Today, most industry leaders are aware of the correlation between environmental stewardship and performance. They know that climate risk is equal to financial risk, and organizations that fail to meet climate benchmarks in the coming decades will almost certainly face reputational and operational damages. They also know that the upcoming SEC Climate Disclosure mandates will hold them more accountable for their actions than before, so we should expect to see more industry leaders moving in the right direction.
SBTi companies now cover over 35% of the global market cap - clearly marking ESG as essential to industry leaders and stakeholders. What’s more, most SBTi companies (68%) with scope 1 and scope 2 emissions targets are already aligned with 1.5 degrees C, giving a positive outlook on the effectiveness of environmental reporting frameworks and decarbonization roadmaps.
Numerous other trends are also pushing commercial and industrial industries to decarbonize.
- Corporate buyers purchased more clean power than all utilities combined for the first time.
- Energy prices are increasing, and the market is becoming more volatile. US renewable energy prices have increased by 30% over the last year.
- The Inflation Reduction Act provides powerful tailwinds for companies already on the path to net zero, and it removes any excuses for those waiting on policy certainty.
Further, the demand for commercial and industrial clean energy is projected to rise significantly faster than renewable energy supply through 2030, widening the gap between the available renewable energy supply and industry demand.
So, what are companies doing to meet climate-related decarbonization goals and prepare for rising clean energy demands?
Decarbonization Options for Commercial and Industrial Entities
To understand the various avenues that companies can adopt to reach the decarbonization goals, we first need to understand the options to purchase clean energy and/or the attributes.
Unbundled REC Products
Commercial and Industrial companies can buy clean energy attribute by the megawatt-hour by purchasing stand-alone Renewable Energy Certificates (RECs), separate from electricity. Buying unbundled RECs provides organizations with a mechanism to acquire renewable energy attributes that is scoped to meet the organizations’ electricity usage - rather than purchasing bundled energy (RECs + electricity) from a utility or specified generator.
While RECs provide flexibility and versatility, they also come with net-premium expenditures in addition to electricity costs, resulting in no cost savings for the organization. Also, using RECs for reaching net zero goals has been challenged especially if it does not come with additionality. Recently, RE100 revised its technical guidance to include additionality.
Utility Retail Options
Some customers can buy green power from their local utility, which is generally sold as an optional add-on service. Utility supplies usually involve purchasing RECs and electricity as a bundled, single-commodity product, which could be generated by the utility itself or a third-party supplier. While the transaction process involved with retail utility purchases is easy, product costs are higher than conventional electricity. Utility customers also face project slippage and supply risks, leaving them exposed to those risks.
Community Choice Aggregation (CCA)
Some states offer Community Choice Aggregations (CCAs), which are formed following state policy and allow governments to consolidate electricity demand and contract the supply to fill those needs (often with renewables). Since CCA involves local renewable energy generation, it supports economic development and provides jobs within communities. Still, the long-term availability of CCAs is still being determined, and green power generation decisions are out of the control of consumers and end-users.
Direct purchase options for green energy include Power Purchase Agreements (PPAs) and Virtual Power Purchase Agreements (VPPAs), each offering a direct and tangible association with a specific renewable energy facility.
Standard PPAs are generally long-term contracts between a company and a renewable energy producer that specify the electricity price, delivery schedule, and transfer of RECs for the duration of the contract. While PPAs give customers a predictable outlook regarding energy costs, buyers run the risk that future electricity prices could decrease below the contract price especially if not negotiated well, and the risk of energy supply curtailment and resulting renewable energy certificates (REC) delivery.
VPPAs, on the other hand, take the form of a price hedge, where a company enters a contract to pay for renewable energy at an agreed take-off price. The renewable energy project pays the company if the energy is sold into the market above the agreed contract price, and the company pays the difference if the energy is sold lower. These are complex contracts as the market risks are factored into the transaction and therefore the companies need to hire experts to negotiate and structure the contracts carefully. Given, there is no clean power delivered to the company, it does not demonstrate sustainability leadership of a company running green operations. In addition, it comes with the REC delivery risks subject to distance rules if set by the SEC or sustainability frameworks.
Self Generation - Behind the Meter
Onsite self-generation of renewable energy is a clear showcase of environmental commitment to power the operations with renewable energy and benefit from the sustainability attributes. For companies looking to invest in self-generated onsite renewable energy, there are several options available - the most common being CapEx and the emerging ones is onsite Energy as a Service (EaaS).
Capex (capital expenditure) is the upfront financial investment to build an onsite energy system or microgrid by companies looking to decarbonize. While it can prove to be beneficial for those with appropriate resources and systems in place, they also come with some drawbacks. Not only will companies face the upfront costs associated with asset design, installation, commissioning, and training, but they also need to consider the ecosystem required to operate and maintain those assets that is not their core business.
So, you might ask yourself, “Is there anything I can do to circumvent the challenges and complexities involved with these decarbonization solutions options and help our business decarbonize as clear demonstration of our sustainability commitment?”
The answer for many… Energy as a Service.
What is Energy as a Service, and How Can it Benefit Commercial and Industrial Entities Looking to Decarbonize?
Energy as a Service (EaaS) is quickly becoming the ‘go-to’ approach for commercial and industrial companies looking to decarbonize and meet their regulatory and compliance goals. EaaS describes a de-risked business model that supplies green power for company’s operations, focus on energy services outcomes, minimizes its reliance on the grid, builds energy resilience, and reduces Scope 2 emissions - all without demanding the upfront costs and without the maintenance and operations management hassles.
GreenStruxure’s Onsite Energy as a Service: A Unique Alternative
In our opinion, GreenStruxure’ Energy as a Service is the best de-risked vehicle for decarbonization and reducing Scope2 emissions for customers who are willing to take control of their energy and demonstrate their clean power leadership. GreenStuxure (GSX) specializes in providing “safe harbor” zero carbon energy supply and services for companies looking to decarbonize, build energy resilience, and meet business continuity and electrification goals.
GreenStruxure’ onsite Energy-as-a-Service (EaaS) offers numerous benefits against self generation CapEx investments as outlined below.
- CapEx purchases require a relatively significant amount of upfront capital and resources. GreenStruxure’s EaaS helps companies transition without upfront costs, risk, or burden. Customers pay a monthly fee for services delivered, with predictable and affordable prices throughout the contract's life. It offers the best Levelized Cost of Electricity (LCOE) for PV+BESS, and payments result in off-balance sheet accounting treatment.
- CapEx purchases often involve multiple contracts and different players with misaligned interests and commonly result in companies spending added time, resources, and money on energy management rather than core processes. With GreenStruxure’ EaaS, customers sign a single contract that covers everything from design to operations and management - reducing complexities and letting companies focus on their core business.
- In a CapEx deal, customers take outcome-based risks, as performance guarantees are generally not aligned with companies’ sustainability goals. They also need to manage RECs and execute sustainability reporting. GreenStruxure’ EaaS is outcome-based and provides certainty regarding onsite zero-carbon energy production, guaranteeing energy volume, uptime, and performance.
- CapEx requires customers to manage the operations and asset maintenance. GreenStruxure solves those challenges with a best-in-class asset maintenance service plan and top-notch AI platform, Beyondthegrid®, which brings transparency into the performance management of energy, contract, and assets. It also provides each client a dedicated customer success manager to help achieve sustainability and energy resilience goals.
Among all the decarbonization vehicles in the market, GreenStruxure’ Energy as a Services is a must-have decarbonization vehicle to demonstrate commitment to environment, and limits exposure to clean energy supply risk, financial risk and sustainability risk. To learn more, visit the website https://www.greenstruxure.com