With the objectives of reducing carbon footprints and driving down energy costs, more and more corporations are beginning their renewable journey.
But how do you know which path to take and which options are right for you?
The first step is understanding the possibilities and how they differ. Then you can look at which options may be right for your company and how they fit the business strategy, while also considering regulatory and legal requirements, and geographical factors.
Purchase electricity products and certificates
One option to consider is purchasing green electricity products or certificates. Both enable you to source renewables in a comparatively fast and efficient way. Green tariff options from utilities or customised energy contracts make up the ‘products’ element and the certificates themselves are contractual instruments that provide information about the origin of the energy generated. Examples of this are Guarantees of Origin in Europe, or Renewable Energy Certificates (RECs) in the US.
What corporates must be mindful of here, is that not all certificates are created equal. Older ones generated from renewable sources established years ago can indeed be cheap, but carry little ‘green’ additional value in that the purchase is contributing nothing to future renewable energy development.
On-site consumption and ‘behind the meter’
Here renewable energy is usually generated on the company’s own premises – maximising its self-consumption rate and minimising its reliance on the grid. The company becomes what is known as a ‘prosumer’ – both a consumer and a producer of electricity. The added bonus of a PV-covered roof at the company HQ makes it an attractive go-to for those wishing to showcase green credentials. However, the viability of such solutions is determined by a combination of technical factors, legislation, geography and of course insurance requirements.
Still a relatively new offering, battery storage is also opening up further opportunities. Combined with on-site electricity generation, this delivers scope for peak shaving (the process of reducing the amount of energy purchased from the utility during peak demand hours). This means decreased capacity payments and pay-back periods of between three and seven years.
On-site leasing and direct wire Power Purchase Agreements (PPAs)
It may be that you’re not in a position to, or don’t wish to, make up-front investment for on-site solutions. Here, leasing or Power Purchase Agreement (PPA) models could be the way to go. In this case, the renewable energy plant is still on your premises, but it is built by a developer or utility.
You may choose to operate the plant yourself – the leasing model, or have a third-party build, operate and contract out the electricity. This is known as a ‘direct wire’ or on-site PPA. The PPA itself is an agreement under which a company enters a long-term contract to purchase the renewable electricity that’s generated at an agreed price.
Off-site physical and virtual PPAs
An off-site PPA is like the on-site version, except the plant is built elsewhere. The builder and the purchasing company agree a price for the electricity, and the latter is shielded from any power price rises for the duration of the agreement, which is typically between 10-20 years.
A virtual PPA is similar, but the power generated from the renewable source won’t physically reach the purchaser’s premises. Instead, energy attribution certificates are provided, showing evidence of the amount of clean energy purchased. Although it ends up elsewhere, it boosts the overall volume of renewable energy generated and ultimately contributes to greening the grid.
One of the benefits of the virtual PPA is that it has opened up the market to possibilities like aggregation, where multiple companies can join forces to exercise collective buying power and give those with smaller energy requirements access to the market. But here’s the caveat; they are not possible everywhere.
Which path to take?
The next step is to decide on which options are right for your business.
Factors such as the type of energy that the company consumed, how much and where, are vital if the company is going to know where best to start in its energy transition.
Retail businesses which usually lease facilities, need agility and scalability in their locations. They are a perfect fit for unbundled RECs, which cater for this required flexibility.
Conversely, manufacturing companies, who usually own and operate their facilities, can often make commitments of more than 15 years. This favours onsite installation investments or long-term PPAs, offering stable energy prices and larger volumes.
The company can then select the technology type that will best suit its locations, such as wind conditions, solar insolation and access to water.
Feasibility, however, depends largely on the local or national renewable regulations — are specific technologies supported or restricted by government legislation? What regulations around their installation must be considered? This extends out further to the potential grants and financial mechanisms that wrap around such products. Take the GIEK scheme in Norway as an example – this has been a great enabler for companies restricted by strict parameters on credit ratings elsewhere in Europe.
This then leads us to the preferred financing model of the company. Often companies have certain investment criteria reserved for primary business function and with renewables rarely falling into this core category of capital expenditure — they may wish to keep renewable assets and their procurement off the books. Here a solution can come in the form of PPAs or third-party leasing models.
Direct investments in either on-site or off-site assets are also optional, if the money for a direct investment is available. Another option is for renewables to be covered as part of the operational costs via direct procurement of renewable energy from the utility, or as a separate offset via RECs.
There is plenty to consider and a few hurdles to jump along the way, but don’t be put off. Irrespective of business size or location, there is a renewables solution for every company out there.
Rasmus Nedergaard is the founder and managing director of Act Renewable, an independent corporate renewables advisory consultancy formed through a joint venture between developer BayWa r.e. and environmental consulting firm RESET Carbon