Renewable energy procurement is now a key aspect of any corporate strategy.
Rapidly improving economics mean that to not at least consider a renewable energy strategy is akin to leaving money on the table. The economic case for clean energy is bolstered by the risks of inaction in a social environment where engaged consumers demand environmental responsibility across supply chains. As a result of these trends, companies have become increasingly proactive in their transition to clean energy sources.
At last year’s global climate summit, COP21, the world witnessed businesses drive governments to an unprecedented global agreement to act on climate change. 154 of the largest businesses in the United States signed on to the American Business Act on Climate Pledge to voice their support for a strong outcome in Paris, an outcome that was achieved thanks in no small part to these efforts. Certain companies have gone further still, committing to power 100% of their operations with renewable energy – some of them with a target date as soon as 2020.
2020 is approaching quickly, and a recent survey by PricewaterhouseCoopers of those responsible for directing corporate renewable energy programs has shown that the path to procurement is fraught with challenges.
The survey revealed that organizational complexity, the need to communicate value to a range of stakeholders, and the constantly-shifting nature of the energy landscape can make carrying a business to its sustainability aspirations difficult and time-consuming. Even for well-intentioned enterprises, these challenges sometimes lead to the abandonment of otherwise viable renewable energy initiatives.
So what can a renewable energy advocate do to guide their organization toward the accomplishment of its goals? As the report highlights, many leaders tasked with corporate renewable energy procurement seek out the assistance they need to make their business’ renewable energy aspirations a reality.
Use A Guide
The procurement of renewable energy for commercial enterprises is a complex process, especially when the goal is to deploy solutions across a geographically diverse portfolio.
The PwC study found that over four-fifths of the decision-makers interviewed stated that they would seek the assistance of a third-party for future procurement needs. While it is possible to navigate the jumble of financial, legal, technical and economic obstacles that may present themselves during the procurement and deployment of a renewable energy solution, those who have experience with the process understand that it is often best to contract with an expert – saving time, money and headaches.
Understand Your Obstacles
Also highlighted in the report were the steps of the procurement process where respondents felt the most stuck: building internal support (28%), negotiating the contract (22%), defining a strategy (20%), and identifying a project (11%) were named as some of the most difficult challenges to overcome.
Source: “Corporate renewable energy procurement survey insights”, PricewaterhouseCoopers, June, 2016.
Building internal support – In order to effectively implement a renewable energy strategy across an organization, it is essential that internal decision-makers be sold on the concept. Armed with the right tools and a clear plan, a compelling case for deploying renewables can be made to the various departments across an organization – but it can be difficult to “speak their language,” especially when dealing with multiple stakeholders. Three quarters of the respondents stated that at least two divisions are involved in the decision, and more than half of the companies contacted required three or more decision-makers from departments such as Facilities/energy management, Sustainability, Finance, Operations and Procurement.
Negotiating the contract – It is extremely difficult to conduct an effective negotiation unless you are well-informed and confident of your position on the matter at hand. In the energy industry, however, there has traditionally been an asymmetry of information where suppliers of energy have the upper hand in negotiations due to the technical nature of their industry. It is only possible to negotiate with confidence when you have a clear view of the options available and the ability to easily contract with a range of suppliers within a structured and consistent environment.
Defining a strategy – To what end will you employ your renewable energy solutions – is the goal operational savings, or sustainability? How will you measure the results and verify a successful completion of your mission? There is a business case for renewable energy at nearly every company, but properly defining your goals and developing a plan to reach them can be difficult without a requisite knowledge of the range of solutions available and the benefits they can provide.
Identifying a project – Even once a strategy has been defined, it can be difficult to assess where to start. Which sites are the best candidates for an onsite solution as opposed to an offsite PPA, and what metrics should be used to assess options across your portfolio? Defining these criteria and accurately examining each site across your portfolio for profitable opportunities is key to the successful execution of a renewable energy strategy.
What do these four challenges have in common? All of them must be addressed by an effective, holistic procurement execution plan.
For corporations and other commercial enterprises, there are many stages to a successful procurement and deployment of renewable energy. To identify these stages is a strong first step towards execution of your plan, but each stage represents a potentially complex process with the possibility of encountering hurdles that may cause a project to be held up or even abandoned. An effective execution strategy will be designed to maintain momentum in order to ensure a timely, efficient delivery of projects and, ultimately, the completion of your organizational aspirations.
Apart from the highlighted challenges, there are other areas where corporations seeking to procure renewable energy commonly encounter difficulty. One is a lack of flexibility with respect to technology and financing options. Four-fifths of the companies surveyed in the study said they planned to involve multiple types of transactions in their portfolios (such as a deployment of onsite solar generation at one facility and the purchase of an offsite PPA for another). This can create additional challenges since most renewable energy suppliers favor specific technologies and/or financing solutions.
Uncritically choosing one type of renewable energy option across various sites can often mean sacrificing the most favorable economics, yet most renewable energy suppliers will not provide the flexibility necessary to optimize your renewable energy mix. Some developers push Power Purchase Agreements (PPAs) on their customers, negating the possibility of ownership (and consequently, control) of the assets that generate their electricity. Meanwhile, other operators are often willing to offer more flexibility with respect to technology and financing options, but may lack the resources to execute a deployment strategy across a geographically diverse portfolio. This means that respondents who wish to utilize more than one type of renewable solution and/or ownership alternative in their strategy (80%) will need to contract with multiple parties, often resulting in a misallocation of valuable time and resources to due diligence and other activities outside the scope of their core business.
Cut the Complexity
Elaborate internal processes, informational asymmetry and the multitude of renewable energy vendors vying for projects can make for a complex process to manage – and that is before accounting for the many layers of analysis and monitoring that must be undertaken to ensure the feasibility of a project.
External conditions such as utility rate changes and transient government incentives can make or break a project, and must be tracked diligently to ensure the timely execution of your strategic deployments. For this type of industry-specific knowledge, it is best to employ an outside specialist rather than spend countless hours simply trying to keep your head above water monitoring all of the sites across your company.
One solution to this issue is to work with a third party capable of helping you assess the various opportunities across your portfolio. Indeed, 81% of companies interviewed stated that they planned to engage a third party to help develop their procurement strategy. More effective still is to consign procurement to a third party that not only strategizes, but can also assist in the execution of projects. A third party that is capable of assessing, organizing and mobilizing a network of providers across your portfolio can dramatically streamline the process and ensure that renewable energy commitments are met at the right time – as well as for the right price.
Act Sooner Rather Than Later
One thing is certain – the enterprises that succeed in deploying renewable energy are happy with their investment. 85% of respondents to the PwC study that had already deployed renewables stated that they were actively pursuing further opportunities in the space.
Even after one successful execution, however, the problem remains that the energy sector is changing rapidly. Changes in technologies, utility rates and incentives must be monitored constantly, a responsibility that can distract from core business initiatives or cause profitable opportunities to deploy renewable energy to be missed as external market conditions ebb and flow.
While the prices of renewable generation technologies continue to drop, the government incentives that currently bolster system economics will not be around forever. The 30% Federal Investment Tax Credit (ITC) that was renewed at the end of last year will continue to support commercial renewable energy for a time, but will be phased out by 2021 – giving proactive companies just enough time to fully benefit from the ITC in reaching their goals for 2020.
Each organization has different goals and requirements, but renewable energy is an investment that can prove valuable for a variety of reasons. PwC found that respondents cited a wide range of motivations for pursuing clean energy, including a desire to meet sustainability goals and reduce greenhouse gas emissions (85%), generation of an attractive ROI (76%) and limiting exposure to energy price variability (59%).
Whatever your motivations for procuring renewable energy, the timing has never been better to take action. If there is one piece of advice we can offer on meeting commitments for renewable energy projects, it is that the sooner you begin the process the better. After all, 2020 is just around the corner in enterprise calendar terms. Contact us to learn more about where to start.