Corporate sustainability and energy professionals around the world are discovering that their efforts to meet renewable energy goals can also bring about changes to the electric grid which are essential for deep decarbonization.
In this blog, we share three ways companies can power-up their renewable energy procurement strategy while also supporting a rapid transition from an electric grid highly dependent on fossil fuels, to one that dishes out clean electricity for all its customers.
The Baseline Renewable Energy Approach – acquiring renewable MWhs to meet annual electricity use
Companies pursuing a renewable energy target are typically guided and informed by the most common greenhouse gas accounting standards and industry initiatives. The “Baseline” approach meets the requirements of these standards without adding supplemental objectives, and is often the first step taken by organizations addressing their Scope 2 electricity emissions.
This approach involves companies’ gathering their electricity use data and securing renewable energy supply in volumes that match their annual usage, region-by-region. (Though the definition of “region” is not straightforward, it’s often a country or a connected multi-country area.) Baseline approach procurements may result in contracts for off-the-shelf green offerings from retail energy suppliers or in renewable certificate purchases. In such cases, the purchases derive from projects already on the grid and create an indirect market price signal as to the value of renewable energy.
This option presents the lowest barrier to entry and is a great way to make quick progress, secure a renewable energy budget line item, and build momentum for future renewable energy initiatives.
Power-up #1, The Impact Approach: Long-term commitment to a new renewable energy project
Today, the most common step-up from the Baseline approach is to implement a procurement strategy with the intent to bring a new renewable energy project to the grid. We call this the Impact approach.
To achieve impact, companies make long-term purchase commitments to projects still under development, enabling those projects to complete the development process and bring new renewable energy online. As with the Baseline approach, companies target (up to) a renewable supply quantity that matches their energy use on an annual basis.
With this approach, there is a straightforward relationship between a company’s procurement activity and a specific new project coming to fruition, providing the company with common-sense real-world results as well as compelling storytelling opportunities for its stakeholders.
Over the past 5+ years, the contracting norms, procurement methods, and early adopter challenges have been worked through in many geographies, making this more sophisticated option accessible to many companies. Common approaches include signing a physical or virtual power purchase agreement with a project developer, participating in a new-project green tariff offered by a supplier, or committing to a long-term project subsidy via a renewable certificate offtake agreement (in all cases the renewable certificates associated with the project’s generation must be secured).
This Impact option can also offer certain cost benefits to companies, especially when compared to the Baseline approach. As noted below, though, if a procurement’s “true north” is striking an optimal cost-risk economic balance among all possible renewable projects, the procurement may sacrifice some, many, or even all of the climate benefits which were, perhaps, the purpose of the initiative in the first place.
Power-up #2, The Decarbonization Approach: Amplifying impact to bring about projects that displace the dirtiest energy sources
In the simplest of terms, bringing any new renewable energy to the grid is a climate-positive action. But new projects are not equal in their effect on greenhouse gas emissions, even though they appear to be equal on corporate greenhouse gas accounting ledgers.
Therefore some companies are now turning to newly available data tools and procurement approaches to purposefully select Impact projects which enhance the climate benefit of their procurement efforts.
Electric grids are dynamic physical-economic-policy systems that respond to change in ways that are not entirely clear-cut. Even so, big data tools can now model changes in greenhouse gas emissions driven by a new project with enough accuracy to guide decisions. One important facet of these models is that they consider grid emissions on an hourly basis, a critical level of granularity for understanding the impact of deploying wind and solar power, resources whose generation varies hour-to-hour.
Using such tools to inform long-term commitments can have important near-term implications, enabling companies to accelerate emission reductions in this critical decade. And as more companies work to bring new projects to the grid, refining procurement criteria to focus on reducing grid emissions is essential to achieving the underlying objective of this work.
Power-up #3, Reframe the Goal Approach: Commit to new renewables that reduce grid emissions in line with the emissions your energy supply actually creates.
One criticism of the approaches described above, is that the underlying objective (matching annual MWh of load to annual MWh of renewables) does not attain the implied climate goal of eliminating or mitigating the greenhouse gas emissions resulting from the electricity supplying company facilities.
Matching annual electricity load with 100% solar energy, for example – whether via PPAs or certificates – will not decarbonize the electricity serving the facility, nor will it with any certainty change the grid’s greenhouse gas emissions (even new projects can have adverse effects under some conditions).
To address these challenges, some organizations are pursuing alternative approaches less focused on obtaining renewable MWh, and more fully focused on reducing grid emissions and/or obtaining a clean, local energy supply that matches hour-by-hour facility load as closely as possible.
These two approaches – aim for an emissions reduction number without concern for how many MWh of new generation this requires; and/or build a set of clean supply contracts on the local grid to match hourly load (“24/7 clean energy”) – are as yet uncommon. Both reframe the energy procurement task with a clear focus on climate change, but have drawbacks. The “emission reduction” approach is accessible, but may not result in a zero Scope 2 emissions profile on a corporate accounting ledger. The 24/7 clean energy approach is difficult to execute – indeed, one of the objectives of companies pursuing it today is to expose the difficulties and begin problem-solving initiatives.
A call to action
While the pace of change and innovation in the renewable energy sector is fast, it is not nearly fast enough. Here we sit, with an embarrassment of riches! We have a cost-effective way to create clean electricity to serve the vast majority of our energy needs worldwide! Yet so many of us are choosing small, incremental steps toward our necessary future.
Our community can do better. We must decarbonize as much as possible, as fast as possible. By adopting more climate-focused procurement goals, considering project technologies and locations, leveraging tools and data, and executing with speed, you can land on a corporate renewable energy procurement strategy that better balances its impact with its risk and cost. By utilizing these techniques even while keeping your “why” central to decision making, companies can actualize a deeper level of impact through their renewable energy procurement.