More companies are choosing to power their operations with renewable energy

This is the first in a two-part series that examines why companies are buying renewable energy, how they’re doing it, and what this process might look like moving forward.

What brings diverse companies like Amazon, Disney, General Motors, Microsoft, Nike, Starbucks and Walmart together? They’re all buying renewable energy or want to get in the market for it.

From tech giants to household names, corporate America is shopping for clean, renewable energy that is increasingly cheaper than conventional alternatives. Leading companies are seizing the opportunity to reduce their environmental footprint with wind and solar while simultaneously locking-in low, predictable energy prices for a decade or more.

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These companies and many others recently gathered for a summit of the newly created Renewable Energy Buyers Alliance (REBA), which has a goal of facilitating 60 gigawatts (GW) of new corporate renewable energy capacity by 2025.

I attended the summit and noticed a few trends emerging that could shape the future of corporate renewable energy deals. More on that in the second installment of this series, but first let’s examine why corporate buyers purchase renewables and how they’re doing it.

Why does it matter that big companies are buying wind power?

You might reasonably ask why dozens of large corporations need to get together and discuss energy purchasing. Most of us pay our electric bills without much fuss (unless they go up). For customers with large electricity needs, which are orders of magnitude greater than any household, buying energy involves more negotiation and planning – as befits these companies’ substantial buying power and demand.

Why does this matter? Big energy bills mean corporate buyers hold significant sway with the utilities who supply them – if they push for renewable energy, it ends up benefitting everyone.

Nearly three-quarters of Americans think the U.S. should “emphasize alternative energy such as wind and solar,” according to a 2016 Gallup poll, while 91 percent of likely voters support growing wind energy, according to a survey from Wall Street investment firm Lazard, Inc. Large corporate customers with their substantial buying power help new renewable energy projects get financing and make a compelling argument for utilities to speed up their procurement and delivery of renewable energy. This gives Americans more of the emission-free electricity and cleaner air they want.

How do corporate buyers purchase renewable energy?

Companies may pursue a number of options when purchasing renewable energy. Some build wind and solar projects onsite, others – including IKEA – own utility-scale wind projects.

Long-term contracts called power purchase agreements (PPAs) are the most common way to do it. The company may sign a physical PPA, where the energy is physically delivered to the company, or they may sign a virtual PPA, where the energy produced continues to be delivered into its local energy market. When a company signs a PPA for renewable energy, they agree to pay a fixed price over a period of time for the electricity produced from a wind or solar project, which comes bundled with renewable energy credits (REC).

RECs exist to quantify the value of renewable energy’s environmental and societal benefits, which our economic system doesn’t factor in – reduced air pollution, the preservation of natural resources and improved public health. The PPA typically grants the purchasing company the right to claim the RECs, and that is how a corporation can claim to be carbon neutral or powered by 100 percent renewable energy.

Obtaining a long-term contract is often the make-or-break requirement for a new wind or solar project to secure financing from investors. By providing a renewable project developer with a measure of certainty on future electricity sales, corporate PPAs help drive additional project development, and ultimately add more clean power onto the grid.

Corporate deals so far total over 5.4 GW of capacity, and the stream of new deals has grown exponentially over the last three years.

Wind power has historically been the energy source of choice for corporate purchasers because of its low costs.

For wind, corporate PPAs have become a major new market opportunity. 2015 was the first year that corporate and other emerging buyers of wind power signed for more than half of newly contracted wind capacity, and these players have continued buying wind power throughout the first half of 2016. Target, Digital Realty, Dow Chemical and Google Energy are just a few examples of customers driving demand this year.

Next time, we’ll take a closer look at how corporate purchasing is changing and what it might look like a few years down the road. In the meantime, hear Ikea and Yahoo! explain why they were attracted to wind power’s potential.