10 Steps to Becoming a Carbon Neutral Business

Page 26 STEP 07: SWITCH TO RENEWABLE ENERGY However, there is considerable financial uncertainty in the long run. As you lock in energy prices from anywhere between 10 to 15 or more years in the future, the prices in the wholesale electricity market will affect your overall financial picture. In a worst-case scenario, where wholesale energy prices decline sharply during your contract term, the prices negotiated in the PPA will eventually be higher than sourcing electricity from the grid. Conversely, if wholesale energy prices increase more than you anticipated, your savings will be potentially higher than predicted. The inflexibility of the PPA – with its fixed prices, volume and duration – could be an advantage for some organizations while a disadvantage for others. If you have business certainty and you know your sites will remain in the same location covered by the PPA for the duration of the contract, the inflexibility may not be a problem. However, in a fast-changing business environment where you need to be able to respond quickly to market fluctuations, being location-bound and committed to offtake larger volumes for a long period of time can present a significant risk. Negotiating PPAs can be quite complex, requiring thorough knowledge of energy contracts, the energy market and its latest developments, as well as understanding of your own business environment and your company’s risk appetite. You would need to investigate the national energy markets and the regulatory framework to enter into a PPA. You would also have to collect market price indications and contact project developers for a proposal. Lastly, you need to enter in direct negotiations with a project developer on the contract details. This is a comprehensive process which also involves considerable internal engagement and you will most likely not have the internal resource to fully drive this alone. Support can be provided by external consultants or if you decide to do it alone, you probably need people with a background in Energy, Sourcing, Legal and Finance. From start to finish, setting up a PPA could easily take a year. Although usually a new renewable energy project is set up from a PPA, you can also source electricity from an existing project. Ideally, however, you would want your purchase of electricity to be “additional”. Additionality in the context of renewable energy means that your electricity purchase contributes to adding new, renewable capacity in the grid mix. When you purchase RECs – either unbundled or bundled through a PPA structure – without additionality, this means you are using energy generated by the existing renewables sources in the grid. However, if you purchase RECs with additionality, your purchase of electricity will add renewable energy capacity to the existing grid by increasing the share of renewables in the overall energy mix.