How to Stay on Course to Meet Your Renewable Energy Goals
While the coronavirus continues to spread and challenge our way of life, a bright spot emerged recently when the International Energy Agency (IEA) published data for the first quarter of 2020. It showed a 5% decrease in global CO2 emissions vs Q1 2019, a figure which could increase to 8% for the entire year. As a result of depressed electricity demand, renewables have claimed a greater share of electricity generation, increasing roughly 3% globally (2% in the US).
Much of the growth in renewable generation has been a result of the U.S. corporate renewables market, which has exploded over the past few years. Corporate purchases have exceeded 9.3 GW in 2019, primarily through virtual and physical power purchase agreements (PPAs), according to Renewable Energy Buyer Alliance’s Deal Tracker.
However, supply chain uncertainties coupled with global depression in energy prices have heightened price uncertainty risk related to renewable energy purchasing. The following are some considerations for how companies can stay on track to meet their renewable energy targets in the current environment:
1. Consider all pricing scenarios when evaluating long term renewable energy contracts.
The combination of reduced global demand (see our post analyzing internal data across industries) and already slumping natural gas prices have depressed short term energy prices, which may decrease contract value when used for analysis. When re-evaluating projected economic benefits of a long term renewable energy contract, it is important to review those outcomes over different scenarios, as depressed conventional energy price may not be representative of prices over the contract term – which may range from 12-20 years.
2. Be prepared in case of project delays
Delays in the global supply chain may impact the timeline of projects, which are often dependent on shipping schedules and manual labor. While delays are uncertain, companies may have to adjust to the possibility of new project timelines and plan to cover any gaps in supply contracts by extending or renewing existing contracts to avoid holdover rates. Companies that face project delays may need to find short-term solutions to meet sustainability goals in the interim by purchasing RECs.
Many large developers have robust procurement teams with access to a portfolio of assets and can help bridge the delay with RECs.
3. Take a portfolio approach to balance risk
Virtual PPAs fix the price of energy for a certain portion of a buyers load, leaving the decision to fix or float the remainder of their energy spend. By leaving a portion of their spend exposed to spot prices, companies can benefit from collapsing wholesale prices now, which will offset some of fixed-price premium.
To illustrate the concept, consider a PJM customer that uses 100,000 MWh annually and contracted for roughly half of their annual consumption in a renewable PPA in 2015. We can see in the chart that when wholesale energy prices are falling, leaving the remainder of the customer’s load exposed to spot prices would have resulted in lower overall energy costs as compared to entering into fixed-price contracts.
4. Continue to keep momentum and evaluate all renewable energy options
Demand for corporate renewable energy is driven by a variety of factors. Corporations are striving to be good corporate citizens and community partners through more sustainable business practices. As an increasing number of employees, investors and consumers are all asking organizations to engage in more sustainable activities, this is resulting in companies embracing climate action.
Because the process of renewable energy procurement can take years from commitment to commercial operation, it’s more important than ever to keep the momentum going – even if your organization has put the pause on transacting.