Image from Wooden Earth Ltd.
The procurement of green energy is a hot topic at the moment as companies across the globe want to be seen playing their part in the fight against climate change. This trend has led to an explosion in demand for green energy through outlets such as Power Purchase Agreements (PPA’s) and green certificates. In January, BloombergNEF reported that 2019 was a record year for corporate PPA’s. Records are also being broken in the green certificate market with demand for European GO’s passing 500 TWh in 2018, according to Ecohz.
However, green energy procurement can be a confusing endeavor for companies just starting to get involved. PPA’s are complex contracts which pose a risk to a company that doesn’t fully understand their terms. Renewable energy certificates usually lack transparency, as discussed in our other post here. In addition, there is constant change in what is deemed acceptable as impactful green procurement. Therefore, those not keeping up to date with the market can find themselves out of the loop with current thinking, very quickly.
Why is a Green Procurement Strategy Needed?
Procuring green energy without a long-term strategy will not yield the desired results. The procurement department within an organization is under constant change with employees moving jobs, leaving the business, or downsizing of teams due to budget constraints.
Different employees have different personal goals and agendas which means two different energy procurement managers could have different interpretations of what green energy is. With employee changes, it’s conceivable that without a long-term green energy procurement strategy, the type of green energy and impact it has, can change on an annual basis.
Creating a strategy also sends a message to a company’s customers and suppliers that you’re getting on board with the fight against climate change. And gives a chance to set out a roadmap to achieving high-levels of clean energy in a reasonable timeframe.
What are my Green Procurement Options?
Before we look at how to create the strategy, it’s worthwhile to do a refresher on what green procurement options are available. These can be simply categorized into four main areas - Unbundled RECs, Green Tariffs, Power Purchase Agreements (PPA) and On-site Generation.
All options will ultimately get to the same end goal - allowing to report zero carbon under Scope 2 emissions reporting - but there are pros and cons of each option. Some of the pros and cons are summarized in the below table for the various green procurement options.
How do I Create my Strategy?
So how would a company approach green energy procurement strategically? There are a number of different considerations and each company will be unique in its approach.
Initially, it’s best practice to identify what green energy procurement will mean for your business, both in terms of financial benefits and costs. Some examples of questions that would need to be answered would be:
- Will there be a marketing benefit? For customer facing companies, there will likely be a marketing benefit of green energy procurement and improvement of brand recognition. For example, a car manufacturer may need to be seen to be “green” to maintain a sustainable image and achieve higher sales. However, the company that supplies the car manufacturer with brake pads, for example, will have low customer visibility and limited marketing benefit. It might seem unnecessary for this company to procure green energy, but companies are becoming increasingly concerned with supply chain carbon intensity (Scope 3 Reporting). This could lead to loss of contracts for unsustainable suppliers.
- Will there be a cost to the business? Buying renewable certificates will result in increased cost for a business. Another option could be to install on-site renewable generation. Whilst installing a power plant on-site will have a high initial cost, in some cases, these projects will yield strong rates of return and create value for a business. Weighing up the different options will be important in the strategy creation.
- Do we have the in-house capability to deliver on a strategy? This is a critical point. Creating a long-term strategy to install numerous on-site renewable plants is a great idea. Unfortunately, in many companies, the human resources may not be available to take these projects to completion. If an ambitious strategy is set, plans may need to be put in place to take on new staff. Relying on external consultants is an alternate option but could prove costly in the long-run.
Once these types of questions have been answered, it will be much easier to create a strategy that suits a company’s goals, budget and available resources. The next step is to create a strategy that fits the business and obtain approval from senior management and/or the board.
After board approval, the final step will be to put the plans and processes in place to ensure that the strategy is carried out. All staff that are key to a successful strategy outcome will need to be briefed and given the resources to carry out their roles effectively. In this case, Flexidao’s platform could assist with successful monitoring of the strategy and allow for seamless renewable data collection for interim strategy updates.
Potential Rewards of a Successful Strategy
From an energy budgeting perspective, there can be many rewards by procuring green energy. PPA’s and on-site installed generation will typically lead to annual opex reductions if managed correctly. Greater long-term price certainty can also be achieved reducing a company’s exposure to volatile wholesale market prices.
On a corporate level, if a strategy is being successfully executed by the business, it will be important to publicize this outcome. A company’s customers, investors, and other stakeholders will want to know how much green energy is being procured.
Current approaches usually mean energy procurement data will need to be collected and verified first before it can be shared as results with stakeholders. This can lead to time delays of over a year. Flexidao’s platform has the capability to drastically speed up this process, enabling real-time visualization of renewable energy use for stakeholders.
Having real-time access to renewable energy data can result in quicker realization of the benefits listed below:
- Improved brand image and competitive advantage: Those achieving high-levels of renewable energy have stronger brand recognition. This can result in expanding the customer base, increasing revenues.
- Easier access to credit and financial sustainability: Companies that are perceived to be more sustainable could gain access to low interest green loans and ESG investment. For more insight, check out our other blog post here.
- Attract high-quality employees: If potential employees see a company setting and meeting renewable targets, they may be more inclined to join the company. A company with a poor sustainability image will have a lower talent pool to choose from.
- Faster decision making: Access to real-time granular energy data will allow for quicker analysis and decision-making regarding green procurement. If there are any shortfalls in green energy for a particular year, a company can take action to correct the shortfall and reduce the risk of missing renewable targets.
Be Ready to Adapt…
As with any business strategy, it's vital to remain open to change and adapt the green procurement strategy, if necessary. If a competitor chooses to take a highly ambitious renewable energy target, the business may be compelled to follow suit. This will deviate from the strategy set in place but could save the business losing from a marketing perspective to their competitor.
The strategy will also need to be open to changing the type of renewable energy purchased. The perspective of corporate companies and their customers with regards to green procurement is changing. For example, green certificates are viewed less favorably than in recent years. Opinions have changed as companies became more aware of the lack of additionally of some green certificates. The large tech companies such as Google and Microsoft are driving these changes. These companies are trending towards a deeper understanding of their green purchases, taking consideration of concepts such as additionality, proximity, and synchronicity.
The energy and sustainability sector is fast moving so it can be a difficult task to remain abreast of the latest trends and perspectives. Creating a flexible long-term energy procurement strategy will help a company to stay ahead of market changes and result in many financial and non-financial benefits.