UA Takes a Meaningful Step Forward on Climate Goals, but a Climate-Responsible Grid Will Require More

Monday, December 23, 2019
Ben Champion
  • The following is the opinion and analysis of the writer.
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Recently the University of Arizona announced it will be purchasing “100% clean energy”, offsetting all of its “scope 2” greenhouse gas emissions through renewable energy.  The deal between UA and Tucson Electric Power (TEP) was just approved by the Arizona Corporation Commission (ACC). 

So, what does this deal really mean for UA’s carbon footprint?  Further, as many other organizations, especially big corporations, rush to commit to similar deals, is this the right model for shifting society’s carbon emissions as a whole?

 

Impact on UA's Carbon Footprint:

If you were to go just by the headlines of press releases and media coverage, you would think this project was going to fully power UA’s energy needs and completely eliminate its carbon emissions. (See UANews and TEP press releases, and the Arizona Daily Star and the Daily Wildcat).

But to know what the deal could mean for UA’s carbon emissions, we need to unpack a few things.  First, “scope 2” refers to greenhouse gas emissions associated with the energy UA purchases from off-site energy sources (a.k.a. its TEP utility bill, or “the grid”).  This does not include emissions from on-campus combustion of energy sources, such aswhich includes campus vehicles and boilers for heating water, but most importantly the natural gas UA burns to generate its own electricity as well as steam.  According to UA’s most recent Greenhouse Gas Inventory, these “scope 1” emissions account for roughly 42% of UA’s total carbon footprint, while UA’s purchased electricity from TEP only represents 32% of UA carbon emissions.  So this deal is a far cry from making UA truly powered 100% by clean energy (to do so, UA would also need to outline their plans to address the 42% of their emissions that are “scope 1”, and to go even further, to figure out how to offset all those “scope 3” emissions like student and faculty commuting emissions that UA doesn’t directly control).  That said, it does represent a substantial investment in renewable energy to power campus needs.

 

How does it work? 

Electricity is electricity, whether it is produced from fossil fuel sources or not.  Trying to determine whether a unit of electricity came from renewable energy or fossil fuels is like scooping up a cup of water from your local outdoor swimming pool and trying to determine if the water came from rain or the tap.  The total water in the pool came from a mixture of those sources, and they’re all mixed together in the pool and can’t be disaggregated physically to determine their source.  Although the physics of electricity are different than a pool, the issue of mixing is very similar between the two.

In order to address this traceability problem for renewable energy, the electricity industry has created a system of abstract commodities to stand for renewable energy.  When renewable energy is produced and sold on the grid, the producer of the energy has an opportunity to commoditize the “green” attribute of the energy, and sell, keep, or otherwise convey that attribute separately from the actual electricity itself.  This “green” energy commodity is often called a “REC” or renewable energy credit. 

The UA press release calls its arrangement with TEP one that will provide “offsets,” which adds another layer to the REC concept.  It means that UA is not creating the renewable energy itself and retaining the RECs to prove it, but rather consuming normal grid electricity, and using RECs to offset the fossil fuel-powered electricity it is consuming from the grid, in effect calling its electricity consumption renewable-powered. 

But this language can lead to confusion about whether it is an energy offset or a carbon offset, which is another type of commodified market mechanism.  The main difference between the two is that one tracks renewable energy itself, while the other tracks greenhouse gas emissions from a wider potential range of activities, including planting trees or reducing industrial emissions.  Renewable energy offsets function to verify that an amount of renewable energy was served into the electric grid equivalent to the amount of non-renewable energy an organization is consuming.  Carbon offsets serve to verify that an amount of carbon dioxide equivalent to an organization’s emissions was either sequestered from the atmosphere or prevented from being emitted by some other organization selling the “offset.”  Carbon offsets don’t necessarily have anything to do with energy production or consumption because carbon dioxide can be emitted and sequestered through non-energy activities. 

Given that the UA press release calls what it will receive as “offsets”, the UA/TEP deal appears to be a REC or renewable energy offset deal.  Under this structure, UA isn’t directly developing or purchasing the solar and wind farms itself and selling or marketing the energy – TEP is doing that.  Nor does UA directly receive the electricity.  Instead, TEP is conveying to UA the RECs or other kind of offset commodity associated with the renewable energy TEP is producing at its own solar and wind farm developments in New Mexico.  Since UA doesn’t actually own the resource, and since the RECs have significant financial value to TEP in terms of complying with Arizona’s renewable portfolio standard, it is unclear what this will cost UA on top of its own energy purchases from TEP, or perhaps what other kinds of terms of the partnership may exist beyond what’s in the press release.  The terms of the deal are protected from public view by confidentiality for TEP. 

Would TEP have invested in these solar and wind farms without UA? 

This is a hard question to answer.  Without being in the planning department of TEP or knowing the internal conversations between UA and TEP, we are left to speculate a bit.  TEP’s Wilmot Energy Center solar project is mentioned in a news release from October 2018 stating that an extended planning process for the project was nearing its final phase of approvals by state regulators.  Since UA wasn’t mentioned at that time, it might suggest UA was not a driving force in the decision to build the project, and that TEP would have built the solar farm anyway, with the renewable energy serving other customers one way or another.

As for the Oso Grande wind energy project, an early news release from March 2019 from an energy industry trade website, again makes no mention of a relationship with UA.  It takes until August 2019 for the news about UA’s partnership with TEP on these two projects to be publicly announced. 

It’s quite possible these projects were being developed regardless of UA’s involvement, given the years-long planning that needs to go into major new renewable energy projects, especially from state-regulated utility companies such as TEP.  It is therefore difficult to attribute leadership to UA in really pushing forward more renewable energy to power itself, rather than entering a marriage of convenience with TEP designed to give each some positive publicity.

 

So, do these kinds of REC and power purchase agreements drive new renewable energy on the grid?  And even if they do, is this the best model for transitioning to a clean energy grid? 

Aside from UA, a LOT of other organizations pursue large scale renewable energy procurement deals to satisfy their own sustainability goals.  You’ve probably seen news stories about various well-known corporations committing to purchase large portions of their energy from renewables – and this is often how they do it.  These kinds of deals represented nearly a quarter of all renewable energy procurement in 2018.  It’s hard to argue that these procurement deals don’t bring more renewable energy on the grid when they account for such a substantial proportion of overall renewable energy development. 

But it’s important to question whether other mechanisms would bring more bang for the buck – i.e., would be more economically efficient.  One of the concerns about this approach is that organizations like UA get to absorb and lock in all the renewable energy credits, and claim virtuous consumption, but prevent other organizations, or consumers more generally, from claiming their energy comes from renewable sources.  It’s a concern about grid equity, a form of conspicuous consumption by privileged wealthy or elite institutions.  These kinds of “statement-level” deals by major brands can be influential in shifting public opinion toward broader acceptance of renewable energy which places pressure on policy makers and regulators to step up support for clean energy.  But at a certain point, we need to clean up the entire grid, not just a few conspicuous organizations.

So what other models exist to drive widespread shifts in energy on the grid?  Well, regulators such as the Arizona Corporation Commission can establish renewable energy procurement mandates, commonly called renewable portfolio standards (RPSs), and quite a few states have done so.  These RPSs require a specific amount or percentage of a utility company’s total energy supply to come from renewable energy by certain dates.  In Arizona, the RPS is 15% by 2025, but other states such as California (2018), New Mexico (March 2019), Nevada (April 2019), and Colorado (June 2019) have been setting the bar much higher lately.  

Another model is to pursue retail deregulation, where retail customers like households and businesses would be free to buy from a range of utility companies, who in turn could package different kinds of rate plans for consumers to choose from.  This would turn electricity purchasing into a model much like the wireless cell phone market.  In this market transformation, there would be new opportunities for consumers to choose plans that reflect more renewable energy.  On its own, this might not lead to large shifts in energy supply, but with the rapid decline in costs of renewable energy technologies, they are becoming the cheapest energy out there.  Unleashing competitive market forces could force a more rapid shutdown of fossil fuel plants that are no longer cost competitive with renewable energy.  The Arizona Corporation Commission is currently studying whether this model could work for Arizona (ACC Docket: RE-00000A-18-0405), and a key sticking point is what to do with all the debt utility companies still need to pay back for building all those fossil fuel plants, when they expected to run them for decades longer. They are actually legally entitled to compensation from these investments by the “takings” clause of the U.S. Constitution , and many state constitutions and statutes also guarantee a fair profit on these past investments since they were made in the public interest in order to provide stable, reliable, and cost-effective electricity when they were built.  So ratepayers still might end up on the hook for the costs of shutting down those plants, whether cheaper renewables are available or not.  Finally, a “free market” in electricity may not be as beneficial to consumers as the advocates say.  Given the lack of consumer knowledge and access to information about how electricity and the grid really work, there are big concerns about potential abuse by energy companies, or just run of the mill market inefficiencies, that may end up costing consumers more than they bargained for.  So, energy deregulation has potential, but also serious concerns.

Then there’s a third option, which is to set a cap on allowable carbon emissions from electricity production, and then require utility companies to align their energy investments with achieving these emissions reductions.  Utilities would need to build the carbon goals into their Integrated Resource Plans (IRPs), but regulators could require them to have highly competitive, open, and transparent procurement processes for determining the types of renewable energy projects and owner/developers can meet the needs identified in the IRPs while also minimizing costs to ratepayers.  This model harnesses the power of competition in private markets for developing new renewable energy supplies, but only within highly formalized bidding processes for renewable energy procurement.  Utility companies would remain monopoly providers of energy to consumers, and state regulators would keep a heavy hand in regulating the transition.  For more information on this concept, see California’s Greenhouse Gas Cap-and-Trade Program.

So, which is the best model for Arizona?  If you’re interested in following these issues in detail, I’d recommend following a few of the Arizona Corporation Commission’s dockets, or some of the organizations that regularly speak in front of the ACC on these issues.  Here are some links to learn more:

 

Deregulatory Dockets with the Arizona Corporation Commission:

PURPA Dockets with the Arizona Corporation Commission:

Electric Vehicle Charging Infrastructure Dockets with the Arizona Corporation Commission:

 

Organizations and Advocates that Follow these Issues at the ACC: