Smart and Efficient Green Energy Procurement Strategies

Smart and Efficient Green Energy Procurement Strategies

Rising Sustainable ambitions and latest EU Green Taxonomy set a new horizon for Energy Procurement Strategies. For the last 24 months, we have been observing an unprecedented increase in installed renewable capacity across many nations. Department for Energy Security and Net Zero in the UK has reported recently that renewable capacity increased by 7.6%, the highest rate since 2018.

In Poland, the renewable capacity surged over 20% in the first quarter of 2023 with particular attention on photovoltaic installations which boosted the rapidly growing renewable capacity in Poland.[1] Rising renewable capacity across many European countries leaves us with two fundamental questions:

How much of the green energy produced is filtered through standard energy contracts? What is an optimal procurement strategy for corporates to maximise  carbon free energy?

To answer the first question, we need to understand how a typical energy contract works. For most corporate buyers, the most common way is to choose an energy supplier, whose energy is sourced from renewables. More and more suppliers invest in their own renewable assets, or they partner with renewable assets developers. However, countries with a high percentage of fossil fuel in their energy mix, are likely to meet corporate energy demand with a good dose of electrons from fossil fuel. There’s currently no guarantee that energy delivered to your company has been sourced from green electrons only.

Typically, energy suppliers will try to match the amount of energy generated with the demand from their customers. The amount of energy that is needed to cover differences between generation and demand profiles is often called residual volume. The residual volume could be sourced from conventional fossil fuels, as renewable electricity is often mixed with nuclear and fossil power.

The efforts by transmission system operators to balance energy supply and demand 24/7, means that it’s also unlikely that 100% of the energy consumed by corporates, at any point, comes from renewable electrons. Energy suppliers also purchase energy on the spot to fill in demand profile during peak times. Wholesale energy comes from wider energy mix ,which includes fossil fuels. In order to secure 100% carbon free energy, we should consider the concept of Carbon Free Energy (CFE) PPA, also known as 24/7 PPA. This type of PPA stresses that very kilowatt hour of consumption is matched with carbon-free production for every hour day and night seven days a week.

The concept of CFE PPA is already functional and achievable. For instance, Google committed to provide Carbon Free Energy to the entire portfolio by 2030. [2] The simplest way to strive to achieve carbon free energy is to have a renewable asset installation in the same network as the off take points. The concept can be achieved by having a private wire connection between renewable assets (local PV farms or onshore wind farms). The private wire may not be cost effective  and easy to implement considering permitting and grid connection accessibility. Therefore, the alternative solution would be a combination of energy storage combined with local production.

Battery storage is a good way to increase the chance of having a 100% renewable supply. In addition, this storage solution can reduce the risk of price volatility and lower the cost of balancing. With rising renewable capacity, the energy cannibalization effect is very likely. The more wind and solar are added to an electricity grid, the more wholesale prices are likely to fall. This is caused by a single rule, called merit order, which prioritizes the energy dispatch from renewables hereby winding up the cannibalization effect.

Corporations can benefit from the cannibalization effect by having energy storage charged when energy prices are falling. While PPA can provide a long-term security supply, budget stability, and immunization against short-term market volatility, it may have limited options to provide savings when wholesale energy dips. Battery storage can be a fundamental addition to energy procurement strategy and can help to utilize moments in the wholesale prices, where prices are significantly falling. The battery storage with on-site PV installations can be a great addition to the green energy procurement strategy. The combination of the above technologies may provide a great marginal effect, where the overall cost of energy purchase can be lower by storing energy while prices are lower, while the main contract is supplied through a long terms PPA.

Finding the right solution and designing a procurement strategy to become 100% green can be a complex and daunting task. It’s important to do research and speak to developers and other consumers before making a final decision.A well-designed procurement strategy should help meet the Net Zero ambitions of corporates as well as provide financial benefits. However, the implementation of the procurement strategy with onsite PV and batter storage in place is not without its challenges.

Each PV installation and battery storage solution is slightly different. In addition to the cost of installations, corporates need to consider many factors such as available space on rooftops, existing construction and angle, and consumption profile as well as potential contamination from local manufacturers which can create a layer of dust on the PV panels. Regulations are also important factors to be considered in the decision-making process as are the generation profile, pricing mechanisms, price volatility, and creditworthiness of PV and battery storage providers.

DNV has well-established relationships with many developers and PV installers, we also have tools to deliver technical and commercial due diligence, help allocate risks and lead on the financial side of the agreement. Our independent feasibility studies, combined with a cost analysis and power price forecasts will help avoid expensive mistakes when choosing the right setup.

DNV’s experts can help design a procurement strategy to maximize the lifetime of installation to bring the best value for money. A green energy strategy should not only reduce carbon footprint but also bring the best return on investment.

Jakub Pilc M.Sc
DNV Services UK Limited

[1] Najwyższy w historii udział energii z OZE i niepokojące zjawiska na rynku energii. Energetyka w marcu 2023 – analiza na podstawie danych ENTSO-E – OPINIE (cire.pl)

[2] https://cloud.google.com/blog/topics/sustainability/a-new-clean-energy-purchasing-model-to-drive-decarbonization