Why it’s time to rethink your renewable energy sourcing...
We invited our friends at Sustainable Energy First to pen a guest blog post. Here, Philip Richards, Head of ESG, explains why any business with climate targets, especially those on the journey to net zero, should re-evaluate their options for energy procurement to make sure they remain on the right track.
A price spike is currently making waves in the energy world – but this time it has nothing to do with wholesale costs. It is being fuelled by the sudden rise in the price of Renewable Energy Guarantees of Origin (REGOs), which energy suppliers use as part of their Fuel Mix Disclosure (FMD). REGOs can be purchased on secondary markets via brokers/sellers. Historically, they have cost below £1 per MWh, but prices have been moving upwards in recent years and in the past few weeks they have shot up to over £20 per MWh, making it cost prohibitive for certain companies to maintain previous arrangements in their climate targets. If your business is on a “green” or “renewable” tariff, the chances are that your supplier is using REGOs (UK) or Guarantees of Origin (EU) to match power supplied and will be passing these rising costs on. The spike in REGO costs has mainly been driven by BREXIT, with GoOs accepted to match the UK’s FMD up until 22/23 reporting period. After this period, suppliers will no longer be able to use GoOs as part of their FMD and they will be seeking REGOs to match power supplied.
Changing ROI for on-site renewables
If your business has ruled out on-site renewables in the past, but ruled it out because of the upfront costs, now is a good time to revisit that decision. The technology is getting both cheaper and more efficient; between 2009 and 2019, the cost of producing electricity from solar panels dropped by 89%. The timeframe for seeing a return on investment has shortened further since then. In contrast, the market for fossil fuels, such as oil and natural gas, has become volatile in recent years, raising the price of purchased energy.
One of the biggest barriers to investment in on-site renewables has of course been the upfront cost. But recent years have seen a change in how businesses pay for new renewables. There are many more financing options, including leasing and “Solar Power As A Service” (SPAAS) as well as traditional loans.
Corporate Purchase Power Agreements
If your business is a high-volume energy user, there is another highly effective energy sourcing option open to you: a corporate power purchase agreement (CPPA). Rather than a conventional supplier tariff, your business signs an agreement directly with a renewables generator to purchase their energy at a certain price over an agreed period. (The agreement is often brokered through a supplier.)
For some businesses, the CPPA is with a generator on the same site and connected to their buildings. This model is called “private wire” because the energy goes directly from the generator to the consumer without going via the grid.
But the most common form of CPPA in Europe is the indirect, or “sleeved” model, where there is no direct physical connection between the energy buyer and the generator. Instead, both generator and consumer are connected to the grid. The exchange of energy between them via the grid is brokered by a licensed energy supplier.
With a CPPA, your business commits to buy the energy from a generator for a specific period, typically 10 years. In exchange for this guaranteed income, the generator usually offers a price that is below market rate. As we explain in our CPPA guide, they bring long-term savings and protect you from energy price volatility.
Smaller businesses without the funds for a CPPA might want to consider joining forces with others as part of a consortium purchase or “basket contract”. This is best done through an organisation with experience of aggregating contracts – such as Sustainable Energy First.
Pay less for REGOs
Unfortunately, signing a CPPA doesn’t mean you avoid the need for REGOs. The structure of an indirect CPPA means that you or your supplier must buy REGO certificates in order to report the purchased energy as green. At Sustainable Energy First we are aware that this is a rising cost for our customers, and we have been proactively trying to manage it. Through a partnership with a city broker, we can now supply REGOs from alternative sources, which means you don’t have to accept the price offered by the supplier handling your CPPA contract. The greater the volume, the greater the savings.
The renewable energy procurement landscape is shifting rapidly for businesses, and it can be hard to stay on top of the changes. But one thing is clear: right now is a great time to look again at your energy sourcing, explore alternative options and take expert advice. For a chat to the team at Sustainable Energy First, simply get in touch - digital.sefirst.com/Net-Zero-Now-Articles or contact partnerships@sefirst.com
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