In some U.S. regions, large energy buyers can choose their supplier, which creates opportunities to save money that can be reinvested into clean energy procurement.
In states with deregulated energy markets, energy buyers can comparison shop to purchase energy from different retail suppliers, or directly from different renewable energy project developers. The buying and selling of energy is not monopolized and controlled by a single utility as it is in a regulated market – instead, numerous retail suppliers in the market create competition and typically lower the cost of energy rates for buyers in the area. In these deregulated states, retail suppliers charge buyers for the energy supply they use, which forms 40-60% of most energy bills. The other 40-60% includes the cost of operating and maintaining the physical electric grid or pipeline and is controlled by regulated utilities. The energy buyer pays for retail energy based on contracted price, and terms and conditions.
Figure 1: Traditional Retail Electricity Procurement Mechanism in Deregulated States
Figure 2: Retail Delivered Renewable Energy Mechanism in Deregulated States
Retail delivered renewable energy is a viable option to decarbonize your electricity load in deregulated energy markets. Different retailers may structure retail delivered renewable energy differently. They could structure it as a fixed price contract for the cost of retail electricity and the cost of renewable energy credits (RECs). Or they could structure it as a retail sleeved Power Purchase Agreement (PPA) where they enter into a PPA with a clean energy developer to receive PPA settlements and RECs, which they then “sleeve” to the end user. The first option provides cost certainty, but it is usually cost additive. The second option may provide cost savings, but it comes with cashflow volatility and some additional contracting complexity.
Where is retail energy available?
As of May 2024, more than two dozen states in the U.S. have deregulated or partially deregulated energy markets.
Fully deregulated states (shaded dark orange in the map above) allow customers retail choice for both electricity and natural gas, whereas partially deregulated states (shaded light orange in the map above) may only allow retail choice to select customers for either electricity or natural gas.
Why should retail energy procurement be part of an organization’s decarbonization journey?
Retail energy is an important part of the puzzle to manage your entire energy portfolio. Traditional retail energy contracts may contain cost inefficiencies due to mark-ups and product structures that don’t align well with an organization’s goals. Contracts like these often fail to leverage portfolio value, so it’s important that a buyer understands how to set up contracts optimally, or engages an advisor to help manage complex agreements. Comparison shopping for energy procurement in deregulated states is an opportunity to optimize your energy spend because competition drives down costs. For better budget stability, you can also monitor the market and pick an opportune time to lock in a competitive price for a longer term.
There are benefits of planning for your retail energy spend in conjunction with your renewable energy goals. Your organization can optimize its retail energy procurement to achieve quick wins during the initial phase of its decarbonization journey, while still leaving funds to pursue other important decarbonization efforts.
Coho’s leadership and experience could be a valuable add to your decarbonization strategy. We can monitor the market for you, identify the best product structures based on your renewable energy procurement strategy, and help create a more optimal energy portfolio. Contact us for a discussion and let’s get started.
