As the price for renewable energy falls, it becomes competitive with traditional sources of electricity, driving the convergence of the renewable power and traditional, fossil fuel-based power markets. This equilibrium is making renewable energy increasingly available while also complicating traditional energy procurement and management.
By strategically sourcing electricity in an integrated way that includes both renewable and conventional power, companies can simultaneously save money, stabilize and better forecast costs and budgets, plan for volatility, and meet their environmental goals.
In part I of this three-part Q&A, our market experts at Schneider Electric respond to some of the most common questions we receive about energy convergence, focusing on the renewable opportunities available to corporate energy buyers. Stay tuned for part II and III, where our experts will answer your questions about top considerations for companies looking at renewables, why renewable energy skeptics should start to listen up and how to get ahead of market convergence by procuring renewable energy.
Part I: What are my renewable power options as a commercial or institutional energy buyer?
This is the first category of questions we receive from companies about what energy market convergence means for them; what can I do to prepare, and where? It's clear that procuring renewable energy can help a company achieve environmental and economic goals. But as renewables increasingly become a must-have for any energy portfolio, companies are now asking the questions that will allow them to deeply understand what their options are, and the pros and cons of each.
Q: What are the various forms of renewable power that my organization can purchase?
A: Companies generally source renewable electricity in one of four ways:
- Onsite (or distributed) generation: Typically, a rooftop or ground-mounted solar system, which may be either owned or leased.
- Offsite utility-scale: Typically negotiated via a long-term Power Purchase Agreement (PPA), although other offsite investment and procurement options also exist.
- Green tariff: Renewable energy that is paired with traditional energy supply, typically as part of a retail electricity supply contract.
- Energy attribute certificates (EACs): Sold either paired with traditional energy supply (“bundled”) or separate from it (“unbundled”), EACs represent the environmental attributes of clean power generation. They are the mechanism that underpins the global tracking and trading of renewable electricity.
Are the providers the same for renewable and traditional grid options?
Yes, with some differences. For example, companies can purchase renewable power directly from a renewable energy developer under a PPA. Renewable electricity is also increasingly available directly from retail power suppliers. Some providers have only utility scale solutions while others offer only distributed generation/behind the meter solutions. Some offer both.
Why isn’t renewable energy procurement automatically combined with traditional power procurement?
When compared to the traditional power supply market, the renewable energy market is still relatively immature. The majority of renewable energy contracts require a longer term financial commitment than traditional electricity contracts. The generation is also widely distributed and available from a variety of technologies, including wind, solar, and hydro power. As a result, sourcing and contracting for renewable energy is still a complicated endeavor that involves more extensive financial modeling, supplier vetting, and project location and risk analysis—with financing implications. As the market continues to mature, and renewable energy penetration continues to grow, sourcing will inevitably continue to evolve.
Does my current power supplier or load-serving entity have renewable power options? Should I purchase my renewables from them?
Your existing power supplier may have renewable power options, and if they don’t today, then it is likely that they will in the future. You’ll likely begin to see more retail offers for renewable power during your sourcing exercises. These offers may convey additional expense or risk.
When selecting renewable electricity, it is important to weigh both bundled and unbundled options. Unbundled renewables—whether in the form of EACs or PPAs—may provide greater sourcing flexibility and may also be more cost- and risk-effective.
An independent advisor, like Schneider Electric, will also work on behalf of its clients to obtain a holistic picture of renewable electricity motivations and goals, risk tolerance, sustainability objectives, and cost and investment parameters. This allows us to make unbiased recommendations on the best solutions, at the best price, with the least amount of risk. A power supplier or load-serving entity cannot be unbiased in the same way.
What are the risks that companies face by expanding into renewable power? Are there new requirements to be aware of?
The risks are dependent upon the type of renewable power product sourced. For example, EACs are extremely low risk in the short term and under current market conditions —but they also don’t typically convey the material environmental leadership that some companies seek (also called additionality). The higher risk but higher potential reward option is a long-term offsite PPA. PPA risks range from financial to operational to reputational and must be given due consideration.
This is one of the key reasons we recommend evaluating all renewable power contracts carefully and singularly. Suppliers may bundle costs and various commercial and financial risks together with generation, leaving companies in these contracts exposed to undue risk, or in the position to pay excessive premiums to mitigate those risks.
However, integrating renewable power with traditional power procurement increases the complexity of power management. The costs of EACs can vary widely by location and generation source. PPAs require continuous monitoring to ensure they are performing as expected. Companies must ensure that they are not double-hedged in both the traditional and renewable power markets.
What markets are most active and make the most sense for renewable power?
The U.S. is the most mature renewable power market. Companies have been using renewables in the U.S. for 20 years, and there is a large pipeline of available PPA projects, onsite technologies, and EACs.
Many countries in Europe—including Spain, the UK + Ireland, the Netherlands, and the Nordics—have strong renewable power markets, and are ideal for the execution of PPAs. Many of these countries already have green tariffs in place, or also provide unbundled EACs. Increasingly, companies are looking to execute pan-European PPAs, which allow them to serve loads in multiple countries under the auspices of a single PPA.
Additional viable renewable energy markets exist in Australia, India, Mexico, Singapore, and Brazil, with new markets opening and maturing all the time.