Originally published on RMI Outlet
by Ian Kelly, Sr. Associate
Kaiser Permanente’s recent announcement that it would purchase enough renewable energy to meet half of its electricity consumption in California made big news, from the Bay Area (such as here and here) to the cleantech and sustainable business communities to national outlets (witness here and here).
The health care provider’s deal with project developer NextEra Energy Resources for 110 megawatts of solar and 43 megawatts of wind power capacity is unique in its origins and instructive for other companies seeking to meet their sustainability goals. It also is an excellent example of the progress promoted by the Business Renewables Center, an RMI-convened and member-led platform that accelerates corporate procurement of off-site renewable energy by bringing together corporate buyers, project developers, and service providers (including founding members Kaiser Permanente and NextEra Energy Resources).
CORPORATE RENEWABLE ENERGY MOTIVATIONS: CLIMATE CHANGE IS A HEALTH ISSUE
Why would a major health care organization care about clean energy? Kaiser Permanente believes climate change is a health issue. Emissions from fossil fuel-powered generators—both directly (air pollution) and indirectly (e.g., global warming that impacts mosquito and disease spread, ozone levels, and heat stress)—are closely tied to human health. And so Kaiser Permanente is leading by example, aggressively pursuing renewable energy to slash its own carbon profile and encouraging others to follow suit.
Kaiser Permanente took a significant step in 2012, when it adopted a sustainable energy policy with the target of reducing its greenhouse gas emissions 30 percent below 2008 levels by 2020. Its initial efforts focused on increasing energy efficiency, onsite generation, and other means of procuring green power, but it soon recognized that these strategies would not be sufficient to meet its goal. “As an organization that is constantly adding members and building hospitals and medical offices, achieving our 30-percent greenhouse gas reduction goal was not possible through energy conservation and distributed generation alone,” explains Chief Energy Officer Ramé Hemstreet. “Reduced energy intensity was being offset by new facilities and equipment, and even Kaiser Permanente has only so many roofs and parking lots that can accommodate solar.”
MAKING OFF-SITE RENEWABLE ENERGY DEALS A REALITY
How did Kaiser Permanente realize its goal to procure off-site renewable energy? It had wisely laid the groundwork by establishing its motivation (the 2012 policy and emissions reduction target) and building internal familiarity through the experience of doing power purchase agreements for on-site generation. Even so, this was a significant transaction that required strong and savvy leadership, substantial expertise, and the right balance of perseverance and patience. Kaiser Permanente’s deal team engaged the right external advisers, identified a list of potential project developers with which to partner, issued the RFQ to that list, ultimately selected NextEra Energy Resources as the best fit, and worked with NextEra to reach a deal that made financial sense for both parties. At the same time, the deal team realized it needed to champion the opportunity with internal stakeholders and adeptly navigated the appropriate internal processes to validate the transaction.
The resulting off-site deal will have a large impact. Kaiser Permanente consumes about 1.6 terawatt-hours of electricity every year across its 38 hospitals, 600 medical offices, and other facilities, mostly in California but also in seven other states and the District of Columbia. The off-site wind and solar projects alone will produce enough electricity to meet about one third of that consumption overall, or more than 40 percent of its consumption in California (additional onsite renewable generation will bring the total to 50 percent in state). In total, Kaiser Permanente’s renewable generation in California will avoid 215,000 metric tons of greenhouse gas emissions, the equivalent of removing more than 45,000 cars from California’s roads.
LESSONS LEARNED: CHALLENGES EN ROUTE TO SUCCESS
Those looking to duplicate Kaiser Permanente’s success should begin by focusing on three things:
- Assembling the right team. Kaiser Permanente’s deal team included vice presidents in its facilities department (one of whom was also its chief sustainable resources officer) as well as specialists from its energy, treasury, procurement, controller, and public affairs groups. That leadership and breadth allowed the deal team to effectively navigate the range of potential issues, procedures, and approvals faced during the course of the initiative. The deal team both possessed technical expertise and evinced the flexibility and innovation required to move a large organization to consider a transaction unlike any it had done before.
- Solidifying the justification message. Kaiser Permanente’s internal deal team was able to articulate how the deal was both consistent with the organization’s mission and economically feasible. The team knew that too little attention to the deal’s economics and related financial and accounting issues might have given C-suite executives and others reason to doubt the team’s competence to reach the desired outcomes. At the same time, too much focus on the deal’s economics would have risked those internal stakeholders viewing the proposed transaction through a financial lens alone. According to Hemstreet, “our mantra in regards to the economics was appropriate for a health care organization: ‘do no harm.’ The team focused on achieving the GHG reduction goal without increasing energy costs.”
- Viewing the deal as having both external and internal process milestones, and managing it accordingly. Kaiser Permanente’s deal team attended to not only the mechanical steps of identifying and negotiating a potential deal, navigating it through execution, and implementing it, but also to the internal stakeholder engagement process—what one might term the psychological aspects of the deal. The latter commonly arise from the fact that a proposal to do something fundamentally new and highly complex is likely to induce some level of discomfort: nobody wishes to be responsible for overlooking a detail that later could cause problems for the organization. Recognizing this, the deal team allocated significant resources to making internal stakeholders comfortable with the deal through processes tailored to Kaiser Permanente’s highly collaborative culture. For example, the deal team built support among regional executives rather than relying solely on a top-down decision imposed on them.
These lessons are just the beginning. Many companies in Kaiser Permanente’s position have needed to build their internal capability to complete these deals from the ground up. Fortunately, Kaiser Permanente, NextEra Energy Resources, and other BRC members offer unprecedented transparency into the inner workings of deals like this one, so that collectively we can streamline processes, improve success and time to completion rates, and remove or lower barriers. Thanks to the BRC and its members, everyone benefits from shared learning, rather than having to go it alone and start from scratch each time.
Reprinted with permission.