As the world transitions to clean energy, the net-zero strategy is often the best path forward, increasing companies’ energy security, resilience, and bottom line as wind and solar are now cheaper than fossil fuels. But making the ambitious switch to zero-carbon energy and investing in sustainable practices is easier said than done, coming with many practical challenges that you shouldn’t have to face alone. Fortunately, there are many popular solutions readily available to help the Commercial and Industrial sector establish a corporate sustainability strategy for achieving net-zero emissions.
1. Power Purchase Agreements (PPAs)
Power Purchase Agreements (PPAs) are the traditional method of directly purchasing clean energy at a locked-in rate over a 10-to-20-year contract. This arrangement can either be onsite or off-site generation, allowing power producers to secure long-term financing for their renewable energy projects while protecting the power purchaser against volatile utility price hikes. The project developer is responsible for the energy asset - designing, installing, maintaining, and operating the solar or wind farm. In exchange, the customer receives a Renewable Energy Certificate (REC) that proves their MWh consumption of renewables to fulfill clean energy objectives.
The issue with PPAs arises from the need to track the actual flow of electrons to pinpoint their exact time and location of consumption. This becomes increasingly difficult for companies with numerous locations, intricate value chains (for reducing Scope 3 emissions), or an inability to commit to a long-term contract. PPAs also run the risk of being poorly negotiated, leaving companies vulnerable to the possibility of renewable energy prices dropping even lower than the negotiated rate. Additionally, energy curtailment can also occur with off-site PPAs, resulting in lower RECs than expected.
2. Virtual Power Purchase Agreements (VPPAs)
On the other hand, a Virtual Power Purchase Agreement (VPPA) is precisely that – virtual. VPPAs resemble financial agreements that are independent of the physical flow of electrons. This characteristic proves advantageous for multinational corporations with a global presence or businesses aiming to reduce their complex Scope 3 emissions throughout their entire value chain. Comparable to a PPA, VPPA developers invest in new clean energy generation, thus supporting ”additionality”, and the companies benefit from the Renewable Energy Certificates without the hassles of energy management.
The drawback of VPPAs lies in their complexity, as it is a “Contract for Differences” (CFD) as a fixed price PPA is settled against the floating wholesale price index. Thus companies are significantly exposed to the risks of market fluctuations of power price, given the long-term contract. The accounting treatment of VPPA is different between GAAP and IFRS, and this gets challenging for global companies. In addition, there are substantial upfront costs and efforts required to establish the VPPA contract that typically only large organizations can afford.
3. Onsite Energy as a Service (EaaS)
Implementing Onsite Energy as a Service (EaaS) signifies a company’s commitment to achieving net-zero emissions by investing in tangible clean energy generation systems on their premises, unlike a VPPA. This de-risked business approach eliminates the need for initial capital or debt, as the EaaS provider wholly owns, maintains, and manages the energy assets. In return, the companies receive all the advantages of an onsite microgrid, effectively reducing their Scope 2 emissions to fulfill regulatory and compliance goals. Compared to utility-scale wind and solar PPAs, onsite EaaS can be deployed much faster and for a fraction of the cost.
EaaS operates on an outcome-based model, with performance and savings guaranteed to budget energy expenses accurately. Rather than waiting years for a return on investment, EaaS instantly yields benefits in terms of secured energy savings, all without the need for loans or on-balance sheet financing. With an EaaS contract, businesses pay a monthly service fee (similar to a utility bill) and can fulfill their decarbonization targets without bearing any upfront costs, thereby freeing up additional capital for their primary business endeavors.
Greenstruxure’s Unique EaaS Decarbonization Solution
Greenstruxure (GSX) offers an outcomes-based EaaS solution that guarantees you will meet your sustainability goals. Without the threat of energy curtailment or supply disruption, commercial and industrial companies can enjoy onsite renewable energy without the complexities of managing or owning the equipment. This end-to-end solution comes paired with our AI-powered platform, Beyondthegrid®, to streamline sustainability reporting by consolidating all vital performance monitoring into one centralized location, bringing transparency and ease into your energy operations.
To learn more about Greenstruxure’s must-have decarbonization onsite EaaS solution, get in touch with our team of energy specialists today at: https://www.greenstruxure.com/us/en/contact-us/index.jsp.