Best practice and market trends in renewable energy
Businesses are increasingly looking at how to make their electricity supply 100% renewable, and therefore climate neutral. Companies typically adopt complimentary approaches to reach their 100% renewable energy target, combining procurement methods such as green tariff contracts with suppliers, unbundled renewable energy attribute certificates (RECs), power purchase agreements (PPAs) and on-site generation projects. But among these options, what is best practice and which factors determine the methods companies choose?
Legislation is not the primary driver
The recent changes in the GHG Protocol regarding Scope 2 requirements means the purchase of certificates and green tariffs contributes towards companies’ zero emissions target. Yet while this has acted as a catalyst for companies to explore these markets, it is not the sole driver of the uptake of green electricity consumption. There are multiple drivers shaping commitments made by leading businesses regarding renewable energy procurement.
Guaranteeing quality sourcing of 100% renewable energy
Green tariff contracts are becoming more and more available in energy markets where renewable electricity generation is increasing. Suppliers are offering a guarantee of renewable electricity to the consumer by retiring the appropriate renewable energy certificates on their behalf. Leading suppliers are seeking accreditation of their renewable electricity products to remove any doubt that their supply is renewable and to remove any audit burden around Scope 2 market-based emissions. However, these green tariffs do not always differentiate the source of renewable electricity and therefore do not provide traceability, choice or transparency of green purchases. By contrast, RECs and PPAs allow purchasers to choose exactly where their energy comes from and how it is generated. This ability to localise energy production is highly valued by companies. They can directly support the generation of renewable energy making the surplus available to the markets and communities where they operate.
REC markets are gathering momentum. Companies see the uncertainty in some regions which do not support robust tracking mechanisms for renewable energy or provide the ability to directly purchase renewable energy as a short-term restraint. Although availability in the International REC market is limited and in its infancy, it is being monitored closely by companies who consider it to be an exciting opportunity to expand their renewable energy commitment, and help shape the direction of renewable development practices in developing regions.
The desire for additionality
The rapid expansion of PPAs is in part due to their ability to make a meaningful impact; they provide the greatest level of transparency and the ability to determine ‘additional’ development – enabling projects which are new as well as local. For those who have already achieved 100% renewable energy via the purchase of RECs they are now moving away from this in favour of direct purchasing with PPAs.
Going beyond this, some businesses prefer to create new sources that add clean energy to the grid. A growing amount of energy is being sourced by companies through their own on-site generation. Many have evaluated the benefits of small-scale on-site projects and are now expanding such efforts globally given their success.
Making a business case
The production of renewable energy comes at a premium cost as the energy certificates provide an additional income to the energy providers. However, such costs are increasingly seen as justifiable as the long-term value of renewable energy procurement resonates both internally within companies and externally in the investor community. In choosing to procure renewable energy companies can send a strong market signal to investors and policy makers that renewables make business sense.
Other routes are financially lucrative. PPAs reduce exposure to volatile fossil fuel prices and provide cost stability by guaranteeing a fixed price on electricity, and savings or even profits are possible through on-site generation of electricity as transaction costs are eliminated.
Public reputation and client expectations
Client expectations are a critical driver shaping companies’ procurement choices. Customers and shareholders alike have sustainability targets which must be aligned with for businesses to maintain a competitive advantage. Companies now recognise the value of publicly communicating a commitment to transitioning to 100% renewable energy. Increasingly, the benefits of RECs, details of PPA deals and on-site generation projects are being publicised in annual reports and via interviews, the details of which are often picked up on and praised by the press and wider industry.
Joining a community
Initiatives such as CDP, RE100 and the Dow Jones Sustainability Index are widely respected and recognised within the industry, and provide good avenues for guidance, knowledge sharing and engagement among leading businesses in renewable energy. These groups encourage best practice among leading businesses by setting high standards regarding renewable energy procurement which must be met to qualify or achieve a good score.