Commentary: Michigan green tariff expansion could define future of renewable procurement

Gerry Machen / Creative Commons

Laura Sherman is the president of the Michigan Energy Innovation Business Council, a trade organization focused on improving the policy landscape for the advanced energy industry in Michigan.

Last year was the biggest year yet for corporate procurement of renewable energy. Companies of a variety of sizes are signing contracts with wind and solar projects to fulfill large portions or all of their energy needs.

Now, nearly halfway through 2020, almost everything seems different compared to 2019. But early reports suggest that corporate renewable energy buying will be resilient — the economic effects of the pandemic are slowing down deals this year, but the underlying appetite for clean and affordable energy that is not exposed to fuel price volatility remains strong.

This market is resilient in large part due to the work done by state regulators and policymakers in concert with purchasers and renewable project developers to craft programs that meet several criteria demanded by customers: prices that are competitive with what can be purchased on the market; flexibility to allow for customizing the term, type and amount of energy purchased; and the ability to create new sources of renewable energy that would not otherwise exist and offset amounts of the non-renewable energy that customers consume.

Some states are farther along in crafting these green tariff programs than others. Michigan, for example, has been making progress, and is currently considering expansions to these programs that could define renewable procurement in the state for years.

The Michigan Energy Innovation Business Council (EIBC), the trade association representing advanced energy companies in Michigan, has been urging the state to keep expanding and improving upon the ability for companies to procure renewable energy. Thanks to these efforts, and the contribution of expertise by Michigan EIBC member companies, the state is closer than ever to achieving voluntary green pricing programs that offer the competitive pricing and flexibility that customers want. But we’re not there yet — and Michigan EIBC wants to make the programs better, including through an ongoing case: In 2019 Consumers Energy filed for an expansion of its green pricing programs, and the Michigan Public Service Commission (MPSC) is currently reviewing testimony from many stakeholders before it decides to approve the expansion or not.

In 2017, Consumers Energy proposed its first voluntary green pricing program, which gave commercial and industrial customers the option of “subscribing” to renewable energy representing anywhere from 20% to 100% of a customer’s electric load, and in return paying a per-kilowatt-hour fee on their bills.

It was a start, but as Michigan EIBC, Advanced Energy Economy and other groups pointed out in briefs submitted to Michigan regulators, the program did not provide what customers were looking for in a few important ways. First, it had limited, static options that did not accommodate individual customer needs. In the most basic form of the program, customers can choose between a 3-year term and a 20-year term, which, as Michigan EIBC argued in its brief, “leaves a significant gap between a relatively short contract and a very long-term contract, with no medium-term or long-term options in-between.”

Second, the program locked customers into limited and relatively expensive sources of renewable energy. Only wind power facilities were open to subscription, and the cost of the subscription was not in line with market prices of renewable energy, nor did it anticipate the effects of the continuing declines in the cost of wind energy.

DTE Energy, the largest electric utility in the state, followed suit with its own application for a renewable subscription program aimed at commercial and industrial customers. As Michigan EIBC again presented to state regulators, DTE’s program significantly underestimated the ability of renewable energy to displace more expensive forms of energy on the grid. As a result, the program offered pricier subscriptions than those of peer utilities around the state and region.

This is not what corporate customers trying to “go green” want. A coalition of the biggest companies in Michigan that want to procure renewables, including General Motors, Dow Chemical and Steelcase, described in a filing with the MPSC that, for a utility green purchasing program, access to affordable energy is just as important as access to clean energy: “While environmental and sustainability considerations are critical, equally critical are the savings associated with renewable energy, and efforts to rein in electricity costs that are the highest in the Midwest and in the highest quartile in the nation,” the coalition said.

The MPSC listened to many of the criticisms from Michigan EIBC and others, and required changes. Now DTE and Consumers Energy’s offerings for renewable energy procurement are much improved, with new elements like more reasonable pricing for commercial and industrial customers and more choices for contract length. As a result, the utilities have recently had more success attracting customers. For example, DTE’s program has signed up several notable companies and organizations, including General Motors, the Detroit Zoo and Shiloh Industries.

With Consumers Energy’s proposed expansions to their voluntary green pricing program offerings, Michigan is taking another step forward. However, as argued by expert witness Caitlin Marquis, director at Advanced Energy Economy, some of our original concerns about program size, contract length flexibility, and the appropriate credits for renewable energy remain. In addition, as president of Michigan EIBC, I filed testimony about Consumers Energy’s proposal to build and own behind-the-meter solar systems at commercial and industrial customers’ facilities. This would mean an unprecedented entry of a regulated utility into an unregulated, and already thriving, market. The MPSC must take these concerns into account to ensure that the utility’s voluntary green pricing programs keep moving in the right direction.

The need for large companies to source affordable renewable energy is only getting stronger as solar, wind and battery storage technologies improve and costs continue to decline. As demand rebounds after the pandemic, utilities and regulators need to make sure they are ready to give corporate customers the access to renewable energy that they desire.

Dr. Laura Sherman is the president of the Michigan Energy Innovation Business Council, a trade organization of more than 120 advanced energy companies focused on improving the policy landscape for the advanced energy industry in Michigan.

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