Case Study: Cummins Inc.’s Cost-Effective Wind Power VPPA

by | Oct 5, 2018

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Cummins

(Photo courtesy of Rocky Mountain Institute, Business Renewables Center, and Cummins)

Global power equipment manufacturer Cummins Inc. signed a virtual power purchase agreement with EDP Renewables for 75 MW of wind capacity in Indiana last August. Now the company is sharing the cost-effective project framework they used for the deal in a new Business Renewables Center (BRC) case study.

Headquartered in Columbus, Indiana, Cummins is an American Fortune 500 manufacturer of engines, generators, and associated components that reaches customers in more than 190 countries and territories. The company reported earning around $1 billion on sales of $20.4 billion last year.

Their energy efficiency goal, set in 2016, is a 32% reduction in energy use intensity by 2020, which also means reducing the company’s GHG intensity by the same percentage, according to the case study by BRC, a Rocky Mountain Institute program.

“Although Cummins had made considerable progress reducing its energy use through energy efficiency, the company has found it increasingly difficult to identify cost-effective projects,” the case study notes. “As a result, the Cummins sustainability team started exploring renewable energy procurement as a complementary way to offset its GHG emissions.”

The team developed its own cost-benefit framework to compare potential renewables project opportunities. They drew from the Corporate Renewable Energy Buyers’ Principles, an initiative led by World Resources Institute and World Wildlife Fund, particularly the additionality and cost-effectiveness criteria. And they added their own “tangible impact” and “transparency” principles.

After selecting the best form of off-site renewables procurement, the team analyzed the net cost and financial risk of the VPPA to the company. “Cummins relied on historical prices, third-party price forecasts and, ultimately, statistical forecasting via Monte Carlo simulations to evaluate the potential financial downside,” the study says.

In addition, the Cummins team identified important social and economic variables that informed its project selection such as water and land usages, wildlife protection, local community acceptance, and local economic effects.

The company announced its first VPPA in August 2017 — for 75 MW of wind power from the Meadow Lake wind farm in Indiana. EDP Renewables North America, the developer of Meadow Lake, knew the local market and shared Cummins’ key values, including environmental stewardship, according to the case study.

“To get this deal done we had to strike a balance between community benefit and environmental impact on one side, and financial risk on the other side,” says Mark Dhennin, Cummins director of energy and environment. “The cost benefit framework enabled Cummins to identify the project with the highest impact and an acceptable net financial impact.”

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