Over the last decade, renewable energy has experienced massive growth. And not just growth, but diversification, too. Electric generation from non-hydro renewable sources in the United States grew from around 3 percent in 2008 to over 10 percent in 2017. While the extension of key tax credits influenced this growth and diversification, other factors have also supported. Declining technology costs and public/shareholder pressure surrounding corporate sustainability has given more organizations the ability to incorporate renewable energy initiatives into their overall energy procurement strategy.
But for many organizations – small, mid-sized, and even some large – persistent challenges have historically stifled broader adoption. So how do these organizations move forward?
Has the time come to rethink how renewables fit into your energy procurement strategy… and your broader sustainability efforts?
The Evolving Drivers of Renewable Energy Procurement
At the tail end of 2017, ENGIE Insight partnered with Zpryme, a third-party market research company, to better understand how C&I businesses view their existing and future energy and sustainability efforts.
As an introductory question, the 250 representatives were asked whether they felt their previous energy and sustainability efforts had been successful. 25 percent rated their efforts as very to extremely unsuccessful. What’s interesting is that even with the historic dissatisfaction in performance, the vast majority of respondents also reported having goals set. So we were interested in what was driving their goals and programs, and where they saw opportunity in the next 3-5 years.
When probed about top drivers behind their programs, respondents noted changing regulation, increasing energy costs, and the decreasing costs of renewables, among other things. Also interesting is that consumer, employee and shareholder pressure were also all mentioned as key drivers. Ultimately, respondents said their goals were to reduce cost and environmental impacts, while adding some predictability to energy spend.
While the evolution of renewable energy procurement has been slower than the typical brown power procurement in deregulated markets and has, at times, been cost prohibitive for all but the largest players, we’re hearing that business leaders are now looking to it as a way to not only lower costs, but to also meet broader sustainability goals.
Why the Time is Now
Considering what we heard from the market and how the drivers for renewable energy procurement are shifting from a purely economic argument, to one that’s a combination of economic, societal and environmental, let’s drive deeper into why now is the time for serious consideration.
1. Technology Advancements & Declining Costs
Like any industry, the renewable energy industry continues to make technological advancements, leading to reducing in costs and creating wider market appeal. Most businesses have historically relied on purchasing unbundled renewable energy certificates (RECs) and/or adding a specified percentage of green power into their third-party electric supply contracts at a premium to meet renewable energy targets. Physical Power Purchase Agreements (PPA) have traditionally been a viable option for only large corporations with energy-intensive facilities due to cost, location constraints, and agreement lengths of 20 years or more. Additionally, onsite Distributed Energy Resources (DER) can be a good option but require large amounts of capital and have certain facility requirements. Utilities, independent power producers, and energy suppliers have been scrambling to find ways to provide customers with more renewable energy options. And as renewable costs continue to decline, we have seen the emergence of newer market-competitive products, such as Virtual Power Purchase Agreements (VPPAs) and green tariffs that could open the door for more companies to participate.
2. A Shift in Corporate Buying
There is a growing trend of corporate buyers shifting their mentality from working renewables into their traditional brown power procurement strategy to making green power purchases the centerpiece and supplementing generation gaps with brown power purchases. Having an in-depth knowledge of how the renewable generation overlays facility usage patterns is key in determining which type of renewable sources and products to choose. There are certain risks associated with this strategy and it may not be suitable for all corporations. Having a clear understanding of the risks, price and usage data to support decisions and find actionable insights, and reporting capabilities to track performance, can help businesses find success.
So, is now the time to rethink how renewables fit into your energy procurement strategy? The answer is most certainly up to individual businesses, but the trend and technological advances suggest that more and more companies will make that consideration in the near-future.