Accelerating the path to Net Zero requires all companies to consider critical questions about the steps to take and strategies to adopt to meet both short- and long-term goals, as decarbonization is a multi-decade endeavor in a quick-win world.
One challenge organizations face is striking a balance between financing sustainability projects – which are typically not aligned with the return-on-investment parameters corporations expect – and investing in their core business. There is at least one decarbonization lever that meets this challenge without compromising between the short and long-term: on-site solar photovoltaic (PV) programs for Power Purchase Agreements (PPA), which deliver both immediate and long-term benefits.
Our research has shown that organizations of all sizes are looking at renewable energy to improve financial and environmental performance, with over 30% considering onsite renewables generation a priority and with good reason. Renewable energy is one of the most efficient tools for organizations looking to reduce their carbon footprint, and as the available options have matured in recent years, it has become more available and more affordable than ever before.
In the decade between 2010 and 2020, the cost of renewable energy technologies plummeted: solar energy fell by 85%, wind energy by 55%, and lithium-ion batteries by 85%, lowering the procurement threshold. Gone are the days when renewables only enhanced the environmental performance of an organization. Particularly today, with geopolitical events leading to increased volatility in the gas and electricity markets, self-generated electricity provides energy supply security, serves as a hedge against rising energy costs, and can lower corporate costs while enhancing brand value.
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On-site Solar Programs (OSP) is an excellent way to take advantage of this hedge at scale. The model works as follows: a company looking to lower its carbon footprint across multiple sites enters a partnership with an energy service provider to deliver electricity via solar panels installed at the client’s facilities, without the client needing to purchase or maintain the energy-generating assets. It is CAPEX-free and OPEX-friendly for the client. The service provider is responsible for managing the implementation of a solar array at its sites for the duration of the contract, which is typically a long-term (10-25 year) on-site PPA for the supply and sale of the energy generated at a pre-agreed rate, lower than the market price.
It is no surprise that the OSP business model is becoming a key element of integrated decarbonization strategies for corporations looking to decarbonize multiple sites, potentially across multiple geographies. It provides multiple advantages to corporations, decarbonizing energy consumption while delivering the cost benefits of self-generation. It also decreases one’s dependence on both the energy market and the electricity grid, particularly when combined with battery energy storage (BES) to enable greater self-consumption of energy produced. Additionally, it answers (or anticipates) regulatory requirements that increasingly impose on-site generation. It is clear that companies must take more ownership of their renewable energy supply, and the OSP model is an efficacious way to do just that with no capital outlay.
Whether motivated by financial considerations, driven by government mandates, responding to stakeholder expectations, or finding a method to honor social responsibility initiatives and environmental goals, renewables are emerging as a viable alternative to fossil fuel-based energy for organizations. Companies should be seizing the opportunities in front of them, and solar is one of the first options they should consider.
On-site solar PV scores high on the three criteria by which renewable energy is assessed: feasibility, quality, and economics.
The downside to solar PV is that it generates limited volumes of energy, usually only covering a modest percentage of a site's needs, depending on available surface area and intensity of consumption. Integrated solutions, however, can expand onsite production and consumption coverage. Holistic optimization of site demand might include pairing a rooftop solar PV installation with battery storage or electric vehicle charging stations to expand the amount of generated electricity that can be locally captured.
The excess electricity from one site can be made available across additional sites, with one facility that may have more available space for solar supporting other sites to take advantage of its full potential. Any energy not consumed in situ may be valorized by injecting it into the power grid, depending on the local regulatory framework, or sharing it with neighboring businesses. These solutions are also possible in an onsite solar program model where multiple sites and solutions can be leveraged.
Taking full advantage of an OSP means adopting a multi-site approach, as opposed to focusing on initiatives at individual sites. Portfolio-wide programs developed with a global partner that guarantees the quality and performance of the installations raises the potential for standardization across sites, thereby expanding and accelerating overall deployment. Taken together, these considerations highlight at least three key benefits of an OSP.
As an added bonus, OSP contributes to a company’s energy security and independence. While a site cannot simply unplug from its utility company once it has a solar panel array, under the right conditions solar PV can consistently reduce its dependence on external sources of electricity, providing a modest buffer against the type of energy market volatility we have experienced in the past couple of years.
Setting up an OSP involves not only assessing the generation potential of solar arrays at multiple sites but also end-to-end project management. The service provider, working with the client’s plant managers, business units and engineering teams to specify the scope of the project, site lists and performance requirements, starts by performing a techno-economic portfolio assessment. This is followed by a desktop assessment to calculate the feasibility, capacity potential, consumption needs, delivery risks and the commercial model to be used, resulting in the issuance of a non-binding offer.
If the analysis delivers a positive assessment, on-site visits with local developers are conducted to assess the soundness of the site buildings as well as technical risks and opportunities. Provided the sites are structurally capable of rooftop placement, or the site has sufficient unused land surrounding its buildings, a local agreement is negotiated. Not all sites will be owned by the business that operates them. Depending on the asset ownership profile, engagement with the landlord to ensure consent is key to the success of a solar project implemented on non-owned sites. Once these steps are completed, a detailed and binding techno-commercial offer is submitted.
The contracting process combines the commercial offer with the local agreement and establishes program delivery schedules, taking local regulations into account. It concludes by signing a PPA with the local developer for the delivery of energy generated at the client’s site. The aim is to make it a fully deconsolidated contract in which the on-site renewable assets do not appear on the client’s balance sheet. It is ultimately the provider that assumes responsibility for the design, financing, construction, reporting, operation and maintenance of the generation and distribution systems over the life of the contract.
For a multinational corporation, it is advantageous that the provider they select to manage the portfolio-wide solar project is an implementation-capable organization with a global reach, having entities in many countries capable of executing the project. Where it doesn’t have a physical presence, it should have an extensive network of partnerships with local developers to implement the agreed strategy and conduct close follow-up of the project. A central program management and global engineering team should serve as a bridge between the client and local developers to ensure optimal performance and guarantee that all health and safety standards are being observed.
The key differentiators of engaging an experienced service provider for an OSP is its ability to provide a reliable, centralized management office to coordinate and accelerate the process, to deal with potential regulatory and engineering barriers across regions.
A company may decide it wants to install its own solar PV at its various sites, and it might be more economically advantageous to purchase an installation that will pay itself back after about five years and then enjoy another 25 years of free energy. But they should consider the downsides of this approach: the initial capital outlay, the challenge of obtaining stakeholder buy-in, the potential failure to maximize load consumption, the need to sign additional contracts if storage or additional on-site PPAs are required, and, of course, regular O&M costs.
A fully-fledged, holistic OSP removes these issues, ensures price competitiveness and lowers to the lowest possible height the hurdles a corporate must clear to enter the energy-generation space and benefit from the multiple advantages of solar PV.
The client, a global specialist in electrical infrastructure, had made implementing on-site solar projects a priority on its sustainability roadmap. The goal of this initial collaboration was to rapidly assess the technical feasibility of installing solar arrays at twelve sites, to maximize the installed PV capacity and ensure price competitiveness. The scope of ENGIE Impact’s work covered the program development as well as the implementation of the project.
Starting with a framework agreement, ENGIE Impact and the site teams conducted a technical feasibility study and outlined a program management scheme, and then submitted a tender to receive offers from local developers. ENGIE Impact then steered the project through the installation of the solar panels and is responsible for the tracking and reporting.
The OSP ultimately started with five pilot sites in the United States and Mexico, with the potential in the next phase to extend it to the client’s sites around the world. Implementation of the program was accomplished by partnering with local developers. It provides contractual solutions (PPA, lease) with zero CAPEX for the client. The entire process only took 15 months from kick-off to commissioning, at which point the client had an installed PV capacity of 4.2MWp across the five sites, with a targeted result of avoiding over 9,000 tons of CO2 emissions annually during the 15-year contract.
On-site solar programs are going to increasingly become a standard lever used in every corporate decarbonization strategy. The OSP business model offers several benefits to the provider as well as the customer. For the service provider, it delivers a stable revenue stream through long-term contracts, as well as a way to finance the development of renewable energy projects. For the customer, it provides direct access to clean and reliable renewable energy without the financial burden of owning and maintaining the energy-generating assets. Naturally, they also benefit from energy cost savings and reduced carbon emissions, and the placement of solar panels at their facilities signals socially a commitment to decarbonization.
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