Inside Fifth Third’s All-Solar Strategy
- Mar 15, 2018
In a milestone for procurement of solar energy in the corporate sphere, Fifth Third Bancorp will become both the first Fortune 500 company and the first bank to procure 100 percent renewable power from one project. On March 7, the Cincinnati-based financial institution announced that it had signed a power purchase agreement that will enable construction of an 80-megawatt solar project in Hertford County, N.C. SunEnergy1 of Mooresville, N.C., will design, build and operate the $200 million project, dubbed the Hertford County Aulander Holloman solar facility.
CPE recently spoke with Scott Hassell, vice president & director of sustainability for Fifth Third, about the bank’s energy strategy and its larger significance for the renewable energy movement.
What is the significance of being the first Fortune 500 company to make the commitment to procuring renewable energy exclusively through solar power? What message does this send to your fellow Fortune 500 members, as well as to other financial institutions?
Hassell: We don’t think the significance can be overstated. We want to be an environmental sustainability leader, and by being the first to do this through a single project and with solar, we are leading on the issue of 100 percent renewable solar power. We think the contract we signed with SunEnergy1 proves that 100 percent renewable power is achievable and attainable.
We are meeting our 100 percent renewable energy goal four years earlier than we set with a transaction that we believe will add to our earnings. We are enabling investment in one of our key market states and helping to employ approximately 1,000 people. With this one deal, we are being good corporate citizens and delivering value to our shareholders, customers and employees as well as our planet.
Would you give us a little background about the Bank’s participation in the renewable energy movement, as both a capital source and as an energy customer?
Hassell: Since 2010, Fifth Third has purchased renewable energy credits (RECs), which is a way to support existing renewable energy projects and get credit for using renewable power. Since 2012, we have purchased 30 percent RECs, or put another way, 30 percent of our total expected energy use in a year. That was all positive, but what we’ve wanted to do for years is to make a new renewable project happen, and we began investigating the possibility in 2014.
In 2016, we began to feel like we could really do it in a cost-effective way and began working with Renewable Choice Energy (now Schneider Electric) to learn about PPA opportunities. In 2017, we issued a request for proposals (RFPs) to 39 renewable energy developers. At the same time, we also set and publicly announced five bold goals for sustainability—one of which was to achieve 100 percent renewable power by 2022. After a rigorous selection process, we selected SunEnergy1’s Aulander Holloman Solar project based on its location within our footprint and its expected economics, timing and risk profile.
Fifth Third Bank is also a big lender to solar companies. Since we entered the solar space, we have financed more than $2 billion in solar transactions. This corresponds to more than 2,000 megawatts of projects. This projects and the companies involved span 15-plus states. We have provided construction project financing, construction revolvers, lines of credit, and permanent/long-term project finance.
Fifth Third recently announced that it has joined both RE100, a collaborative led by The Climate Group in partnership with the Carbon Disclosure Project, and the Business Renewables Center, which is affiliated with the Rocky Mountain Institute. What’s behind that decision?
Hassell: These are international environmental leadership organizations that are committed to 100 percent renewable energy and helping businesses to achieve that goal. We decided to join the organizations to collaborate with them on the best ways to position our announcement and to engage with them on opportunities to help other companies follow our lead. Both organizations are experts in the field and offer us third-party credibility on our method of reaching 100 percent renewable power.
The Hertford County project will enable the Bank to meet its renewable goal four years early. What went into the decision to advance the schedule?
Hassell: We wanted to be a part of bringing a complete project online and SunEnergy1’s project enabled us to do that. We didn’t set out to advance the schedule, but to participate in a deal that would get us to 100 percent renewable power by 2022. After our RFP process and due diligence, this deal emerged as the best one to accomplish that. The timetable was obviously one that appealed to us.
Would you describe the extent of the Fifth Third footprint that will be served by the Hertford County Aulander Holloman facility? For instance, about how many retail branches will be involved, and what’s the approximate total square footage?
Hassell: This one project will generate as much power as we use in a year, and we will buy it all. In 2017, Fifth Third had more than 10 million square feet of real estate, including 1,154 banking centers in 10 states (Ohio, Indiana, Kentucky, Michigan, Illinois, North Carolina, Georgia, Tennessee, West Virginia and Florida). Through this project, we will buy power equivalent to the electricity use at all of these facilities.
Considering that Fifth Third’s retail portfolio spans 10 states and nearly 1,200 locations, what are the logistics of supplying your properties with solar energy? How will the transmission work in practice?
Hassell: The beauty of the contract we have signed—a virtual power purchase agreement or VPPA—is that we will continue to consume electricity as we always have. Through this contract with SunEnergy1, Fifth Third is buying the power and the Renewable Energy Certificates (REC) generated by this facility for a fixed price per unit of power ($/MWh). Using our contract, SunEnergy1 will get loans and build the project.
When the project begins generating power, the power will be sold into the regional electricity grid at the floating price. Every month, Fifth Third and SunEnergy1 will financially settle the difference between the fixed price guaranteed by Fifth Third and the floating price obtained in the regional electricity market. By guaranteeing to purchase all of the power and retaining all of the RECs from the project, Fifth Third is not only purchasing 100% renewable power, but we have directly led to the construction of this new 80 MW solar project.
The VPPA means we have guaranteed to buy the power from the project, but we will re-sell it in the regional electricity grid rather than use it ourselves. Another term for this transaction is a fixed-for-floating swap, where fixed refers to the price Fifth Third has guaranteed and floating is the regional electricity market price. On a monthly basis, Fifth Third and SunEnergy1 will net settle the difference between the fixed and floating prices that occurred over the prior month.
The term swap is used because the contract allows the developer and Fifth Third to swap power prices with each other in ways that benefit both parties. The developer gets a fixed price for power that they can use to get a loan. Fifth Third gets a floating price for power that we believe will benefit the bank while advancing our environmental goals.
How would you describe the Bank’s participation in the Hertford County project? Besides your role as a long-term customer, is Fifth Third also providing development financing?
Hassell: Although our bank does solar lending, we deliberately did not want to be financier of this project in order to keep the transaction as simple and transparent as possible. Our contract with SunEnergy1 is enabling the construction of the 80 MW solar project and then we will purchase the power and Renewable Energy Certificates (RECs) at the agreed-upon fixed price.
What does SunEnergy1, the project’s developer, bring to the table?
Hassell: SunEnergy1 is a top five U.S. solar developer with more than 800 MW installed. The company has pioneered large-scale solar power on the East Coast for nearly a decade, developing numerous large-scale solar projects for corporate offtakers. CEO Kenny Habul’s commitment to helping us get to 100% this year with the Aulandar Holloman project made this a unique opportunity.
What’s the value of bringing in a consultant like Schneider Electric to assist in the process?
Hassell: Schneider Electric was an integral partner in each step of the process. They brought specialized expertise and capabilities that helped our many internal partners learn about power purchase agreements, issue an RFP, evaluate the results, select a partner, and negotiate an agreement. A core team within the bank worked closely with Schneider and coordinated with many other internal stakeholders to make this project happen.
At this early stage, are you able to estimate the financial impact of the PPA? Will the net effect be to reduce the Bank’s overall energy expenditures, or will there be a premium for going solar?
Hassell: We expect it to add to earnings based on the financial due diligence we did. In terms of our electricity costs, we have created a fixed price for energy generation costs and have created a hedge so to speak. It will reduce volatility in our utility expenses.
Would you offer any other suggestions for best practices in pursuing a large-scale renewable power purchase agreement?
Hassell: A great way for a company or organization to get started is to consult the resources of the Business Renewables Center or a buyer’s advisor like Schneider Electric’s Renewables & Cleantech team.