Wal-Mart's Solar Energy Vision

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by: Joel Makower

It’s been a busy holiday season for a corps of professionals, courtesy of Wal-Mart, and I’m not talking about store greeters or Santas. The retail giant recently issued an RFP, or request for proposal, to install solar energy systems on its stores in five states — the largest procurement of solar ever proposed. Bids are due on January 5, hence the end-of-year scrambling.

The confidential RFP document, which I recently reviewed, is part of the company’s stated commitment "to reduce our overall greenhouse gas emissions by 20 percent over the next eight years" and to "design a store that will use 30% less energy and produce 30% fewer greenhouse gas emissions than our 2005 design within the next 3 years," according to the RFP. At a higher level, it marks a significant first step toward Wal-Mart CEO Lee Scott’s publicly stated, long-term goal (Download-PDF): "To be supplied 100 percent by renewable energy."

The goals of this project, as stated in the RFP, are somewhat more modest:

  • the establishment of a relationship "with one or more solar photovoltaic developers that facilitates the cost effective development of solar photovoltaic systems at a predetermined number" of Wal-Mart sites, and  
  • securing alternative sources of energy "at competitive prices and in a form that is replicable among multiple sites and multiple building formats."  

The request for proposal — which was sent to a small, select group of prospective developers, who are no doubt scurrying to prepare their proposals as you read this — asks bidders to consider three options in considering how to power Wal-Mart by sunlight:

  • a direct purchase by Wal-Mart of turnkey solar energy systems, along with a plan to maintain the systems;  
  • solar systems that are installed, owned, and operated by the supplier, which would then sell all of the system’s electricity output to Wal-Mart; and  
  • an arrangement in which Wal-Mart would lease solar installations, own all of their electricity output, and have an option to purchase the systems if it desired.  

Those three paths represent a pretty good overview of the options available these days to commercial and industrial purchasers of solar. The second and third options, in which the systems are developed and owned (at least initially) by a third party, help to overcome one of solar’s major obstacles: its large, up-front capital expense. Since practically all of us — companies and homeowners alike — are accustomed to paying for electricity based on the amount we use on a monthly basis, we have little appetite to shell out thousands of dollars to suddenly own and maintain the power plants (in this case, solar panels) that generate that electricity. Companies are more willing to "go solar" if there’s no large, up-front expenditure and their monthly energy costs don’t change much, or even go down. In its RFP, Wal-Mart is asking solar companies to act like a small-scale utility, owning the equipment, but selling the electricity to Wal-Mart.

(By the way, such arrangements should by no means be limited to companies. Individual homeowners and renters should be able to purchase electricity generated by solar panels on their roofs, installed and owned by third parties, rather than having to buy and install pricey solar panels themselves. We want the power, not the power plants. As Amory Lovins has famously put it, "It’s not kilowatt-hours that we want, it’s hot showers and cold beer.")

Wal-Mart says it will begin installing solar on its stores in five U.S. states: California, Colorado, Connecticut, Hawaii, and New Jersey. The company anticipates that "that only a portion of the stores in each state will be physically and economically suitable for solar installations," according to the RFP. It calls for bids for projects to be carried out during 2007, but is asking bidders for "expansion or build-out plans, including projected prices and costs, over the next five years." The projects, says Wal-Mart, should "maximize available roof space and electric generation output" and create "maximum financial returns due to rebate, incentive, and tax impacts that may reduce or scale-back system sizing."

What’s the impact of all this? Wal-Mart doesn’t mention a specific purchase size, but my sources tell me that the company could put solar on as many as 340 stores in the next few years. Assuming that each store utilized about 300 kilowatts of solar panels (it could be as much as 500 kilowatts), we’re talking roughly 100 megawatts of solar. To put that into perspective, the solar system currently being installed at Google headquarters in California — the largest single corporate solar installation in history — is 1.6 MW, about 1/60th the size.

Of course, it’s unclear whether Wal-Mart will install solar in all of those locations. The company could look at the bidders’ numbers and decide to install solar at only a handful of stores — or none at all.

Assuming it moves forward with even a portion of its plans, Wal-Mart’s move is significant, and historic. While a growing number of companies are staking their claim at being "carbon neutral" by purchasing power from developers of far-off wind farms or other large-scale installations, or have installed (often with much fanfare) solar panels on a single showcase facility, no one has yet made a long-term commitment to "alternative sources of energy at competitive prices and in a form that is replicable among multiple sites and multiple building formats," as Wal-Mart puts it.

As one insider told me: "Putting out the RFP alone has some level of significance. Going through with it will be epic. If they follow through, it will be profound and will have a long-lasting impact on the global solar industry. And probably on the mindset of retailers around the planet."

It’s far from a done deal, and there are significant hurdles to overcome. Not the least of these will be to accommodate Wal-Mart’s voracious appetite for renewables as well as its legendary cost-cutting pressure. The company’s opportunity is to help bring the price of solar down to earth. The challenge will be to do it in a way that doesn’t negatively exploit its suppliers, or those that toil for them.

Wal-Mart intends to notify the winner of the contract on February 28. I’m not a bidder, but I’ll be watching anxiously nonetheless.

Original Post: http://makower.typepad.com/joel_makower/2006/12/walmarts_solar_.html