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19 July 2023 | Global
The science is clear. We need to act on climate change today. In order to implement Net Zero ambitions, organizations must know how to overcome barriers to climate action, roll out a decarbonization program over multiple sites and multiple countries, and identify technological, financial, and procurement synergies.
This podcast explores how on-site solar is a solution to the challenge of finding a balance between financing sustainability projects and investing in core business activities.
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Transcript has been edited for clarity
Clemence: Hello and welcome to decarbonACTION. The podcast is where we discuss concrete actions, strategies, and innovative models to reduce carbon emissions at scale and create a more climate-friendly future.
From establishing actionable roadmaps to managing underground execution, the science is clear, we need to act on climate change today. This podcast series is all about implementing decarbonization in a company, how to overcome barriers to climate actions, how to roll out a decarbonization program over multiple sites and multiple countries, and to identify technological, financial, and procurement synergies and leverage them.
Today, our topic is on-site solar programs. But before we dive in, let me introduce our guests for today. Sebastian Wagemans is the managing director at ENGIE Impact with over 20 years of international experience in the energy industry. He has worked with large industrials, utilities, and governments, and he has a complete understanding of the sector value chain, from business model definitions to techno-economic modeling and implementation of energy projects. Welcome, Sebastian.
Let's move into our topic. We recently published a Net Zero report, which shows that organizations of all sizes are looking at renewable energy to improve financial and environmental performance, with over 30% of them considering on-site renewable generation, such as on-site solar, and for good reason. One challenge that organizations face is finding a balance between financing sustainability projects, versus investing in their core business to increase their own production capacities. And that's where today's topic comes into the picture. On-site solar can deliver both immediate and long-term benefits. Let's deep dive to understand.
Sebastian, first, can you explain what an on-site solar program is and how it materializes?
Sebastian: A on-site solar program is a great way to decrease your greenhouse gas emission while mastering your cost and decreasing your cost. The concept of a global on-site program is to maximize the generation of electricity from renewable sources that you can do on all your sites around the world. The technology which is the most suitable for that at the moment is the photovoltaic. Basically, we are assessing on a great number of sites, what the feasibility is to install photovoltaic panels on the roof, on the potentially free ground or free land, or on the car park. Once we have assessed this capability, and we know what can be installed, let’s look at the business case. How do we manage to have a price for electricity which is lower than what you are purchasing from the grid? With this kind of scheme, you are able to decrease your greenhouse gas emission while decreasing your cost as well, which is a wonderful model for decarbonization and energy transition. And the beauty of the model is also the fact that you don't need to invest by yourself, you can have a third party financing those assets and selling you those megawatt hours at a lower cost than what you pay on the grid.
Clemence: We often talk about on-site solar PPA power purchase agreements, can you explain in more detail how these contracts work for on-site solar projects?
Sebastian: So, what's the concept of a power purchase agreement? A virtual power purchase agreement is a business model where a third party invests in renewable assets that are installed on your site and sell you the energy that is provided by those renewable assets. So basically, we are using your land to install photovoltaic panels, convert it into electricity, and inject it into your city. This allows you to receive green electricity at a lower price than your grid supply. it's a great way to decarbonize, while not having an impact on your balance sheet.
Clemence: Thank you, Sebastian. And so just to understand, will that supply of electricity cover all the electricity of my site? Can you explain some of the different cases that you see regarding the coverage of electricity needs?
Sebastian: It depends from one industry to another. But usually, the share of electricity that you can cover with an on-site program remains limited between 5% to 15%, to 20%, or something like that. If you don't go for battery, usually you are limited by the space and an on-site program requires quite a lot of space, if you want to be fully independent from the grid. There is a second point that you need to take into account. We want to ensure, usually, that we don't export any of them on the grid. So, when we are doing the sizing of those assets, we need to ensure that when the PV panels are producing at their maximum capacity, around noon, you are able to consume everything. But this means that outside this big power time, you will have less energy produced. Usually, you are around 10% of your site. It's not everything, but it's a meaningful tool to help reduce your greenhouse gas emission.
Clemence: You mentioned that if you have multiple sites in different countries, it could be relevant to do an on-site solar program. What's the difference between having just one site and doing a single project? What's the benefit of doing it in a more global programming and systematic approach?
Sebastian: There are different benefits, the first one is really about acceleration. What we see if we are going in a fully decentralized program, every site manages independent procurement with different suppliers and it takes time in order to implement that. Additionally, those sites don't have expertise in PV, so they need to learn how to control this kind of thing. The second element is you can foster economies of scale. If you buy one megawatt or if you buy 50 megawatts of PV, basically, you don't have the same price. You don't have purchasing synergies. But it's not only on the purchase that you can have synergy, it's also on the financing cost. When you are doing a power purchase agreement, you are also getting your asset finance, and so having a larger base of financing will ensure that you can have better conditions. And then finally, this is something that is quite interesting as well, you can have a portfolio effect between different sites. The price of your electricity from when we implement renewable energy is highly dependent on your renewable potential on-site. If you have a site in the south of France and a site in the north of Germany, basically you will not produce the same amount of electricity with the same PV panel. And if you have a global program, you can put a portfolio effect, a cross-subsidy, between the different sites in order to ensure that each of the sides will benefit. Because for some side we see that PV is interesting from a greenhouse gas point of view but may not be fully interesting from an economic perspective. If you are taking a high number of sites, you are able to have a cross-subsidy effect between the different sites which can be quite interesting in order to maximize their potential.
Clemence: To summarize, with a program approach, I will accelerate and go faster, take advantage of economies of scale on different aspects, and perhaps be able to do more projects with more megawatts installed of solar technology. Right?
Sebastian: Exactly. You understood the point.
Clemence: Let's assume I am an industrial company with production sites in different countries. What are the criteria to make an on-site solar program relevant for me?
Sebastian: That's a very good question. There are different criteria that we can consider. First, it's do I have surfaces available where I can put PV? It can be on the roof, it can be on the ground or it can be on the car park. Another question that is quite important is, do I own the site or I am leasing it? If I am leasing it, there is a major piece about landlord engagement to ensure that they accept us putting third-party PV panels on their property. Having a first assessment of that, and a pre-discussion with the landlord to see if they would accept those kinds of schemes or not, is quite important. Then collecting the data about energy consumption on the site, and potentially the load profile as well that we are doing today, will be quite important in order to assess the potential. That's really the first criterion that we need to look at to assess the feasibility of the project.
Clemence: Let's assume that I start an on-site solar program, what would be, in more detail, the different steps of the program from its inception to the delivery of the megawatt hours?
Sebastian: The different steps are, first, we do a feasibility assessment. Basically, what can we install on your site and what’s the business case? In order to have a non-binding offer, we identify the big number before deep diving to refine what places we can install it. Then we look at what will be the associated cost, and if it will translate into an energy product. Once we agree on this concept and the potential price, we will have a second element, the contractual condition. Those contract recommendations will change from one country to another, because the specificity of those on-site solar programs is the complexity of the regulation as well. There are no two countries in Europe or worldwide, where you will have exactly the same regulation. Having somebody deeply understand the regulation, what can be done, and how you translate that into a contract to ensure that you will be able to go off the balance sheet is very important. That's really the second step, which is working on contractual conditions and ensuring that you are fully onboarded, and we'll take those schemes off the balance sheet. Once we are aligned on the contract, and the business of the price, we can go on to the binding of stage where we are committing to a final price. If we are going for rooftop structural studies, we will ensure that the stability of the roof will not be impaired by the PV plan. Once we have signed the contract, then we start the implementation, installation of the PV panel on the roof or on the agreed surfaces, the connection of those PV panels to an inverter, then connecting the inverter to your electricity grid, and the start of supplying energy.
Clemence: How long does this contract last? For how long will I receive this electricity?
Sebastian: It depends on the business case, but this can last from 15 to 25 years.
Clemence: Okay, so long time.
Sebastian: Indeed. The idea is to be able to minimize, as much as possible, the electricity price that you can pay. The longer the contract that you can have, the lower price of electricity you can have.
Clemence: Will you need to replace the panel during that period?
Sebastian: With a power purchase agreement, operation and maintenance are included. The lifetime of a PV panel is 25 years, and the lifetime of an inventor is around 10 years, but all the operation maintenance is covered by the third party supplying the power purchase agreement.
Clemence: It looks very attractive, so why are they, not PV panels everywhere?
Sebastian: We see them more and more, but what we see is their complexity to implement. That's when being accompanied in that journey is very key. What we see as well, it's the PV panel have decreased in price drastically over the last 10 years. So now, we are really competitive. We see clearly a very strong acceleration, which is driven by decreasing costs and regulations on new buildings, you need to ensure that you have energy production as well. And then by the willingness of the company to go for greenhouse gas emission decrease.
There are three key drivers that accelerate those. Now there is a complexity barrier that you need to work on. basically, mobilize a portfolio of 50-100 sites, having a different project manager in each site launching an RFP without knowing the technology, the key points to look at, the contractual conditions, and the regulatory frameworks in place. It's a massive complexity for a company to start. So, the big advantage of those global on-site programs is that we are able to implement an end-to-end solution from the strategy up to the implementation. So, assess the feasibility, convert that into a firm price of electricity, and then support all the implementation. That's a great way to accelerate your decarbonization while decreasing your cost and increasing your energy independence. That's another point that we haven't discussed yet. But, we saw during the start of the Ukraine war an increase in electricity and gas prices. With the power purchase agreement mechanism, you have an instrument for a share of your electricity that can fix it for the long term, so you are not exposed to the market. It does not cover your consumption completely, but it already gives you a kind of insurance of price for a certain volume.
Clemence: To summarize, it is a stabilized part of my electricity supply at a cheaper price. And in this program, I have an expert who will support me in order to go faster and remove complexity. Is that right?
Sebastian: Exactly.
Clemence: Thank you, Sebastian. Can you share a project example you've been working on? And what were your learnings out of this project?
Sebastian: We are currently working for a large automotive customer, where we are implementing an on-site program for about 120 sites in 12 countries. The key learning that we see is, first of all, landlord engagement. This is crucial from the start of the program. If we don't ensure that, we can drop a very high number of sites and spend time on sites where there is no need. Secondly, having a clear view of the surface available and the policy about the roof. We see that some companies, for fire prevention measures, have decided not to go for rooftop installation. It's very important that you are fully decided from the start about using the rooftop and what are the advantages and disadvantages.
The advantage of the rooftop is that you decrease the price of your energy because you don't need a new structure, it's mainly just the panels. So, it's very easy to implement. But you need to be careful about how you handle your insurance and that you follow the insurance guideline to avoid any fire risk. Some companies don't want to take any risk relative to that. So having a clear view or understanding of the implication of the different types of technology and which ones you want to go for is very important.
Clemence: And you could help me to assess these different options, right?
Sebastian: Yes, of course. And we can even have a specific fire protection assessment, to ensure that you are weighing the regulation. The third important part is about aligning on a standard type of contract. Regulatory frameworks are quite different from country to country, but there are some big line items that you can align quite rapidly. These are the driving principles of your contract that you will translate into the different locations. Having a clear understanding of what are your needs in terms of contracting, what are you ready to accept in terms of liability, what are you ready to accept in terms of insurance coverage, what are you ready to accept in terms of duration of PPA, is something which is quite important as well.
Clemence: So, lots of things to define and decide in order then for the program to run smoothly?
Sebastian: Yes, and to define those things, having a strong government is very important to a program at a central level, that is deeply rooted in local interaction. We need to be both global, because there are some decisions that need to be taken at the corporate level, but also local. So putting governance in place where all teams can meet at the same time is important. This includes the site team, which knows its technical reality, the finance team, in order to know how we consolidate the contract and the impact on the balance sheet, the sustainability department, in order to have the impact on the CO2 emission, and operations, in order to mitigate the risk.
So engaging in on-site power is a transformation in a way, and so we need to have the right governance in place. It is nice to have a strong partner to support you in that journey because you are not necessarily a specialist in on-site production. So having somebody that knows all those complexities, and that supports you to drive the project and the governance and to accelerate the decision-making process is key.
Clemence: So, as I understand, the notation of stakeholder engagement and having the right stakeholders at the table to make the decisions, both at the global and the local level, is important. But also including the right experts, whether they are internal or external is key for such programs, is that correct?
Sebastian: Exactly. And, when you start a program like that, it is hard to anticipate which stakeholder you will need to to ensure that you can get the job done.
Clemence: Yeah, that's why you talk about real transformation. I understand that through the power purchase agreement, I will purchase this green electricity out of solar panels. But at the end, what's the difference between purchasing another type of green electricity is through so called renewable energy certificates. Can you explain that?
Sebastian: Great question. One of the key interests of this solar on-site program is the fact that you are bringing new capacity on the grid, you are bringing additionally. This means that with an on-site solar program, you are not able to cover 100% of your energy consumption. But at least you show your strong commitment to bringing new capacity with the space that you have available on your site. In terms of reputation and brand building, this is quite interesting. And then you need to find an alternative way to source the 90% of your energy consumption remaining. There are different solutions with different additionality that you can use. The off-site power purchase agreement is one which is bringing the most additionality. If we combine on-site PPA and off-site PPA, you are really showing your commitment to decreasing greenhouse gas and building new capacity that is connected to the grid.
Clemence: That's what you mean by additionality, basically adding new capacities for one's own usage or that I would purchase through the grid. Right?
Sebastian: Exactly. You contribute to transforming the energy grid by adding new capacity.
Clemence: Thank you so much, Sebastian, for sharing your expertise with us today. It was a real pleasure to have you.
Let's work together to implement your decarbonization strategy.
