The challenges of sourcing renewables to meet net zero objectives
For any business aiming to achieve net zero carbon by the UK 2050 target or before, sourcing renewable electricity is an urgent priority. The shift towards electric vehicles and the replacement of gas-powered heating with electric heat pumps mean that electricity is set to become an increasingly significant cost for all businesses. Sourcing that electricity from a renewable source will therefore become a central plank of any carbon-reduction programme.
Navigating a complex market
In the current market for renewable electricity, for even the most sophisticated energy buyers, the choice and complexity of options available often makes the decision process harder. For most businesses, long-term Corporate Power Purchase Agreements (CPPAs) are a new concept, even for experienced energy buyers. They are complex, hard to understand, and can involve significant legal overheads. For decision-makers at any business that has never made this type of arrangement before, the complexity and long-term nature of PPAs can make them seem too risky – particularly when the future of energy prices is so uncertain.
Building confidence in PPAs
The difficulty with long-term CPPAs is the requirement to commit to a fixed price for up to 15 years. That’s why, at ENGIE, we have developed shorter-term corporate PPAs for businesses that might baulk at a 15-year arrangement. We offer a five-year option that includes the energy supply and a built-in PPA. It’s a really simple arrangement, all bundled up into one contract that doesn’t require a lot of expertise to understand or manage. It’s not going to get a new renewable plant off the ground as an original long-term CPPA would, but it does give businesses new to this market the chance to experience purchasing direct from a renewable source via a CPPA.
The aim is to make CPPAs more accessible to more businesses – not just the relatively few with the ability to commit to the long term. The hope is that once businesses gain confidence with this type of arrangement over a five-year period, they may be more inclined to explore longer-term CPPAs with new-build generators, or other market and regulatory changes may have happened which would help to achieve the additionality required.
Flexible purchasing options
In a market where developing new renewable capacity is increasingly difficult, the challenge for energy suppliers is to give businesses what they need, for a price they are willing to pay, and in a risk bracket they are comfortable with. Businesses keen to meet their own renewable sourcing targets are looking for assurance and assistance from suppliers.
One way that suppliers can help businesses wary of agreeing fixed-price contracts is to offer low-risk flexible pricing options. Similar to the flexible pricing available on many energy supply deals, these allow businesses to purchase renewable energy in tranches at different times. A portion of energy requirements can be purchased in advance for a fixed price, then further tranches can be purchased for different seasons or quarters when prices are favourable.
Mix and match to meet demand
Innovative suppliers like ENGIE allow businesses to buy different proportions of their requirements through different arrangements. So, for example, a business could purchase a third of its load through a 15-year PPA, and another third via a five-year corporate PPA – both at a fixed-price. Then the final third could be purchased through a flexible green electricity supply contract, which offers the opportunity to access market-reflective prices.
As the market develops, more options are becoming available to enable businesses to access the renewable electricity they need to achieve net-zero carbon. These can, of course, be combined with energy efficiency measures that minimise energy usage and carbon emissions.
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Innovation for the future
Businesses and energy suppliers alike are becoming more flexible and ingenious when it comes to finding solutions that enable the vision of 100% renewable electricity to become a reality. As more options emerge, and opportunities to mix and match different strategies evolve, the market will develop in new ways.