Renewable technologies are now some of the most affordable electricity sources in the world, resulting in record renewable energy adoption. But with renewable power adoption comes increasing complexity in energy sourcing as the impacts of changes to generation mix make themselves felt.
For this 2-part series, Fatima Sanchez, Cleantech Operations Manager, sat down (virtually) for a conversation with two other Schneider Electric market experts – Tom Muddell, Cleantech Operations Director, and Matt Sanders, Sourcing Director – to look at the intertwined history of renewable and traditional energy, present changes and challenges related to renewable power, then recommendations to address future complexities in your sourcing mix.
To begin with part I, click here.
Part II: Where are we going and what do we do when we get there?
Sanchez: Are there specific segments leading the way with green and brown power strategies?
Sanders: Customer segments, definitely. You’re seeing a strong desire — and I would say a growing desire — of many consumers to use their discretionary spending with sellers who are sustainability focused and active. Early on, data centers were the standard bearers. Apple, Google, Microsoft, for instance. Right behind them more indirect market players entered the space. Think Big Telecom, Pharma and Medical Equipment.
Muddell: Yes, and it’s good to see the list has been growing to include Household Consumer Goods, Food & Bev, Big Box Retail and Automotive.
Sanchez: Given the growing adoption what is holding some organizations back?
Muddell: Even today, there are many factors that hold organizations back. One of the most basic hurdles is organizations may not operate in markets where they have readily available green power procurement options. Cost is also still a primary factor. There are still plenty of geographies where brown power is cheaper. There is also a lack of certainty in legislative and regulatory actions influencing decisions on renewable energy.
There are others. Matt, tag in here.
Sanders: Glad to. For starters I’d add a general need for alignment within an organization’s leadership structure to do big, bold things and really commit to long-term contracts or strategies. Then there’s a failure to respond — or at least a delay in responding — to customer demands for greener products.
Maybe the biggest one I’d add is one I was chatting with my colleague Erika Hornok about only yesterday: buyers generally don’t buy that which they do not understand. So, the diversity of the regulatory environment and the need to monitor the fast-paced changes in the energy market, for instance. Most companies simply cannot be experts in all markets alone, add consideration of green energy to these factors and the complexity can certainly be a deterrent.
Sanchez: Let’s discuss these trends further and how they can make an energy professional's world even more complex.
Muddell: There are a handful that immediately come to mind. Maybe I’ll name them and ask Matt for some related color commentary. Let’s start with decentralized vs. centralized procurement.
Sanders: That’s a good place to start since organizations with decentralized procurement functions encounter an immediate challenge: not all green options are available in all markets. So, what is perceived as “green” in one place may not exist in another.
Muddell: How about departmental silos?
Sanders: We often see companies that struggle to bring Sustainability and Procurement to the same table. They separately address more immediate pressures or market trends or competitors, where sometimes a longer-term, central strategy that integrates those short-term, local procurement initiatives can be more beneficial for the organization as a whole.
Muddell: Centralized data management.
Sanders: Fatima, you had some thoughts on this one as I recall.
Sanchez: I would just reinforce that a procurement strategy that combines onsite generation with offsite green and traditional brown power would certainly require a centralized data management approach with a requirement that the data be up-to-date and captured in real time.
Muddell: Price volatility is always a consideration, especially in Europe.
Sanders: I agree. We know renewable generation is growing, but so too is demand for renewables. You can see this in the price of GOs in Europe and more generally in wholesale markets across Europe. Having a structured approach to commodity risk management becomes ever more critical.
Muddell: And then one more: Non-commodity costs.
Sanders: In the EU especially, the incentivization of renewables has typically resulted in increased costs for many end users of electricity. Once the costs of incentivization have been “socialized” they’re then recovered through ancillary charges added to the utility invoice. The EEG in Germany would be an example that comes to mind.
Sanchez: Ok, let’s wrap up with some of your recommendations for navigating complex energy markets? Matt, go ahead and then same question for Tom.
Sanders: Thanks, Fatima. I’ll admit I cheated a bit and worked with my team beforehand so we could narrow this down. We landed on three:
- Know what are you trying to achieve.
- Align across all stakeholders and act consistently according to your strategy.
- Be willing to ask for help. Seek a trusted advisor to help you navigate the complexity and wealth of choices available.
Muddell: No arguments with any of those. The three I’d add are to:
- Actively and deliberately clarify and define your company’s goals and priorities, as well as the boundaries and the acceptable parameters that relate to energy procurement and renewable energy. You might ask questions like:
- Is this something your company cares about? If so, how much?
- What limits are there, if any, on taking active steps to secure green power?
- What minimum goals or targets do you need to hit?
- Understand the renewable energy landscape generally, then dive deeper into the specifics of your global energy footprint.
- Prioritize the best apparent opportunities. Then get moving!
If you missed part I, take a minute to read our conversation with Tom and Matt from last week when they discussed the origins of both green and brown power. But before you go, register for our webinar: Is Your Company Ready for Energy Convergence? presented by Bill Brewer, Schneider Electric’s VP, Global Supply and Sustainability Operations. Bill will share five keys to energy and sustainability success, and examine how energy convergence is driving market evolution and innovation.