Energy volatility in Europe has been at a historic high over the past year, driven by a variety of factors, including reduced natural gas supply due to geopolitical tensions.
The result has been increasing interest in energy security and the development of technologies that result in consistent and reliable supply.
Renewables in this scenario find themselves in a curious position. The most widely used renewable sources (wind and solar power) suffer from intermittency, which must be balanced through fixed sources such as battery storage or “always on” clean power, such as geothermal. However, renewable power plants and distributed energy resources such as microgrids convey greater energy security, as they can be deployed locally and reduce the need to rely on natural resources (like coal or gas) that must be sourced and imported from global reserves.
Renewable and clean technologies are also increasingly affordable, and in some cases, result in a levelized cost of energy that eclipses any fossil-based source. And, critically important, they do so carbon-free, which is essential if we are to reduce and manage the impacts of climate change already underway.
However, there are challenges that stand in the way of widespread adoption of renewable energy via power purchase agreement (PPA) by corporates in Europe – and intermittency isn’t among them. PPAs are essential tools for the energy transition as they enable long-term transactions between generator and offtaker that provide project financing, more predictable power pricing, and long-term supply of energy attribute certificates (EACs). They are particularly appealing to corporations seeking to decarbonize because they can deliver renewable energy at scale – something nearly impossible to do with onsite renewable energy or distributed energy solutions alone. Increasing corporate accessibility to PPAs will be dependent on the removal of these barriers.
The European Guarantee of Origin (GO) system must be consistent
Today, the tracking and trading of EACs is what allows all organizations to take ownership of / make claim to their use of renewable energy. As generated energy electrons cannot be “tagged” as clean, EACs – GOs in Europe – provide the “proof” of generation that allows organizations to meet their goals.
The current EU GO system is costly and inconsistent, which causes difficulties for PPA offtakers seeking to harmonize their power purchase with their environmental targets. By developing and deploying a streamlined, consistent GO system of governance for GO purchase, application, retirement, and taxation EU-wide (including the United Kingdom), this problem could be eliminated and further incentivize the use of PPAs for renewable energy procurement.
The EU should develop – and make use of - a universal and unified energy transition plan and policy
A dearth of unified, universal energy policy across the EU creates instability in the market that inhibits the growth of PPAs. Unified policy would also allow the EU to plan for and enable additional resources to address market volatility, which is almost certain to continue in the short-term and potentially the long-term. Unfortunately, this lack of proactive action has exposed the EU energy market to risk as climate change and the global race to net-zero emissions intensify.
Consistent and universal renewables policy must include regulatory standards that are predictable and dependable to build out the market and harmonize taxation. The current lack of a long-term energy framework without clear regulation and milestones jeopardizes the success of the energy transition and of PPAs specifically.
Long-term regulatory certainty developed and applied cross-EU:
- Provides security to investors, who fear financially backing assets that may at some point become stranded or otherwise result in negative returns.
- Irons out permitting issues created by the current regional permitting system that results in mismatched and complex systems, delay of renewable energy project development (which stifles corporate demand), and chaos and instability for corporate PPA buyers.
- Provides clear reporting guidelines to ensure that all actors are measuring and sharing the same information, driving clarity and transparency.
The EU must ensure that it is looking at the right energy priorities for the near-term
An adequate energy transition is one that will require an ecosystem of technological solutions, including both existing and developing technology. However, the urgency of climate action means that the EU should bring to bear its considerable power to accelerate near-term solutions to the current energy crisis and the climate crisis. Pursuit of unproven and yet to scale technologies, such as carbon capture, use, and storage (CCUS) and hydrogen, while part of a long-term plan, should not be accelerated at the risk of potential short-term gains.
- The EU must consider that PPA acceleration is dependent upon improved, increased, and deregulated interconnection between countries. Today, the distribution of renewable resources is not equitable across the continent and interconnection barriers constrain market development. This also has biodiversity implications, as some regions of the continent – such as Spain, with its great wind and solar resources – are being developed far faster than others, which is impacting the environment in these regions, as well as the local populace.
- Fiscal incentives for investment outside of subsidization must be pursued. Although renewable energy generation and battery storage tend to be lower in cost, they are expensive to build upfront, and without financial incentives, it is difficult for the market to attract investors. Subsidization has shown to be a short-term and inconsistent source of financial incentive; a preferable method would be joint development of incentives through the combined efforts of the finance and energy ministries.
- The prosumer transition is well underway as more people and organizations gain access to distributed energy resources. The EU can accelerate this transition by monetizing onsite power generation. This will drive faster adoption of the flexibility market and lead to greater grid resilience as result.
- There is also a need for investment in smart grids that can efficiently handle increasing power production from intermittent renewable energy systems while simultaneously supporting greater demand response.
Expansion in PPAs must be paired with expansion in distributed energy resources
While several factors have compounded to create the current European energy crisis, large-scale renewable energy penetration without sufficient battery storage has contributed. The imperative to migrate the grid to renewable sources is clear; however, that utility-scale migration must be combined with adequate storage resources, localized back-up generation in the form of microgrids, and incremental direct market participation from flexible prosumers.
Wide deployment of these distributed energy resources will:
- Protect the grid and energy consumers against the volatility of intermittent resources, especially as longer-term sources of baseload generation, such as hydrogen, are explored and scaled.
- Promote greater grid resilience to flexibly accommodate unpredictable changes in supply and demand of energy, delivering greater reliability to consumers with more predictable energy prices.
What corporates can do
As regulators and policy makers in the EU grapple to make determinations about how to evolve energy policy, there is no better time for corporations to engage. By educating themselves about the barriers to adoption they face, and in turn, vocally educating policy makers, corporations can have an influential voice in market schemes, and, ultimately, their ability to decarbonize at scale.