Recreational Equipment Incorporated (REI) is a privately held American retail corporation organized as a consumers' cooperative, selling outdoor recreation gear, sporting goods, and clothing through 131 retail stores in 31 states. REI has announced a public aspiration to achieve 100% renewable energy-fueled retail operations by 2020. Thanks to an ambitious strategy of energy efficiency and green power usage, the company has kept its overall carbon burden flat throughout this growth, and reduced its energy expenditures from over $10 million per annum to less than $8.5 million. By the end of 2013, 26 REI locations (20% of their total retail locations) will be equipped with solar technology.
Despite notable success, efforts have not yet taken a portfolio-wide approach to assessing the most environmentally and financially impactful actions for offsetting the carbon emissions of electricity consumption. In this paper, we take a three-step approach to examining REI's options for meeting their ambitious climate goals. First, we analyze the policy, technology, and competitive landscapes to identify viable options. Second, we quantify the environmental and financial implications of each option. Third, we compare each option based on environmental and financial metrics as well as alignment with REI's corporate sustainability goals. The options we considered include:
- Buying Renewable energy certificates (RECs) to offset the environmental impact of conventional electricity demand in REIâ€™s retails stores.
- Buying solar photovoltaic (PV) systems for all stores for which it is cost-effective.
- Entering into a power purchase agreement (PPA) with a solar installer for all stores for which it is cost-effective.
- Investing in large-scale (utility scale) renewable energy projects.
Of these four options, we find that only RECs and solar PV systems meet both REI's corporate sustainability and financial goals. Currently, REI is purchasing RECs at about $1.40 per MWh, or about $75,000 for portfolio-wide electricity offset. We find that these RECs do not meet corporate sustainability goals because they do not induce investment in renewable energy. RECs that offer this additionality would cost $10-14 per MWh and cost $500,000-$750,000 portfolio-wide. We use this latter figure as a baseline to compare against solar investments.
We find that between 33-54 of REI's retails locations offer the potential for NPV-positive solar PV installations at a cost of $5.4-8.7 million and NPV of $1.2-2.8 million. Installing solar systems on these stores will not only reduce the cost of offsetting electricity with RECs, it will help to pay for RECs for the stores for which solar is not cost-effective. Additionally, between 2-30 retail locations are strong candidates for a PPA contract for solar installation. If REI opts not to invest in solar systems outright, these stores offer positive NPV and reduced risk.
We find that REI has several options for meeting corporate sustainability goals. While no options are cost-free, by take a proactive, portfolio-wide approach to energy investments, REI can limit risk and reduce costs while simultaneously leading the retail industry in corporate social responsibility.
Critical thinking and analytical skills, finance, business acumen
Potential to gain experience working in the private sector; gain knowledge of how sustainability fits into supply chain and retail industry; professional networking opportunities.
Research paper outlining a portfolia-wide approach to assessing the most environmentally and financially impactful actions for offsetting the carbon emissions of REI electricity consumption. Slide deck summarizing results of three-step analysis to evaluate REI's options for meeting its climate goals.
- Wesley Allred, MBA/MS Sustainable Systems
- Ben Hamm, MBA/MS Behavior, Education and Communication
- Ursula Jessee, MBA/MS Sustainable Systems
- Alex Papo, MBA/MS Environmental Policy and Planning
- Jacob Talbot, MBA/MS Sustainable Systems