Powering Your Business: A Corporate Guide to Renewable Electricity Procurement

Corporates sourcing renewable electricity are motivated to reduce emissions, promote corporate social responsibility, and/ or the economic returns of energy management through cost savings, price stability, secured supply, and new venture opportunities.

Understanding the science-aligned prioritization of reduction actions and the impact of procurement modalities is essential in designing a sourcing strategy for renewable electricity.? A?typical carbon management hierarchy also applies to mitigating energy-related emissions on the net-zero path. The hierarchy prioritizes avoiding and reducing emissions by optimizing efficiency gains through energy saving. The sourcing of renewable energy would follow efficiency measures.

Depending on the business context, the classic approach to the hierarchy may need to be more pragmatic. For example, when there are limited efficiency opportunities, and the measures are capital-intensive. Sourcing renewable energy becomes more desirable as the generation costs of solar/wind have decreased.

[Read IRENA’s report Renewable Power Generation Costs in 2022 for more on the global competitiveness of renewables.]

Likewise, long-term procurement agreements can reduce emissions for large-scale energy consumers. Commercial and industrial energy consumers can contract Independent Power Producers (IPP) of renewable energy at a similar or lower cost to grid power from the utility provider.

Contrarily, the fluctuation of electricity prices, such as inflation, is a solid reason for prioritizing energy efficiency over the long run. Even though sourcing renewable energy is cheaper than investing in efficiency at the given instance, prices could rise with increasing demand. Therefore, reducing the consumption rate is the most effective way to decrease future energy costs.

While the practical considerations necessitate flexibility, sourcing renewable electricity remains compelling climate action. Thus, corporates must strive to source renewable electricity with maximum impact and to sustain a reliable supply. The strategy entails three critical junctions:?goal definition, requirements specification, and performance reporting.?

1. Goal definition: setting a target for renewable electricity consumption

Target-setting indicates a more substantial commitment to stakeholders and provides an internal accountability tool to track the company’s progress.

It is common practice to set emission reduction targets covering broad sustainability variables, as evident in?SBTi commitments and?CDP disclosures . Sometimes, they also specify renewable electricity targets. However, the growing membership in the?RE100 initiative is increasing commitment to renewable electricity consumption.??

Renewable electricity targets are numerical goals by an entity to achieve a specific amount of renewable electricity production or consumption within a particular period or date.

RE100 targets are consumption targets that cover scope one and scope two emissions associated with the generation of electricity by the company for its consumption and with purchased electricity, respectively.

The RE100 initiative requires organizations to outline appropriate organizational and operational boundaries (per GHG Protocol) for which they set the 100% renewable electricity target. Identifying points of electricity consumption and understanding nuances, such as when using gas (another form of energy) for heating and cooling, is a critical starting point.

?The question opens companies without internal competencies to set targets backed with actionable roadmaps. The context-specific input factors necessitate involving energy/environmental experts to set sourcing requirements consistent with 1.5°C scenarios. Inevitably, it is valuable to consult experts.

2. Requirement specification: ensuring environmental integrity and impact

Corporate sourcing of renewable electricity drives and enables innovation in various ways, including financing, processes, diffusion and adoption mechanisms, and policy.

The concept of “additionality” describes the sustainable impact of an intervention. Additionality asks whether a proposed activity is better than the status quo (business as usual) and whether the intervention has solely resulted in benefits. The fundamental idea is that there is a baseline against which to compare the activity outcomes, and the impact is “additional” and attributed to the activity.

In assessing additionality, the “extra good” can be allocated in several aspects, such as pushing the development of policy framework (Legal), lowering emission levels (Environmental), directing investment to where funds are most needed (Financial), and accelerating technology deployment (Technological).

When adapted here, additionality refers to the net incremental renewable capacity installed or generated renewable energy directly due to corporate procurement and would not have occurred without it.

Because of a reference point, “the baseline,” additionality is highly contextual. It will vary with time; for example, the deployment of solar PVs in 2010 in Western Europe ranks higher than in 2020. It will also vary based on location; for example, renewable energy projects in Southern Africa today rank higher than in Scandinavia. This way, the objective of “additionality” remains to push the envelope consistently.?

Corporates can integrate additionality by factoring in the locations’ energy mix and the available renewable resources (in terms of abundance, scarcity, and underutilized potential) in establishing contexts for their sourcing approach.

Corporations operationalize additionality in sourcing renewable electricity through the choice of procurement method and the execution details. The RE100 recommends specifying eligible renewable electricity technologies and market boundaries; both have implications for impact.

It is worth mentioning that the impactful approaches used by and encouraged for RE100 members include the variations of self-generation and power purchase agreements (PPAs) in the image above.

Since the impact varies with each method, customization becomes critical to ensuring that net incremental benefits are delivered, including the social impacts and a layer of due diligence (through energy eco-labels) when sourcing unbundled EACs.

3. Performance reporting: promoting transparency through disclosure

The global call for transparency in climate action extends to renewable electricity consumption. Disclosure and reporting provide a platform for the public and private sectors to exchange lessons learned in reducing barriers and realizing the benefits of reduction actions.

Every milestone in the journey is an engagement opportunity.

For instance, committing to renewable electricity sourcing would be backed by medium and long-term targets and interim actions. Communication of milestones should also highlight progress on the grand scheme, which is the net zero objectives.

High transparency signals credibility as companies are open to public scrutiny. The RE100 initiative also requires third-party verification of consumption from renewable sources. Companies that communicate their plans, efforts, and performances to reporting frameworks such as RE100/CDP provide benchmarking data to mobilize peers and accelerate progress.

Communicating environmental benefits presents branding opportunities, such as product labels for low-carbon goods/services and even de-stigmatizing the sector or company. However, the ecological claims must avoid greenwashing, a duty of care that the company bears. Public messaging should be coherent, concise, and specific about details such as what has been included and excluded.

An impactful renewable electricity procurement strategy:

1. Sets and commits to sourcing targets.
2. Ensures environmental integrity and impact in the procurement modalities.
3. Communicates and engages partners and peers as you source renewable electricity.

GO2 Markets supports companies navigating the technical criteria recommended by recognized environmental standards, conducting due diligence in sourcing, executing effectively, and ensuring that renewable claims have documented proof. With an ever-expansive network in renewable energy markets and decade-long experience, our team is equipped to meet your immediate and long-term sourcing needs.