs/annum)

that are highly concentrated at one, or maybe a handful of locations (i.e., data centers).

These companies view power pricing as a strategic differentiator for their businesses and

are thus willing to dedicate the capital and manpower required to facilitate VPPAs. PPAs

are more difficult to craft for smaller companies with multiple locations, especially when

those locations reside in multiple ISO/RTO territories. Firms with lesser electricity demand

Quantifying Demand


and a more distributed footprint (i.e., consumer retailers) are more apt to procure RECs

or take advantage of green tariffs where available.

Figure 4.2 C&I renewable energy procurement preferences


RECs abound as most states were able to meet their Renewable Portfolio Standards

(RPS) targets in 2017 through both indigenous generation, REC trading and REC banking.

The anticipated rapid proliferation of renewable generation and slower pace of RPS target

expansion results in a cratering of REC pricing post 2028, and 65% of all RECs produced

in 2040 may be “orphan” RECs (RECs exceeding targets). RECs’ low cost, ready

availability and low transactional costs make them an exceptionally easy means to offset

GHG emissions, especially as they can be adjusted annually, minimising any long-term

risks. RECs, however, have myriad shortcomings: they do not promote additionality, nor

do they carry the same level of brand impact as a VPPA. Furthermore, unbundled RECs

do not offer the financial upsides of a VPPA that can be realised through the lower LCOE

of renewables and associated hedge against fossil fuel volatility.

Quantifying Demand


Figure 4.3 Total forecast for system RECs Figure 4.4 Tier I REC price forecast for select markets


The shortcomings of simple REC purchases and the complexity of VPPAs are increasingly

well-known within the business community. Forward-thinking utilities are working to close

the gap with new green tariff options. Traditional green pricing programs provide access

to renewable energy but typically at a premium and often without access to RECs. Green

tariffs provide an economic benefit by providing a long-term hedge against fluctuating

fossil fuel prices because customers have locked in a fixed price for renewable energy not

pegged to the regular rate. United States green tariff programs remain in their infancy but

hold the promise of engaging Tier II type corporate RE buyers by aggregating demand

from several smaller entities in a structured subscription service. Green tariffs also negate

the need for smaller corporate buyers to invest substantial time and resources to the

procurement of renewable energy via VPPA. Although green tariffs may result in additional

demand for wind power, this demand will be satisfied by major utilities working with

corporate buyers.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

GW

h

ERCOT MIRECS

M-RETS NARR

NC-RETS NEPOOL-GIS

NYSERDA PJM-GATS

WREGIS Target

0

5

10

15

20

25

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

Real 2018$

California

Illinois

Massachusetts

New Jersey

New York

Quantifying Demand


Figure 4.5 State of green tariff programs in the United States

Source: REBA

4.3. Examination of corporate climate change initiatives

4.3.1. CDP companies with a defined renewable energy target

Corporations are keen to demonstrate environmental stewardship, working to minimise

their carbon footprint through a variety of activities, including energy efficiency, waste

reduction, emissions reductions and renewable energy procurement.

Among the full CDP population, only 14% have a defined renewable energy target (RET),

equal to a total electricity demand of approximately 45 TWh once accounting for existing

renewables procurement in the form of RECs, PPAs and other methods. If all outstanding

requirements were to be met with direct procurement of wind, it would only equate to

~12GW of installations.

Green tariffs in place, deals executed

Green tariffs in place, no deals

Considering green tariff (at PUC level)

Singular green tariff transactions

Retail choice available

No large-scale RE access

Quantifying Demand


Figure 4.6 Global GHG versus renewable energy targets, CDP companies*

Source: Wood Mackenzie, CDP

Note: Most CDP companies apply multiple targets, so overlap does exist among 414 companies

A majority of companies within the CDP have put forth GHG reduction goals instead of

RETs. It is feasible that companies may seek to reduce their emissions through the

purchase of renewables, even though the company may not have a specific RET

established. Corporate emissions reduction goals are generally segmented by the type of

GHG emission as scope 1, 2 or 3.

• Scope 1: Direct emissions from burning of fuels by the emitter

• Scope 2: Indirect emissions from electricity consumed and purchased by the emitter

• Scope 3: Indirect emissions produced by the emitter activity but owned and

controlled by a different emitter

Quantifying Demand


Figure 4.7 GHG opportunity from CDP companies segmented by scope type (TWh)

Source: Wood Mackenzie, CDP

There is substantial overlap between companies that have Scope 2 goals and those

already targeting renewable energy procurement. Elimination of these redundancies

dramatically reduces the market opportunity for wind, driven by Scope 2 emissions

reductions to ~800MW. Inclusion of scope 1 and 3 emissions dramatically increases total

market opportunity for renewables by 25GW, but the complexities and timelines

associated with fleet electrification, HVAC electrification and securing buy-in from

suppliers precludes Scope 1 and 3 type emissions from this analysis.

The potential renewable energy demand from CDP companies with stated RETs is well

defined. Nevertheless, a series of scenarios were built into the analysis to account for

potential changes in future buying behavior. These scenarios modified two key variables:

• Non-PPA share of future renewables procurement: Companies have options

when it comes to renewables procurement, and as noted previously, 68% of total

procurement was executed by means outside of a PPA. This variable defines

what portion of a company’s renewable energy procurement will come from non-

PPA sources

• Conversion of non-PPA procurements: This variable expands the total available

market opportunity by allowing for conversion of old RECs to PPA-sourced

renewable energy

Redundancies in

existing RE projects

94

Targeted emissions

reductions

66

54

15

Scope 1

135

Targeted emissions

reductions

41

Final targeted

emissions

38

3

53

Final targeted

emissions

135

94

Scope 2

Scope 3

Equates to about 25GW of

wind capacity

Quantifying Demand


Scenario D was chosen as the presented case for analysis as it illustrated the maximum

realistic potential for new renewable energy procurement.

Figure 4.8 Identified RE target scenarios Figure 4.9 Identified RE target demand (TWh)


4.3.2. Fortune 1000 companies not in the CDP

The aforementioned CDP population is used as a proxy for developing the total

serviceable market for direct procurement of wind energy by the F1000. The total

electricity demand for this group is substantial, and the actual penetration of renewables

is exceptionally limited. Only about 1% of the F1000 demand is satisfied via direct

procurement of energy from operational wind and solar facilities with another 1%

contracted but not yet built. About 2.5% is satisfied via REC or other method, thus leaving

approximately 95% of total electricity demand unserved by renewables.

Scenario Details

AAssuming historical average non-PPA share for future procurement; no changes

to historical compliance

BAssuming reduction of non-PPA share by 25% for future procurement; no

changes to historical compliance

CAssuming reduction of non-PPA share by 50% for future procurement; no


DAssuming all new procurements are made via PPA or GT; no changes to

historical compliance

EAssuming all new procurements are made via PPA or GT and 25% of historical

non-PPA/GT purchases are converted to PPA/GT by YE/2028

FAssuming all new procurements are made via PPA or GT and 50% of historical


GAssuming all new procurements are made via PPA or GT and all historical non-

PPA/GT purchases are converted to PPA/GT by YE/2028

Quantifying Demand


Figure 4.10 Annual renewable energy demand opportunity, F1000 companies (TWh)


Sensitivities to the analysis are governed by the following key variables:

• Target rating (TR): The ability for a company to implement a defined RET is largely

predicated upon its operating scale and financial strength. As a proxy, the analysis

applies the company’s credit rating to define a TR. Companies with higher credit

ratings receive a higher TR. Companies with a lower TR will not be eligible for a

RET.

• Adoption rating (ADR): To translate the findings from the CDP population with a

RET to Fortune 1000 population without a RET, the buying behavior and climate

reduction activities from CDP companies was aggregated by business sector into an

ADR and then applied to non-CDP F1000 companies in that same sector. A higher

ADR reflects a company’s presence in an industry that is strongly engaged in the

fight against climate change and/or is highly exposed to power price increases.

• Average rating (AVR): Simply the average of the TR and ADR, which is used as a

proxy to account for both the company’s unique financial characteristics as well as

the needs and ambitions of its peer group towards decarbonisation

• Non-PPA share of future renewables procurement

• Conversion of GHG emissions goals into RETs

1,141

29

Annual US

electricty

demand

US annual

demand met

(non-PPA/GT)

11

Identified

annual

operational

demand

11

Identified

annual

contracted

demand

Annual

renewable

energy demand

opportunity

47

1,094

Identified annual

uncontracted

demand

Remaining

annual

potential

1,192

Scenario Impact

Quantifying Demand


The first three variables listed above are the key inputs into analyses that define the

following key outputs that will define a non-CDP company’s RET

• RE target adoption: Defined as the number of years it takes for a company to

implement a RET. An individual company’s year of adoption is governed by the AVR

and applied against target adoption scenarios

• RE target year: Defined as the total number of years allowed by a company to

achieve its stated RE target following adoption. An individual company’s target year

is based on its TR and is modified according target-year scenarios.

• RE target extent: The total average percentage of the F1000’s electricity and Scope

2 emissions to be addressed via renewables. An individual company’s target extent

is adjusted off this average baseline based on their TR and chosen target extent

scenario.

Figure 4.11 Renewable energy target year scenarios Figure 4.12 Renewable energy target extent scenarios


Figure 4.13 Renewable energy target adoption year scenarios

Figure 4.14 Estimated RE target demand (TWh)


The chosen baseline for the analysis was the DAA50 case:

• Scenario D for identified demand in place

• Aggressive scenario for target adoption year (year in which program is implemented)

• Aggressive scenario for target year (year in which program is targeting completion),

• 50% average target extent baseline

Target rating Slow Standard Aggressive

10 10 5 3

9 12 6 4

8 15 8 6

7 20 11 8

6 25 14 10

5 30 17 12

4 NA 20 15

3 NA NA 18

2 NA NA NA

1 NA NA NA

Target rating 30% 50% 80%

10 50% 80% 100%

9 45% 70% 95%

8 40% 60% 90%

7 35% 55% 85%

6 32% 52% 82%

5 30% 50% 80%

4 NA 25% 40%

3 NA NA 20%

2 NA NA NA

1 NA NA NA

Year Slow Standard Aggressive

Max 25 12 8

Min 1 0 0

Min rating 5 4 3

Quantifying Demand


• A partial conversion of GHG emission targets into RE targets is incorporated in this

scenario at conversion rate of 25% of existing scope 2 targets, with no Scope 3

emissions included

• REC sourcing begins at 65% of procurements and falls 5 percentage points per

year, bottoming at 10% of total procurements in 2030

This is the most aggressive case we have with respect to target timing but limits REC

conversions on a national basis. The case was chosen to represent a best-case scenario

for C&I demand while allowing for slow transition away from REC purchases. The

aggressive case also reflects recent dialogue within the Democratic primaries, in which

climate change is coming to the forefront of debate, and in doing so is likely to drive

corporations to seize hold of that dialogue to forward their own brand recognition. Along

the same line, if so-called Green New Deal initiatives move forward, power price increases

are expected and execution of VPPAs are likely to increase.

The result is an 85GW opportunity for all forms of renewables and renewables

procurement within the F1000.

Figure 4.15 F1000 annual C&I renewable energy procurement requirements (TWh)

Source: Wood Mackenzie DAA50 scenario (See section 3.3.2)

Quantifying Demand


Figure 4.16 Annual C&I renewable energy procurement requirements minus non-PPA engagements (TWh)

Source: Wood Mackenzie, DAA50 scenario (See section 3.3.2)

The need to expand renewables procurement goals to corporations outside the CDP pool

while also convincing companies within the CDP pool to adopt more aggressive renewable

energy procurement goals is essential. Eliminating barriers to entry through simpler

financing mechanisms will be central to reducing the industry’s reliance on third party REC

procurement. Green tariffs represent a potential option here and should be looked upon

to facilitate C&I demand for renewables. Albeit not a pure VPPA between a developer and

C&I firm, growth of utility-sponsored green tariff programs has the same desired effect for

the wind and solar industries: to increase demand for renewable energy.

Examination of the potential market share of wind energy versus solar energy


5. EXAMINATION OF THE POTENTIAL MARKET SHARE OF WIND ENERGY VERSUS SOLAR ENERGY Wind’s long fight with fossil fuel is quickly transitioning to a need to craft a strategy to cope

with solar competition. As the energy transition unfolds in the United States it introduces

new power market dynamics that fundamentally favor solar power over wind.

The first portion of our analysis is informed by the net Cost of New Entry (Net CONE) for

wind and solar. Net CONE goes one step beyond levelised cost of electricity (LCOE),

introducing the impacts of renewables penetration and the subsequent impact on local

power prices to derive the attractiveness of one technology versus another. In simplest

terms, Net CONE is an estimate of the “missing money” needed by a new generator in its

first year of operation to make it economically viable to build a power plant. CONE is

primarily based on the reference technology’s capital, operating and other appropriate

costs and its expected operating performance. Net CONE subtracts the energy, tax credit

and ancillary services revenue from CONE to highlight if a project is in the money or not.

Figure 5.1 Wind/solar energy economics, ERCOT West (USD/MWh)


The implications of this metric are significant from a strategic standpoint. Although wind

and solar power will share similar LCOEs, the time at which they are generating that low-

cost power differ substantially, both from an hourly perspective as well as a daily or even

monthly perspective. One of wind’s biggest issues has always been its diurnal pattern,

which does not always line up well with peak power demands either hourly or seasonally.

Wind resource is typically strongest in the morning and evenings, when load demand is

lower, and in spring and winter months where load demand is also lower. Power prices

fluctuate as a function of supply and demand, and in periods of lower demand the system



is at low utilisation, causing prices to drop (sometimes to negative values) and pressuring

power plants with poor cost positions. In aggregate over the course of a year, Net CONE

will trend towards positive, indicating that it is not economical to build a power plant in that

region until supply/demand imbalances are corrected.

These curves are obviously not set in stone, but it has been largely established that load

demand is not expected to grow substantially in the coming years and the LCOE of wind

and solar are on more stable trajectories (wind slightly more than solar) given the maturity

of both technologies. So, what can change the primary parameters of this analysis and

how does it impact the fortunes of wind versus solar?

Public policy that alters the subsidised LCOE of either technology will have a meaningful

impact on CONE. The phase out of the Production Tax Credit is upon us and the

economics of wind in the United States will suffer as a result. The evolution of wind turbine

technology and lower weighted average cost of capital (WACC) from decreased reliance

on tax equity finance will aid in recovering some of that lost PTC benefit, but not all of it.

The solar market is under similar stress, as solar stakeholders must cope with a

phasedown of the ITC through 2023 after which it remains at a constant 10% in perpetuity.

The PTC is not expected to be renewed, so solar will have an advantage over wind with

respect to federal public policy. At the state level, the most noteworthy policy deals with

offshore wind energy carveouts in the Northeast. The carveouts override any Net CONE

issues, but for this analysis, the high costs of those projects will likely preclude their ability

to drive C&I demand.

Figure 5.2 Wind’s levelised cost of electricity


(USD/MWh) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Plains 10.4 10.8 10.5 12.8 14.9 17.1 21.2 20.7 20.4 20.1 19.8 19.5 19.2

Texas 13.8 14.2 13.9 16.1 18.1 20.2 24.2 23.6 23.3 22.9 22.6 22.3 21.9

Midwest 17.4 17.9 17.6 19.9 22.0 24.2 28.2 27.6 27.2 26.8 26.4 26.0 25.6

Northeast 19.1 19.6 19.3 21.6 23.7 25.9 29.8 29.2 28.8 28.3 27.9 27.5 27.0

Mid-Atlantic 19.5 20.0 19.7 22.0 24.0 26.2 30.1 29.5 29.0 28.6 28.1 27.7 27.3

West 21.8 22.4 22.1 24.3 26.3 28.5 32.3 31.6 31.1 30.6 30.2 29.7 29.3

California 22.9 23.4 23.1 25.4 27.5 29.6 33.5 32.8 32.3 31.8 31.3 30.9 30.4

Pacific NW 23.8 24.4 24.1 26.3 28.3 30.4 34.1 33.4 32.9 32.4 31.9 31.4 31.0

Southeast 39.2 40.0 39.7 41.9 43.7 45.7 49.2 48.2 47.4 46.7 46.0 45.3 44.6



Figure 5.3 Solar’s levelised cost of electricity


Load curves are central to net CONE, and the rapid evolution of utility-scale battery

technology can reshape those curves. Industry participants have become intimately

familiar with the infamous California duck curve and thus understand the issues that arise

when wind and solar power penetration increase. The deployment of energy storage can

aid in alleviating the supply/demand imbalances discussed above by shifting oversupply

from variable energy resources (VERs) like wind and solar to times when those VERs are

not available. Lithium ion battery technology defines the commercial use case for utility-

scale storage and is generally viable for ancillary services (frequency regulation) and

short-term load arbitrage applications (<8 MWh). A battery’s value is defined by its ability

to create revenue by charging during periods when supply is high and prices are low, and

by discharging when supply is low and prices are high. The frequency of this charge and

discharge cycle is critical to revenue and here solar power is more suitable for economic

development, as solar’s generation profile is more consistent on a daily, weekly and

monthly basis. A storage asset co-located at a wind facility may not be able to execute a

full charge/discharge cycle for days or weeks at a time. Further, a storage asset co-located

with a solar plant can leverage the benefits of the ITC.

The results of the state-by-state analysis are shown in the table below and drive the

national segmentation between wind and solar demand for the C&I market:

USD/MWh 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Texas 23.9 22.9 21.8 20.8 19.9 19.9 21.1 20.8 20.4 20.0 19.6 19.3 19.0

West 25.9 24.8 23.5 22.4 21.5 21.6 23.0 22.6 22.2 21.8 21.4 21.0 20.6

California 28.5 27.3 25.9 24.7 23.7 23.8 25.4 24.9 24.5 24.0 23.6 23.2 22.7

Southeast 28.6 27.4 26.0 24.8 23.8 23.9 25.4 25.0 24.5 24.1 23.6 23.2 22.8

Plains 29.1 27.9 26.5 25.2 24.2 24.3 25.9 25.4 24.9 24.5 24.0 23.6 23.2

Midwest 31.4 30.1 28.5 27.1 26.1 26.2 28.0 27.5 27.0 26.5 26.0 25.5 25.1

Grand Total 32.4 31.0 29.4 28.0 26.8 26.9 28.7 28.2 27.7 27.2 26.7 26.2 25.7

Pacific NW 33.6 32.2 30.5 29.1 27.9 28.0 29.8 29.2 28.7 28.2 27.7 27.2 26.7

Mid-Atlantic 39.2 37.5 35.5 33.8 32.4 32.5 34.8 34.1 33.5 32.9 32.3 31.7 31.1

Northeast 43.0 41.1 38.9 36.9 35.4 35.5 38.1 37.4 36.7 36.0 35.3 34.7 34.0



Figure 5.4 Wind energy state market share


Note: Entries labelled “reassign” indicate positive net CONE for both wind and solar, indicating that neither

technology has strong economics to drive demand. In those cases the generation that should be attributed to

that state is siphoned off to an adjacent state with better climatic and economic conditions. AK/HI not

modelled.

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Colorado 100% 100% Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign 0% 37%

District of Columbia 100% 100% 100% 72% 11% Reassign Reassign 16% 20% 30% 35% 38%

Indiana 100% 100% 53% 11% 0% 0% 0% 0% 0% 0% 4% 14%

Iowa 100% 100% 26% 0% 0% 0% 0% 0% 0% 0% 0% 8%

Kansas 100% 100% Reassign Reassign 0% 0% 0% 0% 0% 0% 12% 21%

Michigan 100% 100% 78% 47% 31% 10% 15% 19% 25% 31% 37% 41%

Minnesota 100% 100% 100% Reassign 0% 0% 0% 0% 0% 0% 12% 26%

Missouri 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 13% 21%

Montana 100% 100% 100% Reassign Reassign Reassign Reassign Reassign Reassign 100% 100% 100%

Nebraska 100% 100% 100% 100% 41% 0% 10% 12% 14% 32% 38% 40%

North Dakota 100% 100% 100% Reassign 0% 0% 0% 0% 0% 0% 16% 25%

Ohio 100% 100% 100% 71% 62% 57% 57% 55% 49% 43% 43% 41%

Oklahoma 100% 100% 79% 66% 41% 29% 27% 24% 24% 34% 38% 41%

South Dakota 100% 100% 100% 100% 0% 0% 0% 0% 0% 17% 27% 33%

Virginia 95% 100% 100% 39% 0% 0% 0% 0% 9% 26% 33% 37%

West Virginia 100% 100% Reassign Reassign 0% Reassign Reassign Reassign 0% 6% 22% 28%

Wisconsin 100% 100% 46% 8% 0% 0% 0% 0% 0% 0% 5% 14%

Wyoming 100% 100% 100% Reassign Reassign Reassign Reassign Reassign Reassign Reassign 45% 54%

Pennsylvania 91% 90% 72% 42% 30% 17% 23% 25% 25% 22% 24% 28%

North Carolina 93% 76% 27% 0% 0% 0% 0% 0% 0% 10% 22% 28%

Illinois 94% 76% 78% 59% 30% 0% 0% 0% 2% 19% 30% 34%

Maryland 76% 73% 66% 52% 47% 46% 48% 47% 43% 40% 40% 40%

Delaware 82% 66% 53% 50% 50% 54% 57% 56% 48% 45% 44% 43%

New Jersey 76% 65% 55% 51% 48% 50% 53% 53% 48% 45% 44% 44%

California 61% 62% 56% 51% 49% 47% 48% 47% 49% 49% 53% 56%

Texas 65% 59% 45% 36% 28% 19% 21% 23% 25% 31% 35% 39%

New York 60% 59% 61% 58% 52% 51% 52% 52% 53% 49% 51% 51%

Rhode Island 54% 58% 60% 61% 61% 60% 59% 60% 61% 62% 63% 65%

Massachusetts 51% 55% 55% 56% 56% 54% 53% 55% 55% 56% 57% 61%

Connecticut 51% 54% 55% 56% 56% 53% 51% 54% 53% 54% 56% 60%

Vermont 45% 50% 50% 53% 51% 46% 48% 54% 54% 54% 57% 62%

Maine 47% 50% 50% 47% 46% 40% 41% 45% 44% 44% 48% 54%

New Hampshire 45% 49% 48% 49% 47% 45% 45% 49% 49% 48% 51% 56%

New Mexico 98% 44% 19% 0% 0% 0% 0% 0% 0% 0% 18% 29%

Arizona 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Nevada 0% 0% 0% 0% 0% Reassign 0% 0% 0% 0% 0% 0%

South Carolina 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Utah 0% 0% 0% 0% 0% Reassign Reassign Reassign Reassign Reassign 0% 0%

Alabama Reassign Reassign Reassign 0% 0% Reassign 0% 0% 0% 0% 0% 0%

Alaska Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

Arkansas Reassign Reassign Reassign 0% 0% 0% 0% 0% 0% 0% 0% 0%

Florida Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

Georgia Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign 0% 0% 0% 0%

Hawaii Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

Idaho Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

Kentucky Reassign Reassign 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Louisiana Reassign Reassign Reassign 0% 0% 0% 0% 0% 0% 0% 0% 0%

Mississippi Reassign Reassign Reassign 0% 0% 0% 0% 0% 0% 0% 0% 0%

Oregon Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

Tennessee Reassign Reassign Reassign 0% 0% 0% 0% 0% 0% 0% 0% 0%

Washington Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign Reassign

C&I wind and solar demand forecast through 2030


6. C&I WIND AND SOLAR DEMAND FORECAST THROUGH 2030 Power market dynamics and the continued reduction of solar power’s LCOE are

suppressing wind energy demand in the long term. Long-term regional outlooks that

inform our analysis are as follows:

ERCOT

The ERCOT market has undergone tremendous change over the last few years. The

market will see a continued increase in wind farm development to maximize remaining tax

incentives and increasingly leverage hedging instruments. Solar capacity will

exponentially increase as economics only look to improve over the forecast. Changes to

market design are expected to be needed to properly assign value to thermal generators

and incent new capacity to cope with sustained electricity demand growth and shrinking

reserve margins.

Transmission limitations are increasingly causing ERCOT West to price lower than the

rest of the market, with additional pressure in the Panhandle through 2021. Surplus wind

generation drives this discount through the mid term, with solar additions compounding

this impact in the long term.

Midwest

A loss of industrial load, energy efficiency and distributed generation restrain growth. The

market remains overbuilt throughout much of the next decade, with capacity prices failing

to rise until new firm capacity is eventually needed post 2030.

Solar and wind generation increase market share through the forecast period (from 4% in

2019 to almost 20% by 2040) due in large part to long-term carbon pricing impacts on

coal. Wind capacity is expected to double between 2019 and 2040, while solar increases

around 20x, albeit from a very small level.

Siting/permitting/NIMBY issues are hindering long-term transmission expansion, resulting

in significant congestion in COMED, Dominion, BG&E, and PJM East and driving

significant increases in energy storage deployment. Transmission issues also hamper

wind growth in the region.

Southeast

Southeast demand grows at a healthy average growth rate, but load growth minus

renewables remains flat and begins to decline over the forecast period once carbon begins

to be priced in. In particular, SERC Southeast and FRCC grow by more than 8% on

average above the national growth rate, while demand in SERC North lags the regional

average.



On the supply side, the generation mix changes from being a predominantly gas + coal +

nuclear-based mix to a gas + solar mix due in large part to the poor wind resource in the

region. SERC remains a net importing region with underutilized, abundant and low-cost

gas generation flowing from PJM, Dominion, MISO South and SPP South.

Northeast

The Northeast power markets already have some of the lowest carbon intensity in NERC

yet many of the states and provinces in this area have some of the most aggressive goals

in North America for continued decarbonisation. New York and New England will find it

challenging to meet their renewable energy and decarbonisation goals. Poor insolation

means that solar has relatively low capacity factors, particularly during winter months.

Onshore wind farms and transmission lines are frequently opposed by the public, even

though the public supports renewable energy as a concept. There is great potential for

offshore wind power.

Excluding hydropower, natural gas is the primary dispatchable generation resource in the

Northeast. However, natural gas infrastructure also faces public opposition, and a lack of

pipeline capacity during winter months leads to very high gas prices at times, particularly

in New England. During these periods, both markets have a strong preference to import

power rather than run native gas-fired generation.

WECC

Decarbonisation efforts will erode the total addressable market for both new and existing

thermal resources. Coal is largely on the way out with cheap minemouth plants in the

Rockies being the final stronghold. Gas generation continues to grow with growing

flexibility needs but will be perpetually capped by renewables additions.

Incremental growth in demand will overwhelmingly be met with new renewable additions.

However, as solar load-carrying capabilities falter in saturated markets, resource

adequacy requirements will incent a combination of gas and battery storage. Capacity

values in WECC are already undergoing an evolution to reflect the value of flexibility and

possibly resiliency. Improved operational data for solar and wind will likely uncover even

more reliability shadow costs to be accounted for.

Solar and wind generation are complimentary and largely grow together in WECC, albeit

in a fairly segregated manner. Initiatives such as CAISO EIM aim to reap the benefits of

diverse generation patterns across large swaths of geography. However, native

renewable requirements continue to reshape hourly flow patterns, which will likely strand

many assets built to serve CAISO from afar.

In summary, the regional biases for solar demand are largely as expected with demand

surpassing wind in the southeast and southwest of the U. However, solar’s strength in

the Midwest is eye-opening. The ability for wind to overcome regional resource bias in the



southeast is extremely limited without the aid of long-haul transmission, while activities in

the southwest will be challenged simply due to the strength of the solar resource in the

region.

Figure 6.1 State level wind adoption Figure 6.2 State level solar adoption


A core focus on increasing wind’s competitiveness in the Midwest through the adoption of

taller tower technology and larger turbines may aid in recouping market share, but Wood

Mackenzie LCOE assumptions are already bullish for this region. Northeast renewables

will largely be dominated by offshore wind, where there may be the potential to farm down

equity share to multiple large-scale C&I buyers, but the higher cost of offshore wind energy

limits that likelihood until the sector further matures post-2030.

Figure 6.3 Wind v. solar forecast for C&I demand, aggressive scenario, 2018-2030 (MW)


>2000MW

2000MW>x>1000MW

1000MW>x>500MW

500MW>x>100MW

<100MW

>5000MW

5000MW>x>2500MW

2500MW>x>1000MW

1000MW>x>500MW

<100MW



Figure 6.4 Wind v. solar forecast for C&I demand, aggressive scenario, 2018-2030 (GWh)


Absent of a step change in turbine performance or cost reductions, it is increasingly

obvious that for wind to compete amidst ever increasing renewables penetration, a long-

term energy storage solution must be developed to cope with wind’s weekly and seasonal

boom/bust cycle. Pumped hydro resources are ideal, but rather limited in the United

States. Gravity storage solutions are emerging as a means to provide “synthetic hydro”.

This technology along with thermal and compressed air storage are in their infancy,

however, and are not likely to impact demand in the current forecast period. Power-to-

gas applications may also be a boon to wind energy but are likewise post-2030

developments.

A reduction in solar’s market share could also be realised if the ITC were to expire or

existing tariffs against solar modules were to be maintained long term. To date, the solar

market has been able to overcome tariff impacts, but the market will be tested as the ITC

phases out.



A. APPENDIX: TARGET PARAMETERS FOR F1000 DEMAND

Figure 6.5 Annual demand from identified renewable energy targets

Scenario Details

A Assuming historical average non-PPA share for future procurement, no


B Assuming reduction of non-PPA share by 25% for future procurement, no


C Assuming reduction of non-PPA share by 50% for future procurement, no


D Assuming all new procurements are made via PPA or GT, no changes to

historical compliance

E Assuming all new procurements are made via PPA or GT and 25% of historical


F Assuming all new procurements are made via PPA or GT and 50% of historical


G Assuming all new procurements are made via PPA or GT and all historical



Figure 6.6 Target year scenarios (years since year of adoption)

Target rating Slow Standard Aggreesive

10 10 5 3

9 12 6 4

8 15 8 6

7 20 11 8

6 25 14 10

5 30 17 12

4 NA 20 15

3 NA NA 18

2 NA NA NA

1 NA NA NA




Figure 6.7 Renewable energy target extent scenarios

Target rating 30% 50% 80%

10 50% 80% 100%

9 45% 70% 95%

8 40% 60% 90%

7 35% 55% 85%

6 32% 52% 82%

5 30% 50% 80%

4 NA 25% 40%

3 NA NA 20%

2 NA NA NA

1 NA NA NA


Figure 6.8 Renewable energy target adoption scenarios

Year Slow Standard Aggressive

Max 25 12 8

Min 1 0 0

Min rating 5 4 3


August 2019 ANALYSIS OF COMMERCIAL AND INDUSTRIAL …...A loss of industrial load, energy efficiency...

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Transcript of August 2019 ANALYSIS OF COMMERCIAL AND INDUSTRIAL …...A loss of industrial load, energy efficiency...