Incorporating renewable solutions into the procurement processadmin
Consumers, stakeholders and employees all demand that businesses operate in a sustainable manner, and in response, corporations must adopt clean energy practices. Businesses have responded to this shift in various ways, with renewable energy integration at the forefront of sustainable investments even helping drive market development. In fact, corporate renewable energy procurement reached a new record in 2018, with 3.57 gigawatts (GW) of clean energy projects announced this year to date in the United States. Driven by various motivators – from the potential for energy savings, the creation of diverse business strategies, and a desire to reduce greenhouse emissions – incorporating renewables into an energy strategy presents organizations with the opportunity to increase cost efficiency and reliability while reducing their environmental impact.
When determining a path to sourcing renewable energy solutions, businesses are confronted with a variety of factors that change by market and regulatory conditions, which precludes utilizing a single strategy. These diverse factors include the type of business, geographic distribution, market availability, appetite for risk, building type and business priorities. Given that there is no “one size fits all” for renewable procurement, here are five steps procurement teams must follow before crafting and executing an effective renewable energy strategy.
Step One: Know Your Business, Know Your Data
The phrase, “If you can’t measure it, you can’t improve it,” applies squarely to renewable energy strategies. To set their organization up for success, companies must measure their energy usage, spend, location and duration of their current energy portfolio. The process of measuring and assessing a portfolio will identify areas of misuse, help develop a typical facility profile and will naturally uncover where renewable energy opportunities may exist. Aside from the energy team, other key business areas, such as real estate, sales, and facilities management, must also undergo analysis to help develop the most efficient renewable energy strategy. This wealth of data from across the business will ensure that energy procurement teams are armed with the appropriate information when they present the renewable energy plan to various company stakeholders.
Step Two: Consider Stakeholder Priorities
Fifty-three percent of businesses report the challenge of receiving internal stakeholder agreement as a barrier to renewable energy adoption. These stakeholders range from shareholders to employees and customers, and each group has varying priorities that the procurement team must consider. For example, one group may be motivated by the financial pay-off, while another focuses on environmental concerns.
To address this lack of alignment and ensure that each stakeholder is presented a plan that addresses their exact priorities and concerns, the internal procurement team should consist of cross-functional employees that can accurately identify all stakeholder priorities. The internal procurement team can then work to develop a plan that meets all needs and highlights how renewable energy fits into broader sustainability initiatives.
Step Three: Identify Barriers to Success
Every company will face challenges that can prohibit the integration of renewable resources. These barriers can be rooted in financial causes, lack of assets or data, geographic limitations, or contract and regulatory restrictions. For example, when thinking of financial barriers, companies may need to consider if they can afford the upfront cost of capital expenditure (CapEx) agreement in order to realize the benefits of a renewable energy solution, or if some other renewable solution that is not capital intensive makes the most sense for their business. Procurement teams must also have in-depth knowledge of their region’s regulations around renewables, and how the policies will affect the integration process. While certain states have adopted innovative policies, many must still work to implement the infrastructure, programs or regulatory support needed to ensure successful results.
Once these limitations are known, teams must highlight them within their renewable sourcing plans, alongside potential solutions to help overcome the barriers. Identifying potential challenges, both internal and external, from the onset will limit potential crises and make the overall procurement process more efficient and cost-effective.
Step Four: Run the Long Race, Not the Sprint
Today’s prevailing narrative includes frequent and urgent calls for action on clean energy solutions and sustainable practices. With CO2 emissions reaching a historic high, rising 1.7 percent in 2018 alone, the market has increasingly taken note of which corporations are making renewables solutions part of their strategy, those that don’t and the business impact of electing not to deploy such sustainable business practices. While the heightened scrutiny of global business practices may be warranted, businesses will need to be strategic and methodical with their renewable energy procurement process to ensure they are sourcing solutions that optimize their renewable and business goals rather than take action now that causes inefficiency later – for example fixing the majority of their load now at current rates and terms available for renewable solutions now that may not be optimal relative to future offerings given changing technologies, cost structures, and regulatory conditions. Factors like contract term, marketability, price and volume risks, budget certainty and contract simplicity, among others, can have an impact on the decision-making process and need to be considered alongside renewable goals.
In order to ensure that their renewable resources will make a real difference in reducing carbon emissions and generating savings, businesses must thoroughly vet several components – including their financial baselines, incremental tariff increases, and resource location options. While it may seem like this process can be easily accomplished, it can be a significant time commitment to ensure the business is prepared to solely integrate and increasingly rely on renewable resources. Greater analysis from the outset of planning will increase the long-term potential for success.
Step Five: Incremental Diversification Rather than Replacing Portfolio Procurement Strategies
While 182 global companies have committed to 100 percent renewable energy, the vast majority of companies may not be in a position to set such ambitious goals without first demonstrating the value-added opportunities of increasing renewable energy sourcing. As a company shifts its energy supply from traditional resources to renewables, it must ensure that its energy mix can still keep up with facility demand at the time that the facility needs energy. This shift takes time, since switching to renewable solutions without ensuring delivery of that solution will meet operational needs the way prior supply strategies can result in broader operational issues.
In order to identify a picture of the greatest, most cost-effective and impactful opportunities in renewables, procurement teams must develop a solid understanding of the varying renewable energy solutions, market conditions and tariff options available in each market across your portfolio of sites. For multi-site businesses managing hundreds – if not thousands – of sites, this can be a challenge, but starting with a clear, accurate and comprehensive view of consumption site-by-site is a great starting point.
With this in mind, an integrated mix of power across renewable solution products, including off-site renewables, on-site, retail renewable solutions, unbundled REC purchases and shifting to green tariffs), may be coupled with traditional energy supply strategies to allow for an optimal diversification for the near and long term.
The Big Picture
While corporate renewable procurement is booming, growing by 60 percent over the past decade, the current adoption rate is currently not high enough to reach identified science-based climate targets. Increased global investment and the subsequent increases in supply suggest that corporations should have a strategic plan and clear roadmap in place to capitalize on expanding renewable markets and optimize any transition that includes increasing renewable sourcing. The five steps presented create a roadmap that companies can follow, leading to an informed, effective adoption of renewable solutions supporting business needs and a cleaner, greener future.