What have Las Vegas casinos got in common with tackling climate change and transitioning to a low carbon economy? More than you think.
It appears a growing number are no longer willing to rely on public utilities, preferring instead to negotiate their own power supply to take advantage of cheap and abundant solar.
The shift is starting a mini energy revolution in the state of Nevada as more consumers catch on.
Regulated power markets block access to renewable energy
Much has been made of the impressive cost reductions in solar PV and wind power to date.[i] Carbon Tracker’s own research has shown that renewable power sources are cheaper today on average worldwide than new coal and gas plants.[ii] But are consumers seeing this feed through to their power bills?
Currently, the majority of global operating capacity is in regulated markets. In other words, these markets are not subject to competition, where utilities are guaranteed a rate of return and incumbent power sources operate without fear of competition from cheaper renewables. This means customers are not getting the cheapest deal and the ever-improving cost-competitiveness of renewables is largely irrelevant. The dominance of regulated markets globally is expected to increase in the future.
In Nevada, however, power users are fighting for their right to renewables.
Las Vegas casinos double down for solar PV
Nevada is a regulated power market that is monopolised by the Berkshire Hathaway Energy Company – the parent company of NV Energy, which comprises the Sierra Pacific Power Company and Nevada Power Company subsidiaries. With solar prices coming down, utility-scale solar is popping up all over the state, but the utility has little incentive to switch its power supply to this lower cost alternative because they are guaranteed a reasonable rate of return by the state’s public utility commission.
This was noticed by the Las Vegas casinos, who are the largest consumers of power in the State. The first to move was MGM Resort International who concluded they could source power more cheaply themselves and applied to leave NV Energy. This unprecedented move was initially refused. But after a five-year battle, and the use of law 704b in Nevada Legislature, permission to leave NV Energy was approved. MGM stopped purchasing electricity from NV Energy last October and is now free to negotiate its own rates for power.
MGM was NV Energy’s largest single customer, accounting for 4.86% of its sales[iv], and its departure from NV Energy burst the floodgates on the issue of power supply costs for other casinos on the Vegas strip. Wynn Resorts had left NV Energy by the end of 2016, Caesers Entertainment Corp. confirmed in March 2017 that it will pay the exit fee and leave, while Peppermill Casinos Inc. and Las Vegas Sands have also spoken to the regulator about leaving NV Energy’s service.[v]
Economics turn MGM to solar PV
NV Energy did not let MGM get away cheaply, however, slapping an $83m upfront exit fee on the group to offset lost income and to try to discourage other companies from following suit. In spite of this, MGM claims that it will recover its costs in 7 years.[vi]MGM now sources the bulk of its power from Tenaska Energy to gain exposure to solar power supply. Whereas NV Energy source only 0.3% of its Southern Nevada power from solar PV, with natural gas making up the majority alongside some coal[vii], Tenaska Energy transmit power into the region from two solar projects in Southern California totalling 280MW.[viii] Ironically, NV Energy’s only solar project supplies electricity at 3.87 cents for 20 years, not just a landmark low for solar power in the US, but possibly the lowest electricity rate in the country.[ix]
The most high-profile example of the arrangements MGM has been able to negotiate is the power purchase agreement (PPA) struck with NRG for an 8.3MW solar rooftop project at the Mandalay Bay Resort – the largest rooftop solar array in the US at the time. The project has met 25% of the campus’ peak load, extended the roof life by 5 years, produced renewable energy certificates (RECs) that are being sold to the mining sector and displaced around 8400tCO2/yr.[x]
Ground swell overthrows regulated market
The case of NV Energy highlights the perverse and counter-productive incentives encouraged in regulated power markets. As MGM said when separating from NV Energy, ‘if utilities purchase power in the most efficient way they could, there would be no benefit to leaving the system beyond choosing your own energy. [As it is] we think we can be more efficient at it’.[xi]
Significantly, it isn’t just the large power consuming casinos that have become aware of the need for competition in the power marketplace and the potential for cheaper renewable energy. Residential and household power users have now also become engaged on the issue. This was most evident in November 2016 when a ballot called the Energy Choice Initiative was voted for by almost three quarters of voters.
The article would ban monopolies and require an open, competitive retail electric energy market.[xii] The path to a liberalised power market is long – another round of voting is held in 2018 before a legal framework for a deregulated electricity market is implemented by 1 July 2023 – but this vote is hugely significant in demonstrating the desire of consumers in this region for a fair marketplace that enables the same access to renewables as well as incumbent fossil fuels.
Corporates apply pressure for renewables
The case of MGM and NV Energy is an early example of a wider trend today of large power consumers applying pressure on regulators to access cheap renewable projects. Almost half of the Fortune 500 and a majority of the Fortune 100 now have climate and energy targets.[xiii] These companies see renewable energy projects as an effective means of achieving sustainability and environmental targets – refer to Table 1 – and to reduce costs amid increasing power consumption. This convergence towards renewable energy is being led by the big technology and data centre firms who are seeing their power consumption rise the fastest. For example, Google’s electricity demand increased by 20% per annum between 2012 and 2015 – refer to Figure 1.
Source: BNEF, 2017
When first attempting to increase their access to renewables projects, the tech companies ran head first into the state regulator, much like MGM. ‘It should be easier to get these things done [renewables projects] and we’re seeing an increasing number of companies that want to do them’ said Peter Freed of Facebook back in 2015 after spending over a year to arrange a wind power deal in Texas.[xxi]
Corporations have had to leverage their huge size, power consumption and the economic benefits they bring to a region to push for renewable energy. ‘It’s our job to help communicate, as their [utilities’] customers, what we want’ said Patrick Flynn, director of sustainability at Salesforce, a cloud computing company, when referring to a letter requesting for more renewable energy purchasing options in Virginia.[xxii]Initiatives such as the Corporate Renewable Energy Buyers’ Principles[xxiii] – a group of 65 companies seeking to ensure regulated utilities provide renewable energy options.
Regulators begin to respond
Figure 2 shows that corporate PPAs have risen in number significantly over recent years. 10 states now offer a renewable energy service in the US – either a green tariff or virtual PPA.[1] Most of these are liberalised, competitive power markets, which up until 2017 made up the majority of the PPAs featured in Figure 2.[xxiv]
Figure 2: Aggregate offsite renewable deals in the C&I sector by energy type
Source: Renewable Choice, 2017 [xxv]
In 2017 things shifted, however. So far this year, 81% of corporate PPAs have been struck in regulated states with the public utility.[xxvi] This is a significant reversal and reflects the fact that regulators are beginning to respond to the evident demand for renewable energy services.
Of the 1GW of corporate PPAs struck as of August 2017, Apple alone has led the way, accounting for 435MW. This comprises its Hanwha Techren 200MW solar PV project that will power the Reno data centre and the Montague Wind Farm to support the Prineville data centre in Oregon.
Nevadan businesses and consumers lead the way
The high-profile battle between MGM and NV Energy brought attention to the obstacle that regulated power markets pose to the uptake of cheap renewable energy, which has since been attacked further by other big power consumers leveraging their size. This has led to some change. However, for companies to meet their 100% renewables targets and for the actions of these early-adopters to filter down throughout the Fortune 500, further change is necessary. All states should provide a form of renewable energy service, not just the 10 that do so today. Consumers will continue to fight state utilities and regulators for their right to cheap renewable energy. Regulators should now embrace the change.
As Jonathan Weisgall, vice president of government relations at Berkshire Hathaway Energy – the parent company of NV Energy, said after the MGM fight, ‘our monopoly days are coming to an end. We are in a competitive market, and we have to recognise that as a utility’.[xxvii]
Luke Sussams, Senior Researcher, Carbon Tracker
[1] Green tariffs vary by state but typically see customers typically buy renewable energy certificates (RECs) which are bundled with the energy from the project itself which is supplied at a long-term fixed price. Virtual PPAs are a less hands-on solution for the corporate, with the utility developing a renewables project for which the corporate guarantees a fixed price for the electricity it produces to the grid. This underwriting allows companies to claim credit for bringing that renewable energy to the grid and include it to its renewables target.
