Corporate appetite for clean energy is increasing, driven by rising awareness of green power and the growing maturity of renewable energy options. The result is more green energy options than ever, even as it offers companies the opportunity to reap substantial cost savings by modifying their energy consumption mix.
Rising Green Options
The situation today is far removed from a mere decade ago where organisations had no choice but to purchase renewable energy at a premium. Indeed, the growing price parity between renewables and conventional power is driving additional competition in the form of traditional electricity suppliers who are also eyeing a slice of the pie.
Specifically, regulated utilities and retail electric suppliers are now approaching corporations with new, enticing green energy offerings. Known as “supplier green power programs”, these typically see them purchase renewable energy from a supplier and reselling it to businesses with a simplified agreement billed as part of their traditional billing mechanism.
Supplier green power programs are appealing as they can greatly simplify procurement, compared to traditional renewable energy options such as energy attribute certificates (EACs) or power purchase agreements (PPAs).
The Price of Simplicity
On the flip side, the reality is that the simplistic contracts presented by re-sellers can significantly increase risks by burying the complexity of green energy purchases under a veneer of a simplified contract.
The reason is simple: While the contract might look like a traditional retail energy contract, they carry substantially more financial risk compared to alternatives. This is because they are usually a re-sold PPA where the PPA risks are passed along without the protection that buyers would have insisted on in a long-term agreement.
For instance, such contracts can leave critical components of the program undefined or opaque. This exposes the corporate buyer to risks such as narrowing of profit margin, excessive costs and upward volatility risks. By avoiding adequate due diligence upfront, corporations risk accruing direct and indirect costs that can stack up to potentially dwarf any savings that were initially achieved.
Do Your Homework
Companies with renewable energy targets want ready solutions to achieve their goals. They also want realistic options with credible claims with competitive pricing compared to existing electricity costs – and without assuming undue risks.
To succeed, corporate buyers must take an active approach to assess supplier green power programs alongside other available mechanisms, and appropriately assess the costs, benefits and risks. As noted in this article by Schneider Electric, this starts with an awareness of what is available in the market to understand the cost components and risks involved.
Where possible, shortlisted supplier green power programs should be compared to alternative offerings that are available in the desired markets, and the contract should ideally be designed in a way that optimises every material aspect of the transaction. This ranges from energy generation, grid charges and associated seller profit margins.
Finally, it might make sense to engage an experienced renewable energy and sustainability advisor for guidance, such as Schneider Electric’s EcoStruxure HYPERLINK “https://www.se.com/sg/en/work/services/energy-and-sustainability/sustainability-consulting/renewables-and-cleantech.jsp” Energy and Sustainability Services, while performing due diligence.
You can read more about the evolving energy market from Schneider Electric here.