An Energy Manager's responsibilities are growing dramatically, as corporate renewables strategies proliferate, and renewable power procurement converges with traditional power procurement. For many companies with ambitious carbon reduction goals, this new reality comes with greater complexity and requires strategic management of portfolio-based solutions, such as power purchase agreements (PPAs).
We sat down with Josh Heeman, Senior Cleantech Services Specialist at Schneider Electric Energy & Sustainability Services, to answer some of the most pressing questions facing today’s corporate Energy Managers.
How have the responsibilities of an Energy Manager grown?
Since utility bills and supplier contracts have traditionally been rather uniform, the energy manger’s primary focus has been to ensure reliable energy supply while minimizing cost. But, over time, the detrimental effects of carbon-heavy emissions and the volatility of energy prices have motivated executives to revamp their energy strategies and make them more sustainable.
Over the past ten years, we’ve seen companies starting to operate energy procurement efforts in conjunction with sustainability and efficiency efforts. In many cases, this more holistic approach has escalated the complexity of the Energy Manager’s role and called for a power purchase agreement (PPA) management skill set.
What’s driving these changes?
Many executives are recognizing the environmental and financial value of signing large-scale PPAs to lock-in a long-term, fixed price of renewable energy. Since PPAs are highly cost-competitive in many markets, a significant part of an Energy Manager’s job becomes focused on realizing the associated savings. But these are dynamic, long-term contracts that have many moving pieces. Managing them can quickly become a demanding and complicated task.
Why is it so important to manage PPAs on an ongoing basis?
The biggest opportunities--and the biggest risks--associated with a PPA are anchored in its dynamic nature. While traditional retail electricity contracts often follow a standard format and typically last for one to three years, PPAs average 12 to 15 years and can include between 60 to 90 pages of advanced calculations and technical terms. Given that PPAs are structured to accommodate market changes, Energy Managers must remain constantly informed on market intelligence.
Every hour (and in some cases, every five or fifteen minutes), a new price and production amount is created that needs to be compared to the PPA specifications in order to quantify the hourly gain or loss. That equates to tens of thousands of crucial pieces of information every year. Analyzing this massive amount of data is a daunting task for anyone who doesn’t have access to the right software tools, data sources, and professional expertise.
Another key part is the management of energy attribute certificates (EACs), also known as renewable energy certificates (RECs) in North America. While RECs are often included as a part of the PPA, they require a separate strategy to ensure they are managed and retired properly. If your company is planning on making formal carbon reduction claims, such as to CDP, you need to ensure you have enough RECs in your retirement account to validate these statements.
How does signing a PPA change the day-to-day tasks of an Energy Manager?
For Energy Managers with limited PPA experience, signing a PPA will completely change their role. A few (among many) tasks that will likely be added onto their plate include:
- Checking brand-new types of invoices to make sure the company has been billed the correct amount, the price point is correct, and appropriate escalators have been applied. In PPA invoices, the slightest undetected invoice error could lead to the loss of tens of thousands of dollars. And to an untrained eye, it can be almost impossible to catch.
- Managing RECs on a global scale. Many Energy Managers have likely relied on brokers, utilities, and suppliers to manage their previous unbundled and bundled REC purchases -- or perhaps they have never purchased RECs before. But now, they have to take a more active role in receiving, verifying, and ultimately retiring the RECs.
- Managing the availability guarantee. PPAs often include a complex availability guarantee calculation, in which the developer guarantees that the renewable generating equipment will be available to produce electricity a certain percentage of time. A slight discrepancy could translate to a significant difference in PPA yield. If the developer does not achieve its guarantee, the Energy Manager will need to calculate and bill for the damages. The availability guarantee is just one of many contractual terms that need to be regularly monitored to ensure the developer complies.
- Reporting to internal stakeholders. Energy Managers need to ensure streamlined internal communication to show the actual and forecasted financial results of the contract. Given the longer contract duration and volatile nature of wholesale electricity markets, forecasting itself is an involved task that benefits from the guidance of market experts.
Learn more about how SE helped save a client $30,000 on one invoice.
What can an Energy Manager do to effectively manage their PPA?
It’s important to remember that every PPA is different. There is no one-size-fits-all solution to manage one. However, one of the best ways to extract maximum value from the lifetime of a PPA is to consult an expert third-party advisor to manage the contract once it’s been signed. These types of operational services include strategic guidance, crucial market knowledge, and sophisticated data analysis tools.
Learn more about the services of a third-party PPA advisor
As PPAs become increasingly common tools to procure renewable energy at a competitive price, many Energy Managers across industries will experience a disruption in their day-to-day activities. By consulting a professional advisor with access to data-management software, deep energy market awareness, and industry expertise, you can make sure that your company will receive the maximum benefit associated with a PPA.