The expectation for organizations to act on climate change is increasing, and meeting that expectation requires a foundational understanding of the elements of decarbonization. Explore our guide on renewable electricity sourcing and discover how to utilize this key lever in your decarbonization strategy.
The evolving energy marketing and expanding number of renewable energy options can be a barrier to finding the right solution. But, taking a strategic approach to decarbonization that starts with the basics can equip an organization with the knowledge they need to navigate hurdles and build successful sustainability solutions.
Corporates recognize that switching to renewable electricity can be a cost-effective way to reduce their greenhouse gas emissions and that the risk of inaction is higher than the cost of investing in a green future. Being ahead of the curve is a competitive advantage.
A common challenge, whether this is your first or next renewable electricity purchase, is knowing where to start. A roadmap for reducing carbon emissions requires awareness of your current and future needs as well as the renewable electricity options and the optimal mix for each geographical location.
Renewable electricity markets and sentiments toward various options are evolving rapidly. Demand for the best solutions is more than robust – especially with spiraling electricity prices. Paper-based solutions do not sufficiently mitigate market and reputation risk, raising demand for high-quality, future-proof solutions.
A strong renewable electricity strategy requires an integrated approach to supply decisions. It should consider both near and long-term budget priorities, market conditions, and established business processes. There is no quick decarbonization fix. Renewable electricity sourcing is one piece of a larger decarbonization puzzle. Leveraging multiple decarbonization options simultaneously is the way forward.
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EACs, such as Guarantees of Origin (GOs), Renewable Energy Certificates (RECs), International REC Standard (I-RECs)
Contract: Usually 1 year
Corporate physical and virtual power purchase agreements with existing or new build renewable electricity assets
Contract: 3-20 years
Delivery of bundled physical electricity and certificates
Contract: 1-3 years
Self-owned renewables, such as solar rooftop via investments or leasing options
Typical asset lifetime: 10-25 years
Integrating renewable electricity improves the environmental performance of an organization can hedge against rising energy costs, open new revenue streams and enhance the brand value. The objective, measurable benefits of a strong renewable energy strategy include:
Renewable energy is most often used to displace or offset Scope 2 greenhouse gas emissions and represents the most effective carbon reduction tool for many organizations.
Renewable energy can provide savings against wholesale market prices, and reduce budget exposure to price volatility and distributed energy resources can reduce peak demand charges.
Sourcing renewable electricity also provides softer benefits, such as enhanced brand value. Renewable energy programs may strengthen relationships across an organization’s value chain – from customers to employees to vendors and investors. Organizations are increasingly using renewable energy to differentiate themselves in their markets and grow revenue. Sourcing also allows for lower cost of capital. Leading lenders, investors, and credit rating agencies around the world have all highlighted environmental performance as an increasingly important measure of an organization’s risk, and green bonds have proven an effective way to raise cheap debt.
Renewable electricity sourcing solutions are a flexible option to lower scope 2 emissions associated with purchased electricity and support the renewable energy market. Companies are engaged and will acquire more renewable electricity solutions if they are available on the market. It is a fashionable solution and widely used. Looking just at RE100 companies, to reach their goal of 100% renewable electricity, more renewable electricity will be needed in the future. This will only increase as more members join. The need for renewable electricity beyond these large consumers is also accelerating as companies strive to keep pace.
Energy prices have been headline news this year. After a period of relative stability, prices have risen sharply (avg. of 250% across the world since Jan. 2021) to unprecedented levels in a ‘perfect storm’ of events including recovery from the Covid-19 pandemic, inflation and the war in Ukraine, creating tumult on the global natural gas market, pushing up electricity prices. Energy buyers around the world have been caught out by the speed and scale of these price increases and are facing the prospect of huge, unbudgeted bills for natural gas and electricity. In all instances, early renewable electricity adopters have potentially gained a commercial advantage while accelerating the achievement of sustainability goals, while those with on-site solar installations have further hedged against price instability.
As the renewable electricity market and sentiment about EACs rapidly evolves, we have entered a new stage. Procuring renewable electricity certificates on the market has been an easy and cost-effective way for businesses to reduce their greenhouse gas emissions in line with environmental commitments. Companies with good credit had no difficulty acquiring certificates because there were so many projects available. Now, the availability of each option is in inverse proportion to its quality and economics.
Questions have been raised as to whether all EACs are equally credible regarding their contribution to combatting climate change. This implies that companies must perform due diligence when integrating them into their carbon strategy, for instance, to ensure certificates are not attached to old projects that have already delivered their positive impact, rather than to newer projects that generate unique renewable electricity.
The sharp rise of electricity prices this year has demonstrated the risk of energy market instability. It is clear that a decarbonization strategy based solely on paper solutions is no longer a viable option.
Relying on EACs to meet climate commitment exposes companies to electricity price hikes they have not budgeted. The higher-quality options mitigate exposure to price volatility, causing demand to surge. This brings further complications. In addition to demand threatening to outpace supply, the time lag between financing a project and its delivery of carbon-free electricity could put the future availability of high-quality at risk, or at least make it very expensive. A multifaceted approach in which renewable electricity sourcing is but one element of a broader decarbonization roadmap is the way forward.
Spiking prices and higher volatility in 2021/2022
Additionality is not guaranteed, increasing reputational risk
Longer term contracts (“PPA for certificates only”)
High demand and fewer projects created a sellers' market with higher prices (+30-50%)
Can be complex and take more time to assess and implement
Markets opening up to PPAs, etc. are becoming the standard
Additionality is not guaranteed, increasing reputational risk
High-additionality green retail with identified and owned assets
Green retail solutions becoming more like PPA solutions
More and more for offsite if land is available
Volume of renewable electricity produced only covers 2-5% of electricity needs
This concerns the availability of renewable energy sourcing options depending on the location, complexity and time for implementation, liquidity as an option to terminate/ transfer the contract (e.g., PPA).
This concerns the additionality as a degree of real contribution to fight climate change (vs. “greenwashing”) and to boost the reputation of a company as a differentiator, temporality – short-term compliance vs. “future-proof” solutions, load coverage, technical complexity and risks.
This concerns the costs, profitability, investments or financial commitment required, payback period, term length, commercial complexity and risks etc.
The stakes for decarbonization are high, the internal and external pressure for action will continue to rise and, while taking action can seem daunting, leveraging this foundational knowledge will allow organizations to set a clear path for decarbonization success.
Let’s work together to accelerate your decarbonization strategy.