Renewable energy procurement can be an economically viable first step toward decarbonization, particularly if undertaken with a solid understanding of the potential complexities it might present and the internal collaboration it will certainly require of your entire organization.
Designing a thoughtful RE strategy with an experienced advisor can give you confidence in the direction you’re taking and the resources being tapped for a procurement. With a strategy—and the right internal team to execute it—your organization should be well-positioned to make meaningful emissions reductions now and into the future.
It’s Complicated (But Doable)
Depending on where your organization is physically located, you may have some complex 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 if 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.)
With that complexity in mind, here are five relatively simple steps to get you moving.
Get Started in Five Steps
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
Easier said than done? Maybe initially. But educating yourself about the RE solutions available to your organization and the inherent tradeoffs that exist will help demystify the landscape. Each solution has its own unique profile for 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. But it’s still worth the work. Companies that settle for commodified VPPA products without doing their research may be missing opportunities to have a greater impact with better economics.
Be sure to find objective sources of industry information. Coho does not hold its own inventory of renewable energy projects or sell renewable energy credits (RECs), so we have no reason to steer our clients in a certain direction. We also use our proprietary Market Pulse process to source RE project availability and pricing data directly from hundreds of developers around the US. If you are working with an advisor or doing this in-house, make sure your market intelligence is comprehensive and accurate.
3: Build your stakeholder team and get to consensus on RE priorities
A critical next step is identifying which of your organizational teams (e.g., Finance, Utilities, etc.) need to be involved in an eventual RE procurement. It’s helpful to determine the level of involvement needed for each (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.
To begin, recognize that you are orchestrating a significant departure from the status quo. That means many people in your organization have a stake in this effort. For example, switching to renewable energy involves a shift from short-term energy purchasing to longer-term energy commitments. Expect more finance and accounting colleagues to take an interest, and avoid potential potholes by involving people from those teams in your planning from the get-go.
This is also a big change to how your organization manages commodity risk and commodity procurement, so risk and procurement colleagues will pay attention. A successful carbon-reduction strategy will have strategic value for the organization—perhaps Marketing, CSR, Customer Relations, Investor Relations, and others will feel invested in this transformation and should be included where appropriate.
It is critical to map out the approval and execution pathway, as well as who those approvers will ask for a trusted vetting of the transaction on their behalf. Develop your game plan for engaging each group over the lifetime of the initiative. Some groups will need engagement just once, while others might need more regular briefings. For example, at Coho we stress the importance of engaging leadership early and often throughout the process, especially at major milestones such as when the strategy is developed, initial market results are received, there is a final counter-party selection, and the final contract is negotiated.
Remember the same briefing will not meet the needs of every stakeholder group you engage with. Tailor your briefings accordingly and consider whether you are seeking a decision from your audience, input on a specific aspect, or to educate them broadly about the initiative. (It’s generally safe to assume each of your stakeholder groups will have little knowledge of this space when you first brief them, so early education will likely be required.) Some topics you may need to explain:
- Review of strategy to ensure no red flags from legal, risk, finance, or accounting
- Shaping of procurement documents with legal and procurement, to ensure inclusion of key Terms & Conditions (T&Cs)
- Deep dive with finance on the economic model and how market risks are being evaluated
- Accounting review to determine treatment of the contract (on or off-balance sheet?)
- Detailed review of transaction mechanics with legal, finance and accounting, as a nuanced understanding will be required for them to validate an acceptable set of final T&Cs
Once you’ve 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 story you’re trying to tell? Should renewable energy credits (RECs) only be sourced from new projects? Is your organization alright 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 against long-term contracts, etc.)?
Aside from greasing the wheels of the decision-making process, which will be appreciated by all involved, clarity on priorities lends your organization agility. This is essential in today’s turbulent RE market. There is steep competition among buyers for attractive projects, so being ready to jump on a good opportunity when you see one can give your organization a strong advantage.
4: Select RE solution(s) for your organization and create an implementation plan
Synthesizing your organization’s available RE solution options (#2) and your organizational priorities and limitations (#3), you’ll have a list of RE solutions that best fits your organization as 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?
How to Procure Renewable Energy Like a Pro
5: Seek leadership approval
An RE strategy created with cross functional organization support now in hand, your next step is socialization with and approval from leadership, which can result in further evolution of the RE strategy. This step is key to avoiding any unexpected surprises and associated delays during the implementation of your plan. And if you followed steps 1-4 earnestly, this step is considerably easier.
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 time and, in today’s market, buyers need to be nimble while navigating the many current industry challenges to find the most attractive opportunities.