Local Government:City of Houston, Texas
Project:Estimated 492 MW Retail Transaction
Category:Off-Site Physical PPA
To power all of Houston’s municipal operations with 100 percent renewable energy five years earlier than targeted, while realizing substantial cost savings for the City.
In April 2020, the City of Houston announced that beginning in July 2020 it would power 100 percent of its municipal operations—from traffic lights to police stations to airports—with renewable energy. Houston achieved this milestone through a renewed partnership with Reliant Energy Retail Services, LLC, (Reliant) as the City’s retail electric provider and through participation in Reliant’s Renewable Select Program. The new contract with Reliant incorporates an existing off-site, 50 MW physical power purchase agreement (PPA) for solar energy along with additional third-party, utility-scale solar facilities under development.
The City of Houston is estimated to use over 1 billion KWh of renewable energy per year. An RMI and World Resources Institute analysis estimates that Reliant will need to secure a total of approximately 492 MW of solar energy (including the existing 50 MW PPA) to supply this 1 billion kWh, which makes this transaction the largest solar deal and largest renewable energy deal ever completed by a US local government. Houston was already the top municipal user of renewable energy in the country and this deal significantly expands that status.
The Houston Climate Action Plan, also released in 2020, set a goal to power all of Houston’s municipal operations with 100 percent renewable energy by 2025. In working with Reliant, the fourth-largest city in the United States was able to reach its goal five years earlier than expected. In addition, Houston is expected to save $9.3 million per year on its electric bills, meaning it could potentially realize total savings of $65 million over seven years.
The contract between Houston and Reliant lasts for five years and provides two one-year renewal options. As part of the agreement, Reliant will also support Houston in implementing its Climate Action Plan by providing sustainability consulting, funding energy efficiency improvements, and establishing a program that allows City employees to purchase discounted renewable energy for their residential needs.
How was this deal structured?
Although this contract was structured as a retail transaction, the Renewables Accelerator classifies the deal as an off-site physical PPA, which is the most similar category of transaction catalogued by the Local Government Renewables Action Tracker.
This deal was structured through Reliant’s Renewable Select program. Through this contract, Reliant agreed to not only deliver electricity relating to Houston’s previously executed 50 MW PPA but also develop new solar projects as needed to generate, on an annual basis, enough solar electricity to meet the City’s remaining electrical load.
What were Houston’s biggest challenges in setting up this project?
Folding in existing PPAs: The City of Houston already had a 50 MW PPA in existence, which had to be sleeved into this new retail contract. A legacy PPA can add multiple layers of complexity to already challenging contract negotiations.
Perceived cost: There were political concerns that the City would be forced to purchase more expensive electricity if it explicitly sought exclusively renewable energy, particularly because many people still believe that renewable energy is more expensive. In the end, though, Reliant’s bid involving renewable sources ended up being the most cost efficient and is expected to save the City $9 million per year.
Procurement constraints: Contracts in Houston have typically been five years in length, which is what many stakeholders were comfortable with. That said, market conditions may be more favorable for longer-term contracts when possible for cities. Although it was challenging to push the bounds on this, Houston and Reliant reached a compromise for a five-year contract plus two years of extension with consent from both parties.
What advice would Houston give other local governments as they pursue climate action projects?
Leverage retail supply partners when possible: Having a retail partner makes the process much easier, cleaner, and more transparent than using individual PPAs.
Ensure alignment with consultants: Having consultants that understand the city’s intentions, what other cities are doing, and the core objectives of the city’s climate action plan is key to effective procurement.
Communicate objectives clearly within procurement and outside of procurement: Cities should communicate clearly to suppliers (and consultants) what they want to see in an RFI, RFQ, RFP, or non-procurement-related documents, such as climate action plans, events and speeches, and other public engagement efforts. This level of clarity will only improve responses to municipal solicitations.
Make the business case for climate action: Climate action benefits everyone and can provide a wide array of co-benefits, including improved community health, cleaner air and water, and less traffic congestion, as well as strengthening community and environmental justice. Financial benefits, such as budgetary savings from energy bills and avoided disaster response efforts, can be powerful tools that further validate renewable energy purchasing and investing in climate adaptation and mitigation efforts.
How does this project fit into Houston’s broader climate and community goals?
On Earth Day 2020, Houston released its first ever Climate Action Plan, a science-based, community-driven strategy for the City to reduce greenhouse gas emissions, achieve carbon neutrality by 2050, and help advance the global energy transition. The plan is part of the City’s Hurricane Harvey recovery efforts and builds upon Resilient Houston, the City’s framework for helping to mitigate flooding risks and improve climate readiness.
The Climate Action Plan pertains to all emissions generated within Houston city limits. Transitioning to renewable energy is a core component of the plan, but the climate action goals also extend to transportation, buildings, and materials management. In addition, the plan ties the strategic goals in these four areas to solutions that emphasize equity and inclusivity and can provide multiple other community benefits, such as cost savings and affordability, economic growth and workforce development, improved environmental quality, and more.
This project allowed Houston to achieve its goal to power all of its municipal operations with 100 percent renewable energy five years earlier than anticipated by the City’s Climate Action Plan, and the project also significantly advances Houston toward its goal of a community-wide transition to renewable energy by 2050.
Additional Information and Resources
- The City of Houston Commits to 100% Renewable Energy (City of Houston press release)
- City Launches Houston’s First-Ever Climate Action Plan on 50th Anniversary of Earth Day (City of Houston press release)
- Houston Climate Action Plan (City of Houston plan)
- Resilient Houston (City of Houston plan)
- Renewable Select Program (Reliant’s program website)
- Built by Oil’s Riches, Houston Goes 100% Green Years Earlier (News article)
This project was included on the Renewables Accelerator’s list: 10 of the Most Noteworthy Local Government Renewables Deals of 2020.