Switching to clean energy can be an economically viable first step towards decarbonization while organizations develop a long-term plan for tackling emissions from other sources. Doing so successfully requires a strong renewable energy procurement strategy.
You’ve read a good deal of press releases in recent years from large organizations signing onto RE purchase agreements – how hard could it be?
Depending on where your organization is physically located, you may have a complex set of options to sort through. Competitive wholesale electric markets allow for power purchase agreements (PPAs) with offsite RE projects. Deregulated retail markets allow for competing retail renewables options; even utilities in certain regulated retail markets have created new green tariff programs. Certain states have created community solar programs and strong incentives for onsite solar. Sorting through which of these solutions are available to your organization and comparing them can be a major undertaking.
And it only gets more complex as your organization:
- Has multiple physical sites with electric load spanning various geographic regions
- Considers how RE purchases would interplay with existing electric purchases for its facilities
- Weighs tradeoffs of the different RE solutions and looks for internal consensus on priorities
- Looks to ensure that its RE purchases have additional impact (e.g., searching for RE projects that will displace the dirtiest power plants on the grid, considering potential buyer aggregations to bring suppliers along with your organization to reduce Scope 3 emissions, etc.)
Designing a RE strategy with an experienced advisor can help your organization find the best fit and feel confident in the direction being taken and resources being utilized for a procurement in the months ahead.
Five Steps to Crafting an Effective Renewable Energy Procurement Strategy
1) Know your organization’s energy profile
First, gather all relevant information on your organization’s current electric profile. What is your current electric usage? What are your electric supply costs? What are your current contract terms? Asking these questions and others will ultimately let you compare your available RE options to a baseline.
2) Understand your options
Learn about the RE solutions available to your organization and the inherent tradeoffs that exist. Each solution has its own unique profile along various dimensions such as risk-return, ease of procurement, and local impact to name just a few. Comparing them apples to apples economically can be a major undertaking given structural differences and continuously evolving commercial terms.
3) Engage stakeholders to understand organizational priorities for RE
A critical next step is identifying which organizational functions (e.g., Finance, Utilities, etc.) need to be involved in an eventual RE procurement. It is helpful to determine the level of involvement needed for each of these functions (e.g., who is an ‘inform’ vs. an ‘approve’) so you can chart out a project team structure that will yield broad organizational support for your RE strategy.
Once you have determined who should be involved, the group must come to a consensus on priorities, sub-priorities, and limitations for an eventual RE procurement. For example…
- Which is more important: maximizing economic value or minimizing downside risk?
- What quality of environmental attributes work for your organization and the narrative it is trying to tell? Should renewable energy credits (RECs) only be sourced from new projects? Is your organization OK with RECs and power coming from different projects altogether?
- Are there limitations or ‘red lines’ that could impact the procurement (e.g., your organization’s credit rating limitations, internal policy not allowing long-term contracts, etc.)?
4) Select RE solution(s) for your organization and create an implementation plan
Combining outputs from #2 (your organization’s available RE solution options) and #3 (your organizational priorities and limitations) above will leave you with rankings of RE solution(s) that best fit your organization and can be part of a defendable RE strategy. At this stage, a thoughtful approach to how your organization would execute this strategy becomes important, considering topics such as:
- How quickly should your organization move to meet its RE strategy?
- If pursuing multiple RE solutions, which ones should you procure first?
- How will your organization run procurements and evaluate actual projects?
5) Seek leadership approval
With a RE strategy in hand that was put together with cross functional organization support, your next step is socialization with and approval from leadership, which can result in further evolution of the RE strategy. This step, however, is key to avoid any unexpected surprises during implementation of your RE strategy.
Although creating an effective RE strategy can take several months, it ultimately helps prime your organization for successful implementation. Having early cross functional and leadership buy-in is critical given procurements can take many months and, in today’s market, buyers need to be nimble while navigating through the many current industry challenges to find the most attractive opportunities.