- Principal, Infrastructure Platform
- About Us
- My Account
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
As part of our ongoing efforts to enhance the sustainability of operations, Wellington has entered into a groundbreaking renewable energy initiative. In December 2021, we signed a virtual power purchase agreement (VPPA) with Enel Green Power North America to match 100% of our firm’s US corporate electricity usage and 100% of our US employees’ personal electricity usage with wind energy.
When we began to pursue this project, conventional wisdom held that VPPAs were only appropriate for large, sophisticated energy buyers. We wanted to dispel this misconception. Our journey proves that with a thoughtful approach, even a relatively small corporate consumer of electricity can enter into a VPPA. A growing ecosystem of service providers — including developers, consultants, and legal advisors — is forming to make the process more feasible for a wide range of potential clients.
Beth: A VPPA is a long-term bilateral contract for renewable energy and a strategic means for the buyer to support the addition of renewable energy onto a local power grid. Like leasing office space in a building prior to construction, VPPAs are typically signed in advance of construction of power-generation infrastructure (in our case, wind turbines). While not applicable to our arrangement, some VPPAs allow a developer to secure financing for construction, meaning that without the VPPA, a given renewables project would either not go forward or would be smaller in scale and, therefore, generate less energy.
Jim: Renewables VPPAs are a meaningful way to decarbonize energy production and consumption. Companies generally cannot purchase renewable energy directly from utilities, as few purchase options exist and it is difficult to produce enough electricity on-site. For example, there is not enough roof space on the buildings we lease to install the solar panels needed to meet our power demands. A company can then rightfully say it sources a certain percentage of its power from renewable sources. For developers, VPPAs provide financing for renewables projects and assurance they can achieve necessary return hurdles.
Beth: Electricity generated from a power plant is transmitted to the grid and blended with power from other sources (gas, coal, nuclear, etc.). Since the power from a specific wind or solar farm cannot be attributed to an end user (unless the user installs enough distributed power to bypass the grid), the US has incorporated a system of renewable energy certificates (RECs). Every megawatt hour from a wind or solar farm produces one REC. In a VPPA, a company receives RECs from the contracted renewables developer and can either resell the RECs for financial gain or retire them against its corporate electricity usage. Upon retiring their RECs, a company can rightfully claim a portion of its power is generated from renewables.
Jim: Wellington is contracting 11 megawatts (MW) of capacity at Enel’s Rockhaven Wind Project in Oklahoma. The arrangement, which is subject to definitive agreements, covers approximately 48 GWh of wind energy annually, with associated RECs that are equivalent to avoiding 30,000 tons of CO2 in the atmosphere each year. Wellington’s average annual electricity usage from our US corporate offices is about 15,000 MWh. We have approximately 2,300 US-based employees. Based on the national average for household electricity usage according to the US Energy Information Administration, our US employees use approximately 25,000 MWh annually. This brings our total US corporate and employee usage to about 40,000 MWh of electricity per year.
We wanted to account for future headcount growth, potential office expansion, and increased household electricity usage given our new hybrid working model and projections for increased adoption of electric vehicles and electric heat pumps. To be sure, some employee households will use more electricity than the average and some will use less, but we believe this estimate is sufficient as most of our US employees live in the Northeast, where households consume 25% less than the national average.
Lucy: Enel Green Power is the renewable business line of Enel North America and a leading operator of renewable energy plants. In North America, Enel operates 68 plants, with an installed capacity of eight GW, powered by renewable wind, geothermal, and solar energy. Globally, Enel manages more than 1,200 plants on five continents, has assets in operation or under construction in 21 countries, and development activities in an additional five.1 We chose Enel, in part, because we believe the company would be an effective thought partner as we seek sustainable electricity-generation solutions in our non-US office locations.
Lucy: Yes. Regulatory restrictions preclude us from matching our electricity usage outside of the US. RECs are a US mechanism; we cannot apply them to offset our non-US electricity usage. We continue to partner with our property owners to source renewable energy and will invest in REC equivalents where possible.
Beth: We are the first asset management firm, to our knowledge, to have signed a VPPA matching 100% of our firm’s US corporate electricity usage with renewable energy. What’s more, we believe we are one of the first companies in the world (in any industry) to match our US employees’ personal home electricity usage with renewable energy. Having adopted a hybrid-work model, we expect most Wellington employees will work from home more often, making our commitment even more significant. We hope our VPPA sets a new standard, inspiring other asset management firms to make similar commitments, develop credible energy transition strategies, and lower their carbon footprint.
Our purchased wind-energy capacity is equivalent to what is produced by three turbines at Rockhaven. These are among the largest onshore turbines built today. At approximately 187 feet (57 meters) long, each turbine’s blade standing on its end would reach the 15th floor of our Boston office at 280 Congress Street in Boston. The total spinning diameter of each turbine is 380 feet (116 meters).
Learn more and watch a time-lapse video of one of Enel’s onshore turbines being built.
Learn more about the Rockhaven turbine site.
Jim: There are two main types of risks: project development risk and volume risk. All project-development risk, including cost overruns, shipment delays, or inability to complete the project, is borne by the developer. We chose a well-established renewables developer to mitigate this risk (which no longer exists now that the project is up and running). Volume risk refers to the amount of electricity generated by a renewables project. Annual energy volume varies based on the amount of sunshine or wind during the year. For our project, insufficient wind at the Rockhaven site would mean a failure to produce enough energy to cover our US electricity usage. To mitigate volume risk, we have sized the VPPA to ensure a 95% probability of producing the renewable energy we seek to generate year after year.
If a shortfall were to occur, we would purchase RECs to make up the difference. Finally, it’s also worth noting that while some agreements are accompanied by commodity-price risk, Wellington’s VPPA with Enel Green Power was structured to significantly reduce any risk associated with fluctuating power prices.
Source: Enel Green Power
Lucy: Yes. One option is to purchase RECs from an existing renewable plant. This solution is low cost and relatively easy; however, it provides no additionality — i.e., it does not bring new renewable capacity online. Another option is to procure green energy through a local utility, though that, too, lacks additionality. Companies could theoretically install on-site renewable power, by adding rooftop solar panels or wind turbines to a suburban campus, for example. While these distributed power solutions are clearly additional, they are more complicated and can require significant land area.
1Enel Green Power, data as of 30 September 2021.
To read more, please click the download link below.
Biodiversity: Why investors should take noteContinue reading
Impact measurement and management: addressing key challengesContinue reading
Biodiversity: Why investors should take note
With scientists now broadly agreeing on the risks posed by accelerating biodiversity loss, Chris Goolgasian and Jenny Xie assess implications for investors and steps they can take.
Impact measurement and management: addressing key challenges
Our IMM practice leader describes common impact investing challenges and suggests ways to overcome them.