Small and medium businesses (SMBs) have many of the same motivations for procuring clean energy as larger, more established clean energy customers. Procuring clean energy can help a company attract talent, stand out among competitors, and manage risk. But businesses with fewer employees, tighter cash flows, less substantial annual electricity loads (less than 100,000 megawatt hours [MWhs]), and/or no or low credit ratings face significant barriers to entry into the clean energy market.
The Clean Energy Buyers Institute (CEBI) is determined to tackle these market barriers. The first phase of that endeavor — already underway — is conducting a listening tour to better understand the lay of the land. We have heard significant challenges but also great success stories. It is evident there is significant will from SMBs to make a meaningful impact in the clean energy space, but there are limited ways for SMBs to get involved.
Seven of the biggest hurdles SMBs encounter include:
- The market is challenging and difficult to understand. SMBs with fewer staff have less time to devote to understanding the risks and benefits of potential procurement mechanisms. The sustainability lead at an SMB is likely to be addressing water and waste management concerns in addition to their focus on energy procurement. Still, understanding the risks of a virtual power purchase agreement (VPPA), for example, is no less important for a small business than a larger one.
- Transaction costs are significant. It takes time for a procurement consultant to help the chief financial officer (CFO) of an SMB to get comfortable with risks. Negotiations to procure a small energy load take just as much effort as those to procure for a larger energy load. This puts SMBs at a disadvantage in the marketplace, as consultant services often cost more per megawatt (MW) of clean energy procured simply because of the lack of economies of scale.
- The clean energy market is complex. An organization’s clean energy procurement options vary significantly by the regions in which their facilities are located. Although databases can help a company determine the options available in a specific location, they often present so much information that even getting started can be daunting and time prohibitive. In addition, some highly engaged SMBs expressed a need for better price forecasting by region and product (utility options, renewable energy credit [RECs], pricing trends, etc.). Many available forecasting tools — such as National Renewable Energy Laboratory (NREL) reports and industry publications — use national averages, which are not as relevant to small, geographically limited energy customers.
- SMB energy customers have limited procurement options. Similar to the geographic limitations mentioned earlier, many SMBs encounter hurdles in determining which procurement mechanisms are actually available to them. Even though some clean energy procurement options — such as REC purchasing — are available to any organization, others are available primarily to large and credit-rated entities. An organization that wants to procure 8,000 MWh of annual load will likely be unable to access a VPPA because energy developers want to secure project financing by transacting with customers that can commit to a much larger percentage of the proposed clean energy facility. Similarly, companies that have larger loads but are not credit rated are unable to access VPPAs or even the anchor position of many community solar installations. This is again the result of the necessity for a developer to find an offtaker (or customer company that commits to purchasing the produced electricity) that can facilitate acquisition of project financing.
- Aggregation is not a panacea. Though many SMBs have expressed an interest in signing onto an aggregated VPPA or similar deal to skirt the load-size concerns mentioned earlier, this strategy has limitations. Several successful aggregations have demonstrated the potential of this procurement approach. However, aggregated deals are quickly complicated by differences in credit rating (participants must still be able to demonstrate their value to the financier) and the additional time and cost associated with negotiating several complementary agreements in place of one larger contract. As the clean energy procurement market becomes tighter and customer competition for projects increases, aggregated deals become an even more tenuous solution.
- Economics matter. A lot. SMBs are under a lot of pressure to look for economic clean energy procurement options. With smaller profit margins and more limited clientele, SMBs are often less interested than their larger counterparts in making national headlines about their latest clean energy deal. Still, even unbundled REC procurement can be a challenge for SMBs. In an increasingly volatile market, one SMB shared that its annual REC spend increased from $9,000 to $30,000 in one year. For a company with limited revenues, such a jump can pose serious concerns.
- Getting started can be a challenge. To effectively procure clean energy, an organization needs to know what to procure for, but SMB staff often are not trained to conduct extensive greenhouse gas (GHG) analyses. A comprehensive GHG accounting may cost significantly more than an SMB is able to budget. Interestingly, some larger companies seeking to engage their SMB supply chains on clean energy procurement are offering to cover the cost of a GHG analysis to help alleviate this concern.
The CEBI Small and Medium Business Accelerator (SaMBA) program is a collaborative effort to solve the toughest market barriers for smaller clean energy customers — and we want your input. Do you have ideas that may facilitate SMBs’ clean energy journeys? Do you want to stay informed as this work at CEBI progresses? Email email@example.com with your thoughts. CEBI and the SaMBA team would like to thank the Arthur Vining Davis Foundation for its financial support of this important work.