| By Stephen Abbott
However, multinational companies have multinational electricity needs, leading some to investigate wind and solar projects in foreign countries. RMI’s Business Renewables Center (BRC) team sat down with the General Motors deal team to discuss the 34 MW power purchase agreement (PPA) the company signed in Mexico with an Enel Green Power wind project. We wanted to find out: Why renewables? Why Mexico? And how the team succeeded.
GM purchases renewable energy because renewables have, over time, proven to be a good investment. Over the past twenty years, renewable energy has saved GM tens of millions of dollars while improving its reputation among customers, employees, and investors. Specific efforts have included:
- Landfill Gas: In 1993, GM started procuring renewable energy in the form of landfill gas. The initial pilot proved so successful that, by 2010, GM had completed four landfill gas projects and was saving $5 million dollars a year.
- Solar PV: In 2006, GM expanded into on-site solar PV and was the first organization to install a rooftop solar PV project of over 1 MW. Building on this auspicious start, it has expanded its solar PV portfolio, and today is among the top 25 on-site solar users in the U.S. Internationally, GM has 46 MW of solar energy, including a massive 12 MW installation in Zaragoza, Spain.
- Municipal Waste Plant: In 2013, GM announced a 15.8 MW solid municipal waste steam plant at one of its Detroit facilities.
These efforts have reduced GM’s costs, and many projects are built using third-party financing, requiring little to no upfront investment from GM. In addition, these efforts have generated positive press and increased the company’s brand value. The EPA has recognized GM for its on-site landfill gas plant, and the Mexican wind deal was covered in leading publications such as Forbes. More recently, GM was selected for inclusion in the Dow Jones Sustainability Index.
Two elements drove GM’s decision to focus on Mexico:
- Strategically, signing a 15-year contract for wind energy aligned with the company’s anticipated, long-term need for electricity in the region.
- Tactically, the Mexican power markets offered greater operational flexibility than would have been possible in the U.S.
GM’s decision to buy renewable power in Mexico was partly based on the company’s strategic plan to expand its operations in that country and the resulting, long-term need for power. Renewable energy power purchase agreements almost always have long durations (typically 10–25 years), and as a result corporate buyers generally want to have some level of certainty that they will need the power over that time period. For GM, Mexico was an obvious market to focus on, as the company was planning to significantly expand its manufacturing operations in the country.
Mexico’s regulatory structure also offered GM operational flexibility. In particular, Mexican regulations allow companies to use power generated at off-site renewable power stations to offset their electricity consumption anywhere in the country. This “virtual net metering” allows GM to vary which of its plants receive the power, thereby eliminating the concern that the power might go to waste if a particular plant is closed in the future.
How did the team succeed?
Three key steps helped GM complete this transaction successfully:
- Enabling deal champions: GM set its two core team members up to succeed by a) recruiting internal employees with facility energy management experience and b) providing them with a clear mandate to procure renewable energy for GM’s facilities globally. Industry consultants also supported the team, providing critical market expertise and important insights throughout the process.
- Generating consensus: The core team spent months developing internal consensus with different internal departments to obtain broad support for the wind PPA. This process included a multi-month collaboration with GM’s accounting group to reach an agreement regarding the proper treatment for this transaction. Although time consuming, this process allowed senior management to fully understand and, ultimately, approve the deal and was critical to its successful completion.
- Careful documentation: The team’s efforts to document its past discussions was critical to managing internal turnover of key stakeholders within the company. On multiple occasions, the team had secured the approval of a key individual only to find, six months later, that this person had been replaced by someone with no prior knowledge of the deal. To manage this issue, the team carefully documented interactions with different departments and saved old presentations and emails; these records and files allowed them to expedite follow-up conversations with the replacement manager or executive.
By purchasing renewable energy in Mexico, GM is directly supporting new wind turbine construction, saving money, and surpassing its existing target of 125 MW of renewable generation. Whether in the U.S. or abroad, renewable energy is simply proving good business.
This blog post originally appeared on the Rocky Mountain Institute Outlet, a blog that explores topics critical to RMI’s mission to drive the efficient and restorative use of resources.