Partner Post: How Renewable Energy Solutions Measure Up to Traditional Energy Options
This post originally appeared on business.directenergy.com and was republished with permission.
One big reason organizations pursue renewable energy is to demonstrate corporate social responsibility. Consumer demand for greater transparency and accountability are also driving more businesses to disclose their environmental impact. A 2017 Power Forward report found that 63 percent of Fortune 100 companies and 44 percent of Fortune 500 companies have or maintain energy sustainability goals and targets.
Environmental stewardship is not just good for the planet, it’s good for business.
Fortune 100 and 500 companies’ sustainability goals in 2016 not only created 80,000 emissions-reducing projects but also yielded $37 billion in savings. Sustainable practices, including purchasing renewable energy, can fulfill both environmental and business objectives.
The question is, how can you leverage renewables to meet your energy management goals?
Budget Certainty
Many traditional large energy buyers seek to manage their energy costs according to a budget limit. Businesses that prioritize budget certainty want to know exactly what their energy costs will be, so they can stay within budget or meet an exact target. They expect a definitive price guarantee for their usage and no surprises on their energy bill.
Traditional energy options to achieve budget certainty either lock in one fixed rate per kilowatt hour or layer multiple fixed energy purchases over time. A fixed rate constitutes a stable price per unit regardless of market forces. Layered procurement involves buying fractions of your total power load at a fixed rate over time. In many cases, customers utilizing the layered approach will pay the index price for the part open to market rates. Layered procurement strategies are popular because they enable buyers to manage market timing risk (making energy purchases when energy prices are inflated relative to future prices) and to leverage favorable index market pricing. Layered procurement also provides significant flexibility, giving buyers the option of locking in anywhere from 1% to 100% of their electricity purchases.
You can maintain budget certainty and buy renewable energy to power your business.
There are single fixed rate and layered renewable solutions that offer cost certainty and peace-of-mind. If you are looking for a single fixed rate, Renewable Energy Credits or carbon offsets are the best renewable solutions.
Renewable Energy Credits (RECs) are certificates that represent the environmental impact of one megawatt-hour (MWh) of renewable energy generation. RECs are issued for each MWh of electricity that is generated and delivered to the electricity grid from a renewable energy resource. They offset a specific quantity or percentage of the energy you use from traditional sources. Buying RECs provides the same budget certainty as a traditional fixed rate option. With these credits, you can cover a full power load at a fixed rate, without changing your operations or electricity supplier.
Carbon offsets compensate for CO2 emitted from traditional energy use by reducing carbon dioxide elsewhere. Like RECs, buying certified carbon offsets at a single fixed rate can protect budget certainty and help reduce emissions. In 2018, the market for voluntary carbon offsets was valued at almost $300 million. Companies that want to make immediate progress toward reducing their environmental footprint buy carbon offsets.
Renewable solutions that offer layered pricing, which can be layered up to 100 percent fixed, include green power purchase agreements and Renewable Choice.
Renewable Choice™ supports clean energy development because it ensures that part of your power supply comes directly from a specific renewable source. The supplier purchases clean energy and RECs from a renewable source and delivers you a fixed price and RECs. This may be a good option for budget conscious businesses because, like layered procurement, it guarantees a fixed rate for a load portion sourced from renewable generation.
A grid connected power purchase agreement (PPA) allows you to buy energy from a renewable developer. With a PPA, your business can secure a fixed rate that works for your budget and directly participate in greening the grid. Depending on where your business operates, buying renewable power may be less expensive than buying traditional power.
Cost Management
Organizations that prioritize cost management are willing to take on more risk to get a better price for the energy they use. A cost management energy strategy requires greater risk tolerance and close market monitoring.
The typical traditional energy options for cost management are index rate and layered procurement.
An index rate is based on shifting market pricing. It gives you the flexibility to capitalize on good prices during market lows. An index rate presents greater risk because of its dual potential for very low prices in a favorable market and very high prices in a volatile market. Whereas, layered procurement locks in a portion of usage at a fixed rate and leaves the remainder on market rates. A layered approach offers partial budget certainty without losing opportunities to benefit from low market prices.
The same no risk, no reward cost management mentality for traditional energy can be applied to renewable solutions. Why not take advantage of the proliferation of renewables and the record low clean energy prices they offer?
The exponential growth of utility-scale solar and wind capacity means greater access to cheaper and more efficient clean energy. Since they are often affordable and less susceptible to market price shocks, renewables can be an attractive option. For example, with custom sourced renewable power, you pay one price for power derived from a renewable energy source and your supplier takes on the risk of sourcing and delivering that power to your business. Renewable Choice also allows you to choose how much of your load you want to cover with a hedge.
Another great cost management renewable solution is a grid connected power purchase agreement (PPA). A green PPA allows you to buy clean energy from a renewable developer near your service location. A PPA may work better than layered procurement because it could amount to more overall savings than buying individual load portions at low market rates. Plus, renewable energy developers estimate that PPA prices for solar and wind will decrease or stay the same in 2020.
Reliability
Reliability is important to all organizations especially ones that cannot weather power interruptions like data centers, hospitals and blood banks. Organizations like these must be powered on at all times. They are often required to identify backup sources and have limited control over their exposure to grid failures. Many organizations are underprepared for the growing threat of power supply interruption.
Power outages can happen without warning and have disastrous effects. Since the power grid is vulnerable to severe weather and overload, backup generators are one option that’s commonly used in the event of power failure. However, backup power systems that rely on traditional energy may not be equipped to handle total or prolonged power loss.
One way to avoid risk and boost reliability is by generating your own sustainably sourced electricity.
The most prepared organizations embed sustainability into their strategy to secure a reliable energy supply and achieve a competitive advantage. For example, you can generate renewable energy on-site with photovoltaic (PV) solar panels.
Solar panels can be installed on roofs, empty land, or over a parking lot. A solar solution can help counteract electricity price volatility and inflation. Surplus energy can also be stored in a battery system for future use or transferred to the grid for an additional revenue stream. Solar with battery storage creates an on-site renewable energy supply. This eliminates the need for gas-powered backup generators, reduces reliance on traditional energy sources from the grid and stored solar energy can be used in the event of a surprise outage.
Reliable energy and environmental stewardship are not mutually exclusive. No matter what your operational priorities, renewable procurement provides numerous benefits. Making the switch offers the win-win of supporting clean energy and achieving greater budget certainty, cost management and/or reliability.
Consider choosing a sustainable, cost effective energy solution to power your business.