The changing energy landscape – and the implications for renewable generation
Renewable energy is in demand like never before. In recent years, there has been a huge increase in the number of businesses looking for green electricity contracts, from a base of almost no interest outside a few major corporations to a situation where most businesses have renewable energy on their minds.
Demand for greener supply chains
General public awareness of environmental issues, growing concern about climate change, and tough carbon-reduction targets have put renewable energy at the top of mind for many businesses. Consumers are driving increased demand for greener products and services, and businesses that deal directly with consumers are responding by producing more sustainable products and demanding greener supply chains.
For businesses looking to eliminate carbon from their operations and produce more environmentally friendly products, choosing greener energy supplies is an important step. A recent survey by ENGIE found that energy usage was the major contributor to carbon emissions for more than three quarters (79%) of businesses.
Commercial and regulatory drivers
There are commercial drivers too. Businesses don’t want to get left behind by competitors who are out-greening them. Regulatory pressure is also fuelling the drive towards renewable energy sourcing, particularly the reporting of carbon emissions and the push to meet the UK climate targets by 2050. Sourcing 100% renewable energy through appropriate contracts can allow businesses to report zero Scope 2 emissions associated with their operations.
Diversification in energy purchasing options
Businesses today want to know how and where their energy is generated, so they can meet their own carbon-reduction targets and provide greater clarity and specificity about their energy sources to consumers and stakeholders.
Energy suppliers have responded by developing a plethora of renewable energy purchasing options – from simple REGO-backed green supply contracts through to Corporate Power Purchase Agreements (CPPAs), which enable businesses to purchase directly from named renewable generators. CPPAs can provide the clarity many businesses want about exactly where their renewable energy is coming from, but are complex and come with risks.
The additionality challenge
The ultimate goal for renewable energy purchasing is additionality – supporting the development of new renewable generation assets that displace fossil-fuel-based generation. When CPPAs were originally devised, they enabled large corporate organisations to do just that. By matching new generation developments with guaranteed buyers for 15 years, these early CPPAs provided the payment assurances developers and investors needed to get new projects off the ground.
One solution to help meet the growing demand for renewable energy has been the introduction of shorter-term CPPAs. These create an agreement between a renewable generator and a business, enabling the business to state precisely where its energy is coming from. However, these five-year agreements are not sufficient to support the development of new generation plant, and tend to be drawn up with existing renewable generators. A generator may agree several short-term CPPAs with a number of business offtakers – unlike the one-to-one relationships set out in the original 15-year PPAs. This enables more businesses to dip their toe into the world of CPPAs and hopefully encourage longer term investment.
New ways to support renewable growth
The percentage of renewables supplied in the UK has grown steadily from 3.3%% in 2007 to 25% in 20191. 2020 was the first time that renewables consistently produced more than fossil fuels over the year2. During this period, developers benefited from various government subsidies and the confidence of investors, which enabled many new solar and onshore wind farms to be constructed. Now, with the removal of most subsidies, investments in new renewable developments are becoming more complex, and the funding options are far less clear.
1. Digest of UK Energy Statistics (DUKES), www.gov.uk/government/statistics/digest-of-uk-energy-statistics-dukes-2020
2. BEIS Energy Trends UK, October to December 2020 and 2020, assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/972790/Energy_Trends_March_2021.pdf