US colleges, universities contract for renewables in sustainability push

 

US colleges, universities contract for renewables in sustainability push

 

Case Study: A Utility Company Efficiently Sharpens Its Focus on the Credit Risk of New Customers

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  • 3 Mar, 2020

US colleges, universities contract for renewables in sustainability push

  • AuthorMichael Lustig
  • ThemeEnergy
The University of Illinois at Urbana-Champaign obtains 8.6% of the output of EDP Renewables’ Rail Splitter Wind Farm in Logan County, Ill., under a 10-year power purchase agreement.
Source: EDP Renewables North America LLC

Vanderbilt University and the College of William & Mary, in separate announcements in January, became two more of a steadily growing number of U.S. colleges and universities to obtain at least a portion of their campus energy needs through long-term power purchase agreements for electricity from renewable resources.

In some ways, colleges and universities are like any other corporate purchaser of energy looking for a stable, affordable supply that can contribute to the organization’s sustainability goals. However, colleges and universities have additional constituencies and motivations to satisfy.

“The X factor is, obviously, the students,” said Kyle Harrison, sustainability analyst at BloombergNEF.

“Students have been really excited about their universities going to 100% renewable electricity,” said Bronte Payne, the “Go Solar” campaign director at advocacy group Environment America.

Students, for example, have pressured some colleges and universities in the U.S. and elsewhere to halt new investments in companies associated with fossil fuels and to divest existing holdings. The Association of Big Ten Students, representing students and alumni at the 14 Big Ten schools, in January passed a resolution calling on their schools to divest their fossil fuel interests. In September 2019, the University of California’s investments office said it would divest fossil fuel holdings in both its endowment and pensions, calling fossil fuel assets a “financial risk.”

In 2006, a group of a dozen U.S. college and university presidents joined an initiative now called the Presidents’ Climate Leadership Commitment, through which they pledged to bring principles of sustainability into all aspects of higher education. The effort, overseen by the climate action advocacy group Second Nature, now has dozens of members of all sizes in all 50 states who can commit to reducing greenhouse gas emissions, improving resilience to climate impacts, or both.

More generally, colleges and universities see purchases of renewable energy as one way to help further their greenhouse gas emissions-reduction, carbon-neutrality or zero-carbon pledges. The Association for the Advancement of Sustainability in Higher Education said in a February 2018 publication that power purchase agreements for the output of offsite renewable resources, either for individual schools or for multiple purchasers aggregated together, is the most effective way for colleges and universities to meet greenhouse gas reduction targets.

In an April 2019 report, Environment America, citing U.S. Environmental Protection Agency data, said more than 40 U.S. colleges and universities get all of their electricity supply from renewable resources. Schools are also adding onsite generating sources, incorporating electric vehicles in their fleets and improving the efficiency of their buildings.

The Environment America report also cited a survey of college applicants in which nearly two-thirds of respondents indicated a school’s environmental commitments would influence their decision on whether to attend.

Vanderbilt has pledged to make its campus in Nashville, Tenn., carbon-neutral by 2050. In January, it said it would team up with regional power supplier the Tennessee Valley Authority, local distribution utility Nashville Electric Service and private solar energy developer Silicon Ranch Corp. to build a 35-MW solar facility in Bedford County, Tenn., that will offset about 70% of the university’s annual Scope 2 greenhouse gas emissions — emissions that result from the generation of electricity, heat or steam purchased from a utility provider — and help it meet a goal of supplying all its campus electricity needs with renewables.

“Our research shows that in many areas of the country, colleges and universities, civic and cultural groups and businesses are playing a leading role in addressing climate change. The success of this effort sends a clear message that the move to renewable power does not need to wait for governments to act,” Mike Vandenbergh, David Daniels Allen Distinguished Chair in Law and director of the Vanderbilt Climate Change Research Network, said in announcing the university’s deal. “It can be done in ways that are cost-effective and will make significant, near-term carbon emissions reductions.”

Stephen Abbott, a research associate at the Rocky Mountain Institute, a nonprofit that promotes market-based approaches for consumers to shift away from fossil fuel use, said the lack of federal government action regarding climate has prompted colleges and universities to “focus on more local actions,” such as contracting for electricity from resources within their state or regional power market.

Colleges and universities contracting for electricity is not new. A review of select power purchase agreements of 10 MW or more by S&P Global Market Intelligence finds deals going back more than a decade. The University of Oklahoma has been buying credits for the output of the 101-MW OU Spirit (Keenan I) wind farm since 2010 from OGE Energy Corp. subsidiary Oklahoma Gas and Electric Co.

In some cases, utilities have contracted for the output of a renewable energy facility and then have resold a portion to a nearby educational institution. Evergy Inc., for example, is buying the entire 300-MW output of the Soldier Creek Wind Energy Center now under development in Nemaha County, Kan., but has already agreed to resell portions in separate agreements to Kansas State University and the University of Kansas.

Colleges and universities also band together to purchase renewables, though corporate customers do this as well. Washington, D.C., schools American University and George Washington University, along with George Washington University Hospital, in 2014 committed to buying 52 MW from solar facilities developed by Duke Energy Corp. subsidiary Duke Energy Renewables Inc. in North Carolina. Both the buyers and the solar plants are in the PJM Interconnection market.

Meanwhile, Boston University in 2018 agreed to buy a portion of the output of a wind farm now under construction in South Dakota. It will then resell the energy in the Midwest, a region it said is more dependent on fossil fuels than New England, to displace those resources.

“Local projects on the New England grid would displace less CO2 because the New England grid is already pretty green,” Anthony Janetos, chair of the University’s Climate Action Plan Task Force, said in announcing the deal.

Not just supplying power

ENGIE North America Inc., a division of France-headquartered energy services provider Engie SA, approaches colleges and universities in several ways. It is developing the Triple H Wind Project from which Boston University will buy power, but PPAs are “not the end solution” for colleges and universities, said Gwenaëlle Avice-Huet, CEO of Engie’s North American business unit. “They want more on sustainability. It’s more and more comprehensive — a set of solutions.”

In December 2019, Engie and a partner, French infrastructure investor Meridiam Infrastructure Finance S.a.r.l., were awarded a 50-year concession to operate the University of Iowa’s utility system. Engie and a different partner, Axium Infrastructure, in 2017 were awarded a similar concession to operate utility systems at The Ohio State University.

While many colleges and universities own power plants — the University of Iowa owns 33 MW at three facilities — as well as district energy systems that may provide heating, cooling and water to their buildings, Avice-Huet said energy provision is not a core business for them. The duration of the concessions Engie and its partners have received, each valued at $1.165 billion, gives the companies the chance to try out the newest technologies to optimize energy production, she said.

  • 14 Jan, 2020

Case Study: A Utility Company Efficiently Sharpens Its Focus on the Credit Risk of New Customers

The following is a case study presented by S&P Global Market Intelligence.

The Client: A multinational utility that develops hundreds of onsite distributed energy generation systems, including solar and storage, in North America and Europe.

Users: Their credit risk team.

Distributed generation (DG) systems often use clean energy resources, such as solar, for what are typically small decentralized installations onsite and off-grid. Many commercial and industrial companies use DG to lower emissions, as well as to reduce utility costs during peak hours. The growth of DG has substantially increased the number of customers being served by energy providers with deregulated lines of business that offer these capabilities. These are long-term projects with payoff periods of 10 to 20 years, thereby involving substantial exposure to off-taker risk.

Pain Points:

As a provider of DG systems in North America and Europe, the credit risk team at this utility had been struggling to track the creditworthiness of hundreds of new customers as the business began to grow. The team wanted to put in place a consistent and efficient system that would help them assess their customers’ ability to pay for these capital investments over the long term. They turned to S&P Global Market Intelligence (“Market Intelligence”) to discuss various approaches.

The Solution:

Market Intelligence outlined an approach that would utilize a Corporate Credit Assessment Scorecard. Scorecards are Excel®-based tools that use forward-looking qualitative assessments, and financial ratio analysis to derive stand-alone implied credit scores that are designed to quantitatively approximate ratings from S&P Global Ratings1 , and are further supported by historical default data back to 1981.

The analytical framework follows the corporate assessment criteria, where the combination of business risk and financial risk determines the entity’s “anchor” Stand-Alone Credit Profile (SACP). This anchor acts as a starting point for calculating the actual SACP for a firm. It essentially represents the baseline creditworthiness of a representative company operating in that particular market.

The assessment of business and financial risk is based on an analysis of several credit risk factors. The anchor score is then adjusted upwards or downwards based on credit risk modifiers that measure management and governance, as well as liquidity and financial flexibility. Once the SACP of the entity is derived, it is possible to factor in any explicit external support that might come from a group or government

Key Benefits:

The Corporate Credit Assessment Scorecard provides a number of important benefits for the credit risk team:

  • Encompasses quantitative factors, as well qualitative ones that users can input: This includes risk factors, weights, benchmarks, and scoring algorithms delivered in a “glass box” environment.
  • Offers global and sector-specific coverage: Widely applicable, but also sector and geographically specific coverage.
  • Can be quickly deployed: Is an out-of-the-box solution, enabling users to free up resources for other value-added activities.
  • Automated financial spreading: For public and private company data on Capital IQ and the Market Intelligence platform, the Excel® plug-in feature provides a convenient spreading solution.
  • Enables seamless updates: A rigorous annual review process validates that the Scorecard is analytically sound and that the scoring criteria and User Guide are up-to-date.
To learn more about how we help energy companies of all sizes optimize enterprise-wide credit risk management systems, request our team for a personalized tour of our solutions.

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  • 2 Dec, 2019

Listen: Energy Evolution Why solar energy could get even cheaper

The price of producing electricity from solar energy has dropped rapidly in the last several years and nothing is stopping it from dropping even further, an expert recently told the hosts of Energy Evolution, an S&P Global Market Intelligence podcast.

There is still room for reducing the cost of solar, both by improving the physical workings of the technology itself and by reducing the cost of production and deployment of solar photovoltaics, said Greg Nemet, a professor at the University of Wisconsin-Madison who researches technological shifts and how public policy can affect those changes. Once denounced as too expensive, solar energy is already displacing other fuel sources as the cheapest form of generation in some regions.

Nemet, who wrote the recently published book “How Solar Energy Became Cheap,” noted one of the challenges with solar energy is that once it is installed it essentially becomes a zero variable cost source of electricity. That could contribute to under investment on the part of utilities. The solution, he said, is to modernize utility regulations that in many cases were created decades ago in order to better accommodate renewable energy resources and other technologies.

Listen to the full episode to hear more, and subscribe to Energy Evolution to catch future episodes.

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  • 11 Nov, 2019

Listen: US energy officials push innovation to meet evolving energy needs

As technological innovation is spurs opportunities in the energy sector, the U.S. government wants to facilitate a major shift in how the nation generates its power, top federal energy officials said during a new S&P Global Market Intelligence podcast.

“We are in this incredible American moment where we are really seeing a fascinating transition in our energy landscape,” Federal Energy Regulatory Commission Chairman Neil Chatterjee said on S&P Global Market Intelligence’s second episode of Energy Evolution. “The challenge is that this transition is putting pressure on traditional forms of baseload power, namely coal and nuclear. As the regulator responsible for the reliability of the grid, ensuring that we can make that transition while maintaining reliability is a challenge.”

The administration has taken several steps to try to support coal and nuclear power. However, agencies like FERC and the U.S. Department of Energy are also supporting the development of policies and technology that would support the growing role renewable energy plays in U.S. electricity generation.

“If the cost of renewables, the cost of storage, gets to a point where it can compete, I think that’s great for consumers,” Chatterjee said. “It’s great for the economy. It’s great for the environment and it’s great for America.”

The U.S. electricity grid has already undergone a massive change as cheap natural gas from new shale gas drilling technologies pushed coal-fired generation out of the market. Now, growing renewable energy deployment is causing a “bit of a strain on the system,” said Brian Anderson, director of the DOE’s National Energy Technology Laboratory.

“What we’re looking for in the future are the options for large scale grid storage of electricity,” Anderson said on the Energy Evolution podcast. “There are only a few options: battery packs — the costs are coming down tremendously — and other grid-scale storage options for storing electrons. We’re going to start seeing a grid that is much different than we are used to because we need to be able to follow the dynamic nature of intermittent renewables.”

The DOE is working on finding a part of that solution. For example, they are studying materials that could be used to create a new generation of battery storage technology that does not have the same limitations as current batteries utilizing lithium-ion.

“Lithium ion’s done a great job for the last two or three decades, providing storage capabilities,” said Dan Brouillette, the deputy secretary of the U.S. Department of Energy who has recently been tapped to succeed outgoing Energy Secretary Rick Perry. “But it is limited and the ability to do utility-scale or large-scale storage still eludes us. That’s why we’ve seen perhaps a slower adoption of some of the renewable technologies and we might otherwise have had.”

DOE is examining the possibility of using magnesium-ion instead of lithium-ion, for instance, which may prove to be a better means of storing power for later use. Battery storage research and development, he added is a high priority for the DOE as the technology is expected to be a “very important component” of the U.S. electricity generation mix in the coming years. The agency is also looking to more futuristic technology such as being able to beam power from one point to another without the use of wires.

“Think about that,” Brouillette said on the podcast. “Think about a world in which hurricanes matter perhaps a little bit less for the provision of electricity or the recovery from a major catastrophe like that. Those are some of the things we’re thinking about at the DOE. And it’s a very exciting place to be.”

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  • 10 Oct, 2019

Listen: Energy futurist sees major challenges for renewables in next 30 years

Population growth and mineral resource scarcity will hamper the global energy sector’s transition from hydrocarbons to renewables even as activist investors push many oil and gas companies to pivot toward more sustainable electricity sources, financial forecaster and futurist Jason Schenker says in the inaugural episode of Energy Evolution, a new S&P Global Market Intelligence podcast. Schenker is the Chairman of The Futurist Institute and the President of Prestige Economics. He has also authored several books on disruptive emerging technologies, including “The Future of Energy”. Subscribe to Energy Evolution on Soundcloud to catch upcoming episodes. (Photo: AP)

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P).

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Source: S&P Global Market Intelligence