During the first week of October, some of my European colleagues and I had the pleasure of attending RE-Source in Amsterdam. Over 1,000 key energy players and businesses, including more than 200 buyers, gathered to discuss and enhance their direct renewable energy sourcing and mitigate their risks.
Given the uncertainty of the current energy and political landscape, the event’s timing could not have been more appropriate. How can businesses advance their sustainability efforts amidst the ongoing challenges? What should be changed in our approach to sourcing? Which are the key drivers in moving forward?
AN EVOLVING LANDSCAPE
Senior Director, Energy & Climate Practice, Tyler Espinoza, speaking at RE-Source 2022 session “Going further: Using procurement to maximise system sustainability.” Image courtesy by RE-Source.
During the multiple sessions, panels and roundtables, different market experts shared their views and highlighted the challenges that need to be addressed.
The first challenge is the market dynamics. We live in unprecedented times with the energy crisis and extremely high prices that increase uncertainty in almost all aspects of the market. These extraordinary times call for a commitment to energy transition goals, an acceleration of actions taken, and innovative solutions.
The regulatory changes are a cause of hesitancy for developers and buyers. This was addressed in the opening session of RE-Source where several market players stressed the need to be more practical about timing new regulatory changes and keep simplicity in the implementation procedures.
Just last month, the European Commission proposed a price cap of 180€/MWh for non-gas fuelled generators, and the implementation would be left to the individual Member States.
The second challenge is the slow permitting procedures. The need to speed up the deployment of renewable energy is key to tackling the energy crisis, and faster permitting for wind and solar projects is a crucial facilitator.
The third piece was both a highlight and a challenge, with increased innovation and enhanced technology. New technologies and commodities are expected to enter the market, e.g., hydrogen, prosumers, and flexible assets. Existing mechanisms will be further enhanced, e.g., 24/7 CFE matching. The need for a sound and functioning market design and a reliable interconnected grid on transmission and distribution levels were highlighted in the discussions, particularly in the session on “Grid development to foster RES and PPAs.”
CHANGING APPROACH TO PPAs
Considering the above-mentioned challenges, changes to the PPA market are inevitable. A common remark from attendees was that the dynamics have shifted towards a seller’s market over the past years. However, both sides of the transaction are affected by uncertainty in price forecasts, permitting, supply chain risks, and more. Ultimately, pricing is important, but the focus on the Commercial Operation Date (COD) and its flexibility is continuously increasing.
Therefore, when seeking internal permission for a power purchase agreement, early engagement of all stakeholders is essential to establish a good understanding of what it means to enter into long-term agreements. Moreover, it’s crucial to keep a spirit of partnership in the negotiations between sellers and buyers and start considering creative solutions and products.
ROLE OF CORPORATE SOURCING WITHIN THE ESG FRAMEWORK
In the session: “Going further: Using procurement to maximise system sustainability,” our Senior Director, Energy & Climate Practice, Tyler Espinoza, made a critical remark: “PPAs just aren’t good enough anymore. Corporate sourcing represents a significant opportunity to decarbonise, but it’s just one aspect of ESG.”
Corporate buyers can leverage their PPA procurements to advance other ESG initiatives in a meaningful way. He explained more ways to help clients advance their initiative:
All in all, standards play a pivotal role in advancing the net zero journey.
HEADING INTO THE FUTURE AT FULL SPEED
One of the main takeaways of RE-Source was that the current uncertainty should not act as a “pause” button, but rather as motivation for the future. Most attendees agreed that the faster deployment of renewables plays a pivotal role in reducing Europe’s dependency on fossil fuels and in meeting the climate goals. That’s why a “wait-and-see” attitude should be replaced by a “decide-and-do” one.
3Degrees supports clients worldwide in their sustainability and decarbonisation journey, so if you’re interested, don’t hesitate to get in touch.