As the world confronts the challenges of climate change, there is a significant shift towards sustainable practices. Corporates are actively engaging in this transformation by decreasing their dependency on high-carbon energy options. The question is: how are they transforming the energy sector and capabilities?
Current movements in sustainable electricity markets
Globally, the demand for renewable electricity is escalating, predominantly driven by companies seeking to confront both environmental sustainability and energy price instability. Motivated by goals to mitigate their footprints, businesses are matching their yearly electricity consumption with renewable sources, adhering to stringent quality standards. For example, the RE100 initiative is propelling companies towards a commitment to entirely renewable electricity. Presently, RE100 members have secured 249TWh of renewable power and anticipate a need for an additional 290TWh by 2030, as per Bloomberg NEF forecasts. Even at this year’s COP28, we have seen many pledges to ensure and accelerate climate action by ensuring financing towards energy.
Additionally, there is a surge in innovative methods to boost the efficacy and adaptability of renewable energy. Certain organizations are experimenting with real-time demand adjustments, necessitating a variety of renewable energy supplies. RE100’s recent criteria emphasize the importance of newly commissioned or upgraded renewable facilities, focusing on the concept of additionality. These elements, combined with the fluctuation in electricity prices, are fostering more extended contract durations, promoting the development of renewable projects and reinvestment in further capacities. EACs, PPAs, VPPAs, there are several procurement options that are gaining attention; however, they are not panaceas. Effective energy procurement strategies must be tailored to each company’s unique situation and the specific market dynamics.
Three methods for sustainable energy acquisition
Businesses primarily have three options for renewable energy procurement:
- Energy Attribute Certificates (EACs): EACs validate the production and delivery of 1 MWh of renewable energy to the grid. Purchasing EACs allows companies to claim the environmental credentials associated with that energy generation. Known for their procurement simplicity and cost-efficiency, EACs are a popular choice. In the UK, Renewable Energy Guarantees of Origin (REGOs) certify the renewable origin of electricity, offering transparency and assurance about the green nature of the energy.
- Power Purchase Agreement (PPA): A PPA represents a long-term agreement between a renewable energy producer and a purchaser, involving the acquisition of renewable energy (power and associated EACs) from a specific source at an agreed price. This agreement permits buyers to claim the environmental benefits tied to these EACs. PPAs provide pricing stability and assist in renewable energy procurement, especially in competitive markets.
- Virtual Power Purchase Agreement (VPPA): A VPPA involves a contract with a renewable energy project developer, typically for corporations. In a VPPA, the purchaser agrees to buy a set amount of renewable energy from the project over a certain period. Unlike a traditional PPA, where the buyer utilizes the generated power, in a VPPA, the energy is sold to the grid. The buyer benefits financially from the differential between the contract price and market electricity rates and also receives renewable energy certificates. VPPAs are often chosen for their price stability and additional flexibility in reducing carbon emissions.
Selecting the ideal approach
There is no universal solution for every company; each option has its benefits and limitations. Therefore, it is key to identify the approach that aligns seamlessly with your organization’s specific requirements and market conditions. Discover more about renewable energy procurement strategies by downloading STRIVE by STX guide.
STRIVE By STX, the climate action division of the STX Group, offers deep insights to help you act and accelerate your climate ambitions. We are a CDP Gold Accredited Solutions Provider and have commercialized substantial volumes of green electricity; we partner with a significant portion of RE100 companies and are recognized as a leading firm in renewable energy certificates. This guide encapsulates our expertise and global impact in empowering organizations towards sustainability.