How green is green energy
Today, many corporates focus their procurement efforts on “becoming green”. But how green is green energy procurement?
‘You cannot escape the responsibility of tomorrow by evading it today’ - the famous words of Abraham Lincoln certainly ring true when we talk about the importance of decarbonization efforts across industries in the current environment. Many corporates strive to become decarbonization leaders and provide an example to others. Joining various sustainability frameworks, such as RE100 or The Science Based Targets Initiative (SBTi), has become a popular way of reducing your company’s energy footprint.1
Today, many corporates focus their procurement efforts on “becoming green”. But how green is green energy procurement? Currently, corporate buyers have limited options when it comes to procuring renewable energy.
The most common way is to choose an energy supplier, whose energy is sourced from renewables. Higher demand for these ‘green’ energy contracts should send the right investment signals and stimulate domestic production of renewable energy, which in turn will also help increase energy security. However, there’s currently no guarantee that energy delivered to your company has been sourced from only green electrons.
Typically, energy suppliers will try to match the amount of energy generated with the demand from their customers. The amount of energy which is needed to cover differences between generation and demand profile is often called residual volume. The residual volume could be sourced from conventional fossil fuels, as renewable electricity is often mixed with nuclear and fossil power. The efforts by transmission system operators to balance energy supply and demand 24/7, means that it’s also unlikely that 100% of the energy consumed by corporates, at any point, comes from renewable electrons.
Another option is purchasing Energy Attribute Certificates (EACs), such as Renewable Guarantees of Origin (REGOs) in the UK, Guarantees of Origin (GOs) in continental Europe or Renewable Energy Certificates (RECs) in the US.
EACs allow businesses to prove that they consume renewable energy to meet energy sustainability ambitious. One EAC is awarded for each 1 MWh of energy generated. The certificate typically contains information about generation assets – technology, date of production and certificate expiry date. Consumers can receive certificates bundled with a renewable energy purchase or they can buy certificates on a secondary market, as an unbundled certificate.
Both options are recognized by the RE100 and SBTi sustainability frameworks. However, there are many questions about real-time matching and production. Sometimes, EACs are generated in one country and assigned to consumption profiles in another country. This makes it difficult to confirm if 100% green electrons are being supplied through purchasing EACs.
While these methods are certainly a good step forward to reducing your company’s carbon footprint and increasing renewable capacity, none of them are perfect. So, is there a perfect solution to procure 100% green energy?
Considering that the energy generation mix is not yet 100% green in any country (although Iceland and Costa Rica are close to reaching 100% renewable production), it is still too early to talk about 100% green energy supplies on a national scale. However, there are solutions that aspire to deliver pure renewable energy. One of them is the 24/7 Carbon-Free Energy initiative, which is a framework for Power Purchase Agreements (PPAs) in which every kilowatt hour of consumption is matched with carbon-free production for every hour day and night seven days a week. The carbon-free PPA concept has been implemented by corporations such as Google, Amazon, and Iron Mountain to mitigate climate change and ensure access to clean and affordable energy.
As a consumer, the easiest way to enter a carbon-free PPA would be through a contract with renewable installation suppliers, such as PV or wind farms at or near the site of operations. The connection between the renewable installation and the site would not require a grid connection (“private wire”). The typical contractual arrangement in this instance is called PPA “behind the meter” reflecting the 24/7 carbon-free energy initiative.
Having the carbon-free PPA comes with several benefits to corporate buyers. These benefits include:
- Lower cost of wholesale energy than through standard retail prices.
- Reduction or exemptions from certain non-commodity charges which are the part of electricity bill.
- Reduction of peak demand by combining on-site PV installations with battery storage.
- Reduction of carbon footprint, particularly Scope 1 and Scope 2 of the GHG protocol.
- Higher ESG scoring and lower cost of capital.
- The possibility of additional revenue through participation in demand side response programs.
On-site PV installations are the most pragmatic solution and over the last year have become much more cost-efficient. The typical payback period for this solution is estimated at 3-5 years over a lifespan of 25+ years.
However, even with a carbon-free PPA set up as above, the PV generation profile may not fully match the corporate demand profile, potentially leaving a gap in green energy supply. To close this potential gap corporates could also consider battery storage alongside their contracted renewable energy.
Finding the right solution and designing a procurement strategy to become 100% green can be a complex and daunting task. It’s important to do research and speak to developers and other consumers before making a final decision.
A well-designed a carbon-free PPA should help meet the Net Zero ambitions of corporates as well as provide financial benefits. However, the implementation of the carbon-free PPA is not without its challenges.
Each PV installation and battery storage solution is slightly different. In addition, corporates need to consider many factors such as available space on rooftops, its construction and angle, and consumption profile as well as potential contamination from local manufacturers which can create a layer of dust on the PV panels. Regulations are also important factors to be considered in the decision-making process as is the generation profile, pricing mechanisms, price volatility, and creditworthiness of PV and battery storge providers
DNV has well-established relationships with many developers and PV installers, we also have tools to deliver technical and commercial due diligence, help allocate risks and lead on the financial side of the agreement. Our independent feasibility studies, combined with a cost analysis and power price forecasts will help avoid expensive mistakes when choosing the right setup.
DNV’s experts can help design a procurement strategy to maximize the lifetime of installation to bring the best value for money. A green energy strategy should not only reduce carbon footprint but also bring the best return on investment.
References
1 RE100 is the global corporate renewable energy initiative bringing together hundreds of large and ambitious businesses committed to 100% renewable electricity while SBTi defines and promotes best practice in emissions reductions and net-zero targets in line with climate science.
2 What is the average payback period of a solar PV installation? | Centrica Business Solutions