Teri Viswanath: Welcome to POWER PLAYS, a CoBank Knowledge Exchange podcast series, an audio program where we connect you with top energy and environmental innovators who share their insights, experience, and observations of the market. Hello, I’m Teri Viswanath the lead economist for power, energy, and water at CoBank with me is CoBank
Regional Vice President Tamra Reynolds. Welcome, Tamra.
Tamra Reynolds: Hi, Teri. It’s great to be here.
Teri: Today in POWER PLAYS, Tamra, and I had the opportunity to catch up with Anna Shpitsberg. Anna is the Director at IHS Markit, who consults and researches on the industry strategy, as it relates to the global power sector.
Tamra: Anna and her team recently wrapped up some pretty thought-provoking work on their outlooks for corporate US renewables procurement. This topic is really important to our electric cooperatives as they increasingly face supply chain competition.
Teri: Tamra, what I found novel about the IHS analysis is they conducted a pretty deep dive on the regional factors that ultimately influence more or less corporate procurement.
Tamra: I agree. We hope you enjoy our conversation with Anna.
Teri: Hey, Anna, welcome to POWER PLAYS. I wanted to introduce our audience to you and your practice group there at IHS. I know you completed your graduate, environmental work and worked in investment banking and federal agencies in DC before joining IHS. I wanted you to tell our audience a little bit about your background, your practice group, and especially as it relates to corporate procurement in this space.
Anna Shpitsberg: Sure. As you mentioned, I’ve run the gamut in a few different sectors. I started in finance and then I decided through actually volunteering opportunities. I became very interested in energy and water issues and then went back to school. Then worked for Department of Energy and then worked at Department of State, actually partnering with other countries on power sector, reform issues and procurement issues.
I’m now at IHS Markit. For those that are not familiar with IHS Markit, we’re global information analytics company, and we have coverage ranging from energy to financial markets, to transport, chemicals, agriculture. It’s really wide scope and deep coverage and we use this to inform over 50,000 clients.
On the global power and renewable side, where I sit now, we conduct detailed demand, supply, and power price modeling. We assess economic and policy drivers. We track evolution of technology, and we do this for 80 countries. We do it to help utilities, developers, investors, manufacturers, and others, to really answer questions such as, how is power demand shifting? Where and what capacity additions may be procured? Who will be procuring? How will they be compensated? How are markets adapting and utilities evolving? I’d say it’s a pretty robust village keeping up with everything that is changing in the sector.
Teri: That’s super helpful. I know we connected your practice group did some really great work this past fall, and it was really helpful to me. I also think really differentiated from the work that I’m actually seeing in the marketplace. You really did this great deep dive into US corporate renewable procurement. You talked a little bit about how disruptive 2020 has been with a pandemic, but very constructive and optimistic about the future. I want you to tell us a little bit about that work.
Anna: Sure, yes, and we weren’t. We probably were more optimistic than within a lot of others. COVID caused some delays. It caused some delays in construction. Contracting expectations fell short of what many expected, but when we looked at the corporate renewable segment, we saw a lot of momentum and activity. We estimate that over seven and a half gigawatts of renewable projects that were installed were driven by corporates in 2020 in the US.
We saw a lot of deals contracted. We saw Facebook, Saint-Gobain, Google, Verizon, Toyota. Amazon just had that huge announcement that came out. Then to add to all of it, RE100 essentially reported that 60 companies joined its initiative in 2020 committing to 100% renewables.
From what we see in our analysis about 40% of companies in the US that have 100% renewable targets and are active, their targets are escalating in early to mid-2020s. That’s signaling to us or rush in the short-term. Of course, that’s very much helped by that desire to take advantage of tax credits before they phase out. See this as a growing segment, and we think COVID wasn’t that much of a snag.
Teri: Anna, if we were to consider the last decade of procurement, which is really driven by some of the big names like you just mentioned, Microsoft, Google, Apple, companies that really had energy-intensive data centers and shareholders that really held them to a higher standard. What strikes you is the evolution that is occurring now.
Anna: You pointed out a good point. The companies that you mentioned, so Microsoft, Google, Amazon, Apple, and Facebook, so I’d say the big five tech firms in the last decade, accounted for about a third of everything we’ve seen on the corporate renewable side in the US, but their contribution also declined over time. Then 2020 hit, and in 2020, those big tech companies, they were more active on average. I’m sure it was spurred by the fact that there’s higher demand as companies are shifting to cloud-based data centers.
The other sectors are going to pick up again for two main reasons. One, is that the other sectors have a longer way to go to meet their targets. Two, those big companies, and not just the tech companies, companies like Walmart, they’re looking at their supply chain. They’re looking at their scope with three emissions, and they’re putting pressure on others.
It’s the reason we see manufacturing is holding a lot of potential. Because if you look at manufacturing, it’s a high electricity consumption segment, it encompasses companies that have targets but have a long way to meet them. For those big tech companies, they are a scope of three emitter. We have high expectations for that segment. We also think segments like retail are going to triple by 2030, and we think telecommunications is going to see high growth. The evolution and what we expect is just to see way more diversity in this space.
Teri: That’s terrific. Getting back to that, that fall work, that procurement outlook that you put together, you’re raising some really good points. You created this great heat map. I would tell our listeners definitely go out and seek out that work because that heat map was great. It really showed where you think you’re going to see an active pickup in corporate procurement. The states or regions that are going to be high concentrations of procurement. I want to look at maybe three to five drivers, those drivers that really to use our standout, that would make a region more apt to see heavy procurement.
Anna: First off, thank you. We liked that map as well. It’s very spiffy. [laughs] The key drivers are market access in terms of regulation, wind, and solar prices, and growth in terms of demand. If we look historically the states that are within an organized market, so an RTO jurisdiction, they’ve shown the most activity by far. It’s because they allow for virtual power purchase agreements, which are essentially financial PPAs that may offset a company’s load in a number of facilities.
It still allows the company to contribute to new projects, to have that additionality, and to do it at scale, but there’s new physical connection between generator load. Then we have the states that have retail or partial retail choice. That opens up the possibility of having a direct PPA with a physical connection. Even if they’re going through someone else, they have that option of third-party providers and multiple third-party providers that can offer delivery of balancing services.
Then in cases where there’s a vertical structure with an incumbent utility, then green tariffs are attractive. Because they allow a corporation to contribute to the new renewable projects to essentially help with funding while going through the utility for the transaction. It’s essentially the next best thing. That’s the regulation portion. Then, of course, there’s the resource, so where solar and wind are stronger and result, the prices are more attractive.
If we look at Texas, having an organized market, having retail choice, and having low renewable prices, it’s really been dominant to date for these reasons. Then if we also think about location, so where industrial and commercial demand is cited and where it’s attractive, that’s been a big player as well. Virginia, for example, within an RTO has a green tariff and is a national hub for data centers, so it’s another hotspot.
Then when we look toward the future, and that map was meant to point that out in the future regulated regions with attractive solar resources and low-cost areas, they’re going to feel a lot more pressure from companies that want to contract closer to their load. We think, as a result, there’ll be growth there. There’ll be growth in the southeast. There’ll be growth in the Northwest. There’ll be growth in the desert, southwest, such as Arizona. We think just as there will be diversity on the sector side. We’re going to see a lot more diversity on the geographical side as well.
Teri: It’s interesting that you noted some of those states that would be good places, not only from a market standpoint but from a corporate transition standpoint, you’re seeing a lot of businesses move to Arlington, Virginia. You’re seeing a ton of new startup companies but also, companies moving to Texas. You have to wonder if that’s part of the business climate that’s driving them there or this is one more aspect that really is important to businesses to look at.
Anna: Absolutely, it is.
Teri: It does really feel like we have transitioned away from passive electricity consumption to more active consumer-controlled power. What is the overall trend that you’re seeing in distributed energy resources? Does it represent maybe a quarter of the development that we see in the US now, between now and say 2025? Or what do the numbers really look like for you?
Anna: Consumers are increasingly coming center stage. I’ll split my response in two, one for corporates and then DER. For corporates, our expectation are for utility-scale. Our outlook for the US in the next decade for corporate utility-scale projects, so 2021 to 2030, is 44 gigawatts. That is our base case. That accounts for about 20% of our total renewable utility-scale outlook.
We also have a high case in which company ambitions are accelerated in terms of level and pace, and that is 72 gigawatts. It’s a decent chunk that companies are contributing to. Then aside from corporate renewable procurement, if we look at distributed energy resources, which we classify as projects below five megawatts, it accounts for about 20% of our total solar outlook. All in all, consumers are big players.
Teri: That’s an interesting point. Those are some big numbers, Anna, if you put those up on the board, in terms of what it means. It may alter, so when we think about, that’s going to shake up the entire upstream supply chain. When we think about those suppliers, the traditional suppliers, utilities, cooperatives, that changing resource ownership is going to be important to how we think about these suppliers. Is their role evolving?
One thing I heard, you mentioned the RE100. Half of the RE100, they’ve made commitments, but they have a problem of trying to figure out how to fulfill those commitments. How do we actually see the marketplace coming together? What does it mean to our suppliers?
Anna: You’re right. RE100, you can have commitments to renewables, and they might be bundled or unbundled. They might be companies just buying renewable energy credits. There’s a big difference, and more companies, of course, feel pressure to create additionality in new projects, but there’s a big range. In regards to suppliers and utilities, there is a reason we hear the term energy as a service so often. It is because there’s this shift from an asset only mentality.
I personally tend to think of hardware as something that can be commoditized. Differentiating with software and services is very important and will only be more important. As consumers become more sophisticated and involved, the utilities will adapt, and some, of course, faster than others. Helping to provide flexibility and balancing services for corporations that are not set to do this, and most are not, as well as helping to manage electric vehicles, distribute their renewables, and demand response on behalf of customers is something that’s on the top of most utilities’ agendas.
There’s still some questions on how much consumers want to interact, especially once we move beyond those large corporations. It may also mean for suppliers to provide options while easing how decisions need to be made about power supply, and at the same time, not losing the advantages that we have of having a robust grid and scale that makes the cost declines that we’ve seen possible. It is going to be a matter of balancing, creating flexibility, and giving options to consumers while still leveraging our infrastructure. That’s really going to be key.
Teri: Anna, that’s a really interesting dynamic you suggest, in terms of the interplay between your supplier and your consumer. It also maybe means, in terms of our planning cycle, it used to be the exclusive domain of your G&T Cooperatives, of your utilities that had these assets, where when we think about resource planning, it was an insulated act. Now, it looks like we’re going to have more players, stakeholders that have to come to the table. We’re going to get this right.
Anna: Yes, absolutely. There are very different opinions and then over how those stakeholders interact. With everything that we’ve talked about, it signals a lot more data. It signals a lot more information about consumers. There are going to be a lot of questions about, who’s managing that data? Who’s accessing that data? Is it third-party providers? How involved are they in this process? Is that the traditional utility?
There are a lot of conversations about this now. A lot of folks that are in disagreement, but it’s something that will need to be worked out because there are just a ton more stakeholders at the table.
Tamra: Anna, what I think you said earlier about the energy as a service and the increasing importance of software and services fits really well into the business model for our electric cooperative customers. Because they’ve always been really strong at the service aspect, and taking into account the fact that they’re members or they’re owners. That’s an easy transition for them, relatively speaking, in an industry that really had to think about it that way before.
Anna: Yes, absolutely.
Teri: Maybe the last frontier is residential ownership. In California, we are seeing aggregation occurring. How widespread would you say that trend is?
Anna: My colleague, Wade, and I were actually just speaking about the announcement from OhmConnect, which is essentially planning to create a 550-megawatt virtual power plant by giving consumers in California smart devices that may be controlled for demand response. We’ve seen a few of these virtual models. We see them in California. We’ve seen them in New York and New England, particularly with Sunrun that aggregate rooftop systems and battery assets. Overall, there’s a move toward more aggregation, and aggregation of nontraditional assets.
Some of the places that are moving ahead may buy time for others, so we were talking about who should have data access, how should it be managed. Those things need to be worked out. Pricing models need to be worked out, interoperability between devices. I think they’ll buy some time for others. I also think the trend may spread a bit more in places that have incentives in place on reliability, in places that face outages such as California, maybe Chesapeake Bay area in Maryland, places where there are more service issues. We might see that be a bigger part.
Teri: That’s helpful. It’s funny. Going back to your earlier comments, you talked about how important it is to have the right market structure, to have the right incentives, to have the right location in terms of renewables. That market structure, what’s surprising is there are actually seven states that actually can accommodate community aggregation, but it’s really only in California that we’ve really seen this take-off.
Market structure incentive, all of these factors have to be combined together to really work. I want to ask you a little bit, because I really liked that research that came out this fall. I want to talk a little bit about what you’re looking at? What’s the new frontier in terms of your own research? What’s on your list of things to work on?
Anna: It’s a long list. [laughs] It’s a very, very long list. Let me narrow it down. We’ll start with corporates, because corporate renewables, they’re prominent in the US. The corporate renewable trend is growing globally. Taking a close look at the segment around the world with my regional counterparts is high on my agenda. We also spend a lot of time digging into utility strategies. Because, as you noted in your questions, the role is evolving, and it raises a lot of questions.
Then the last thing I’ll mention is resource valuation. Really going beyond looking at solar and wind costs in a levelized spaces and thinking about, what is their value to the system and how will they be compensated in the future? How will their compensation change in markets based on the penetration mix changing? I’d say those are the big ones.
Teri: Going back to that incentive, trying to figure out, are we really paying these players for what they bring to the marketplace? That’s super helpful.
Tamra: One more question before we wrap up, I think the change in the White House has caused a lot of people to wonder what’s coming next and what will that look like for renewable adoption. What do you think it means to have President Biden at the helm?
Anna: It certainly sends a positive signal for renewables. We already have, not only more states establishing ambitious renewable targets but we have states without mandates building more renewables, purely because of cost declines. In fact, if we look at the bulk of what is in the interconnection queue across all the RTOs, it’s renewables.
Then we have the element we’ve been speaking about today, which is companies that are setting renewable targets. Now, having a federal government with a net zero target starts to shift all in the same direction. In regards to what can be done that may spur renewables, if we look at permitting for wind development, if we look at capacity market regulation, R&D spending, climate risk disclosures, and even transmission infrastructure. There is a place for the federal government to get involved and for renewables to get increasing support either directly or indirectly.
Then, of course, if the Senate is supportive or the makeup of Senate is conducive to it, and there are tax credit extensions, that’s going to increase renewable buildup significantly, particularly in the years 2024 to 2029.
Teri: That’s really helpful and it just brings us back to that first point you landed on. It’s really important to have this ecosystem environment, whether its policy incentive, resource falling costs for the technology, but all combined to really make that energy transition happen. Anna, it’s really great to have you here. I want to thank you for your time. Always you and your team are really providing some innovative research on this evolving area, so we really thank you for the work you’re doing. We’d like to continue to see that and really appreciate having you as our guest today.
Anna: Absolutely. It’s a lot of fun. It was a pleasure to talk to you guys.
Teri: We hope you’ve enjoyed this episode of POWER PLAYS a CoBank Knowledge Exchange podcast series.
Tamra: Join us next month when we’ll have a brand new edition of POWER PLAYS.