By Yuning Liu and Mia Reback
In March 2021, 24 local governments in Maryland joined together on a plan to purchase enough renewable energy to power more than 246,000 homes a year. They did this by issuing a joint request for proposal (RFP) through the Baltimore Regional Cooperative Purchasing Committee (BRCPC) to seek a supply of up to 240,000 MWh of renewable energy starting in 2022. This large-scale transaction was made possible by an energy procurement approach known as energy aggregation, which is a way for two or more buyers to purchase electricity from a utility-scale generation facility.
According to the new Intergovernmental Panel on Climate Change (IPCC) report, greenhouse gas emissions (GHGs) must peak within four years to limit global warming to 1.5°C, and cities have a critical role to play in meeting that target. Aggregation can be a powerful way for cities to rapidly increase their renewable energy and help decarbonize local economies at the necessary speed and scale. Yet most cities have not pursued aggregation due to an inadequate understanding of its novel deal structure and a lack of tools and resources to help streamline the process.
To help cities overcome these barriers, last year the American Cities Climate Challenge Renewables Accelerator, an initiative co-led by RMI and World Resources Institute, began organizing a Large-Scale Renewables Aggregation Cohort. This cohort provided technical assistance to more than 30 organizations, including the BRCP. A second iteration of the cohort is now underway with a new group of organizations. In addition, a newly released RMI report, Procuring Large-Scale Renewables through Aggregation: A Guide for Local Governments aims to help more cities understand and pursue aggregation.
As more and more cities take actions to decarbonize the electricity system, aggregation will be an increasingly important option that can provide buyers with several advantages, such as opening doors for smaller cities, creating positive network effects, and unlocking more cost savings.
Enabling Smaller Buyers to Access Large-Scale Projects
Aggregation can enable participation from smaller cities that, on their own, are not able to purchase enough electricity to warrant the attention from developers. This is particularly important for smaller communities with 100 percent renewable energy goals, as most municipalities cannot supply 100 percent of their electricity needs with on-site solar generation alone. Therefore, a utility-scale, off-site procurement will be an essential component of many smaller buyers’ decarbonization strategy.
One instance of a small buyer accessing large-scale renewables projects is a 25 MW joint solar purchase completed by MIT, Boston Medical Center (BMC), and Post Office Square (POS) in 2016. In this aggregated deal, MIT committed to buy 73 percent of the power generated by the new array, with BMC purchasing 26 percent and POS purchasing the remainder.
“Entering into a renewable power purchase agreement was our next step, but our consumption is too small to do it alone,” said Pamela Messenger, general manager of Friends of POS. “It is exciting to join forces with two industry leaders, allowing us to mitigate 100 percent of our electricity footprint.”
Similarly, other smaller local governments have also used aggregation to gain access, such as five local governments in Maine. They teamed up for the state’s first multi-town renewables project, a 4 MW solar array, which provides climate benefits equivalent to more than 4,000 acres of forests.
Without pooling the electricity demand with other buyers, smaller cities would not be able to access utility-scale projects on their own, making it difficult to reduce their carbon emissions efficiently.
Creating Knowledge-Sharing Opportunities
By joining together, cities can not only aggregate their buying power but also pool their knowledge to streamline procurement processes. The shared experience among participants can generate positive network effects, including increased mentorship, increased credibility, and support for inexperienced buyers.
For example, the City of Nashville partnered with Vanderbilt University last year to purchase electricity from a 125 MW solar project as part of the Tennessee Valley Authority’s Green Invest program. This public-private partnership allowed the city to leverage the expertise of the University’s Large-Scale Renewable Energy Study Advisory Committee to identify the best risk mitigation strategy.
According to Susan R. Wente, interim chancellor of Vanderbilt University, “We want this partnership to serve as a model of collaboration that other organizations within our region and beyond can replicate to make long-term, lasting changes to protect our shared environment.” In fact, the connections formed within the aggregation group have garnered national media attention and are sending a powerful signal to utilities, policymakers, and developers that local governments are serious about rapidly decarbonizing the electricity system.
In addition, a group of buyers can also share external lawyers, accountants, or consultants. For instance, 15 Pennsylvania municipalities and public entities, which also participated in the Renewables Accelerator’s Large-Scale Renewables Aggregation Cohort, have teamed up to investigate the viability of investing in a joint solar deal. The 15 entities issued a joint RFP for energy consultants in May 2021 to share external advisory services.
Unlocking More Cost Savings
Throughout the collaborative process, aggregated deals can produce various cost savings because they enable cities to achieve greater economies of scale by combining the renewable energy demands of multiple buyers.
For example, a National Renewable Energy Laboratory analysis estimates that procuring 100 MW of solar instead of 5 MW can reduce development costs by 24 percent. This can lead to cost savings in the form of lower power purchase agreement prices for all buyers, regardless of size.
In another case, the company Enel X, which is working with the BRCPC on a joint purchasing strategy, found that renewable energy projects typically must be over 20 MW in size to be economical. The company discovered that aggregation is one way for smaller buyers to participate in large projects.
In Florida, 12 cities joined together to form the Florida Municipal Solar Project. They are developing 372.5 MW of zero-emissions energy capacity, enough to power 75,000 Florida homes. According to Jacob Williams, CEO and general manager of the Florida Municipal Power Agency, “By working together, our cities are able to provide clean power to their communities in a cost-effective way.” Clint Bullock, Orlando Utilities Commission general manager and CEO, explained, “We can leverage the economies of scale to bring the price of solar down to a point where a dozen municipal utilities can afford to sign on and I believe this is something people around the country will take notice of.”
As more cities set goals to transition to renewables, aggregation is democratizing clean energy access by enabling participants, especially smaller buyers, to collectively develop significantly larger renewables projects than any one buyer would be able to access individually. The partnerships can create positive network effects through knowledge sharing and inspire other organizations within the region to replicate the collaboration model. By unlocking more cost savings, aggregated deals provide a lower-cost mechanism for cities to achieve climate goals efficiently.
The new IPCC report underscores the urgency of decarbonizing the electricity system and reducing GHGs. To play their part, cities need to increase the pace and scale of renewable energy procurement. Although aggregation is still a relatively underutilized procurement method, this approach is crucial to help them do that.
Procuring Large-Scale Renewables through Aggregation: A Guide for Local Governments helps walk local governments through the aggregated procurement process step-by-step and links to other key tools and resources relevant to each stage.
Cities must act now to curb greenhouse gas emissions. The best path forward involves engaging all actors and ensuring a more promising economic structure for a wide array of purchasers. In the battle against climate change, it is better to aggregate than to go it alone.
The article has been sourced from Rocky Mountain Institute and can be accessed by clicking here