An Integrated Approach to Renewable Energy

The interest and demand for renewable energy shows no sign of slowing. Indeed, the growth in demand for renewables only seems to be getting stronger. More and more organizations have sustainability goals that include renewable energy and/or carbon reduction. The focus on ESG (Environmental, Social and Governance) plans is being driven by all sides – investors, stakeholders, customers and employees. Companies are looking to make a significant positive impact to the environment and the economy through their energy supply decisions.

Paths to Sustainability

To facilitate the purchasing of renewable energy, the environmental attributes of power generation were measured and tracked. We call these environmental attributes Renewable Energy Credits, or RECs. By measuring, tracking and separating the environmental attributes of power generation, customers were able to ensure that they were purchasing renewable energy through the purchasing of RECs. By purchasing RECs equal to your load consumption, you are able to make a public claim that you are using renewable energy. The creation of RECs provided a great benefit, but also came with limitations. RECs do not provide any insight into whether they are from new generation or existing generation.

Today, many customers want to get the most environmental and economic impact from their renewable energy purchases. The desire is to have sustainability efforts make a difference. The idea is to be able to connect your actions directly to the development and construction of new renewable power production. In other words, the new renewable project would not have been constructed if you had not made the long-term commitment to purchase the energy and environmental attributes. This objective is captured in the concept of additionality – meaning that because of your efforts a new renewable power project was built which will reduce the need for other sources of generation that use fossil fuels.

The demand for additionality has led to the creation of renewable Power Purchase Agreements (PPAs). Whether virtual or physical, renewable PPAs are a long-term commitment to purchase the production from renewable power projects that are yet to be built. By having these long-term contractual commitments, developers are able to acquire the necessary financing to build the renewable power plant. Through renewable PPAs, organizations can be assured that their efforts helped create new renewable energy, not only reducing their carbon footprint, but also lowering the demand to generate power from fossil fuel.

Looking forward, many organizations are also focusing on the location of the renewable energy. By choosing to purchase additional renewable energy in the same location or geographical area where the company’s facilities are located, customers can maximize the impact of their decision by creating economic development and jobs within the same communities of which they are a part.

PPAs, similar to RECS, have disadvantages. PPAs add complexity and risk. There are potential reporting and accounting complexities that need to be considered. PPA contracts can be lengthy and complicated. There are risks associated with the construction and operation of the renewable power plant. And often PPAs can expose customers to energy market-based risks such as congestion or basis.

 Integrated Renewable Energy

At AEP Energy, we have seen the desire of our customers to make a big difference through their sustainability targets, but also the need to not have that difference come with added complexity or resource requirements that contribute towards the increasing demands on the customer’s limited resources. “We want to make a difference, but we still need to utilize our resources to focus on our core business” is a mantra that we often hear.

By integrating renewable energy into your retail energy supply, we have provided a path for our customers within the PJM regional transmission organization (RTO) to obtain a maximum impact without adding any additional burden.

Our Integrated Renewable Energy (IRE) solution does just that: it provides a straightforward, fully-bundled retail energy solution that includes 100% renewable energy from new, local, solar and wind generation while protecting your organization from any incremental complexities or costs.

Our Integrated Renewable Energy solution helps you reach your sustainability goals because:

  • You receive a fully-integrated, long-term delivered retail energy solution.
  • The 100% renewable energy is from new, locally-sourced wind and solar assets.
  • Environmental attributes, or RECs, are credited to your organization and are retired on your behalf.
  • Your organization can report a reduction in Scope 2 emissions (indirect greenhouse gas (GHG) emissions associated with the purchase of electricity).
  • Your organization does not incur more risk than a traditional energy plan.
  • Your organization is not required to dedicate resources nor provide up-front capital.

AEP Energy has taken a portfolio approach by entering into multiple PPAs across PJM to deliver retail energy while offsetting 100% of a customer’s electric supply with renewable energy. We fully assume the cost, risk and management responsibilities associated with these PPAs. This approach allows us to present organizations like yours with a competitive, long-term, fixed energy price solution that transacts like a traditional energy supply agreement. Energy is our core business. By participating in our Integrated Renewable Energy solution, AEP Energy assumes these obligations, allowing you to focus on the fundamentals of your business.

Why does a portfolio approach matter?

AEP Energy’s portfolio approach provides diversity in asset technology and location. This diversification improves production and lowers risk, allowing us to pass through to you the benefits through a better price.

Solar performs best during on-peak, summer hours, while wind is typically better suited for off-peak, non-summer months. Both types of solar and wind assets have different performance capabilities dependent on their physical location. Having a mix of assets located across PJM allows us to provide a solution best aligned for how, when and where your organization uses electricity.

Each renewable energy project comes with its specific risks. These risks include development risk such as permitting, construction challenges or delays and credit assurances. And once operational, renewable generation can introduce risks like underperformance and undetected outages.

AEP Energy has the experience and expertise to select the optimal renewable portfolio to minimize these risks and insulate your organization from the potential downfalls.

The below graphic illustrates AEP Energy’s Integrated Renewable Energy solution. As a market participant of PJM, we utilize our portfolio of solar and wind assets to schedule renewable energy to be delivered directly into the grid. Our team of experts then forecasts your load with PJM, shouldering responsibility for all associated costs. The renewable energy scheduled into the grid offsets 100% of your electricity usage with renewable energy.


Why now?

Demand for renewable energy is growing. While the amount of renewable generation within PJM is growing, it is still a very small percentage of the overall mix of power generation. The demand for renewable energy has been putting increasing pressure on the price.

Interconnection costs – the costs to connect a renewable power project to the transmission grid, have been growing at an alarming rate. The earlier projects that were developed typically chose sites that were easily connected to the grid and that had low interconnection costs. As more and more renewable projects are developed, the favorable locations are quickly disappearing. The remaining locations have much higher interconnection costs, which increase the overall cost of the renewable energy.

Renewable energy has benefitted from tax credits, investment tax credits (ITC) for solar and production tax credits (PTC) for wind. Developers of renewable energy assets have taken advantage of these tax credits which have kept renewable costs down. These tax credits are scheduled to be phased out. Last December Congress passed an extension. The current law still has a phasedown schedule. Whether or not Congress will provide another extension is uncertain. Reduction or elimination of tax credits will result in increasing renewable energy prices.

Technological improvements in the production of renewable energy has steadily reduced the cost. Our expectation is that these improvements will continue and will help lower the cost of renewables.

So while there are factors that reduce the cost of renewable energy, like technological advancements, there are other factors that are pushing the price higher such as interconnection costs and demand for renewable energy. And there are some factors that remain uncertain like tax credits. The net result is that we are seeing an increasing price for renewable energy. At AEP Energy, we believe now is the right time for organizations to make purchasing decisions for renewable energy.

 How do I know if Integrated Renewable Energy is the solution for me?

IRE is best suited for organizations that have facilities within PJM, have sustainability goals to purchase renewable energy or reduce carbon, that are looking to make the most impact to the local environment and economy, and that do not want any additional complexity or demands for their resources.

Our list of customers that have utilized the IRE solution in their overall sustainability plan include organization in the following industries:

  • Banking
  • Government
  • Data Processing
  • Software and Tech
  • Manufacturing
  • Commercial Real Estate
  • Schools
  • Healthcare

In general, the IRE product is an excellent fit for all types of organizations that are seeking an impactful, simple, cost effective renewable energy solution.

Our experience

AEP Energy has developed over 2 GW of renewable energy projects and own over 1.5 GW of those renewable projects. We have purchased over 1.4 GW of renewable energy through PPAs and have developed extensive expertise through our hands-on, applied experience. As a wholly owned subsidiary of American Electric Power, AEP Energy benefits from the financial resources and technical expertise that come from 100+ years’ experience of matching electric generation with client needs. As an active participant in energy markets and new energy technology application throughout the country, AEP Energy is at the forefront of modern developments within the renewable landscape.

Interested in learning more?
If you’ve found this blog informative and would like to learn more, please contact us.

AEP Energy does not guarantee the accuracy, timeliness, suitability, completeness, freedom from error, or value of any information herein. The information presented is provided “as is”, “as available”, and for informational purposes only, speaks only to events or circumstances on or before the date it is presented, and should not be construed as advice, a recommendation, or a guarantee of future results. AEP Energy disclaims any and all liabilities and warranties related hereto, including any obligation to update or correct the information herein. Summaries and website links included herein (collectively, “Links”) are not under AEP Energy’s control and are provided for reference only and not for commercial purposes. AEP Energy does not endorse or approve of the Links or related information and does not provide any warranty of any kind or nature related thereto.

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