Sector News

Renewable power procurement needs a reset

August 13, 2023
Sustainability

By increasing their use of green power, many companies have already made big strides toward decarbonizing the global power system. But organizations need to go further and reset their procurement strategies, move from a transactional to a system-based approach, and help create a sustainable power ecosystem in line with worldwide climate ambitions, according to a new report from the World Business Council for Sustainable Development and BCG.

Savvy players are already doing this. In What’s Next for Companies Procuring Renewable Power?, we set out six ways in which forward-looking companies have changed the way they purchase renewable power to focus on ambitious sustainability-led procurement actions. By learning from these approaches, business leaders can future-proof their power procurement strategies and meet rising expectations from stakeholders and regulators.

Exponential Growth in Corporate Demand for Renewable Power
As key purchasers of clean power, companies are playing an increasingly important role in supporting the development of additional renewable generating capacity—which is essential for the energy transition and attainment of global climate goals.

Since 2008, businesses have signed long-term power purchase agreements (PPAs) for 148 gigawatts of clean power for their operations—more than the total power-generating capacity of France. And in 2022, companies committed to buy a record 36.7 gigawatts of clean power through PPAs, 18% more than the previous year.

Corporate purchasers have become more ambitious about how they procure renewable power and meet green-energy commitments. While the use of PPAs has become far more widespread, both geographically and by industry, companies are also diversifying their procurement strategies by investing directly in their own renewable power plants, buying clean electricity from utility companies, or purchasing certificates.

Drivers of High-Impact Procurement
While far more companies are selecting renewable power, business leaders seeking to enhance the impact of their power procurement strategies face challenges and pressures from multiple directions. They must navigate an evolving landscape of sustainability goals while addressing the potential risk of being perceived as greenwashing and must account for new developments in power markets resulting from factors such as increased renewable capacity and regulatory changes.

Evolving Sustainability Aspirations
Several sustainability-based dynamics are creating tailwinds for companies to procure carbon-free power. Here are the main ones.

Increasing Stakeholder Expectations. Companies are confronting growing demands from stakeholders to take a broad set of sustainability considerations, including environmental and social impacts, into account when making key decisions for their businesses. Building these factors into their power procurement strategies can help organizations respond to stakeholder expectations.

More Stringent Sustainability Regulations. Worldwide sustainability rules are set to become both more standardized and more demanding. By taking action now and getting ahead of these emerging requirements, companies can reduce the risk of noncompliance. This is particularly important in power procurement, where players are making decisions that will last for many years.

Rising Ambitions for Voluntary Commitments. Rather than simply reducing emissions from their own business operations (scope 1 emissions), forward-thinking players—helped by new methodologies and metrics—are reshaping the way they procure power so that they have a positive impact on supply chain emissions (scope 2) and emissions arising from the use of their products (scope 3). Business customers and consumers are increasingly demanding such an approach.

Power Market Developments
Greater renewable generation is changing the dynamics of the global power system—and how companies procure power.

Addressing Increased Electric Price Volatility. A high penetration of variable renewable energy generation, continuing geopolitical tensions, and delays in the expansion of electricity grids are set to increase price volatility even as power becomes cleaner. By building more flexibility into their power demand profile, companies can manage the risk of volatility, support the transition away from fossil fuels, and reduce costs. Furthermore, by innovating their business models, they can potentially generate additional revenues.

Capitalizing on Prosumer Models. In today’s markets, companies are becoming prosumers. They are investing in their own distributed generating sources (such as solar panels and wind turbines) to meet their localized power needs and selling surplus electricity back to the grid. This trend—which creates revenues for companies and expands renewable capacity—is set to continue.

Aligning with Evolving Power Sector Regulations. Power market regulations will evolve to accommodate renewable generation, bringing greater standardization, increased interoperability between networks, and higher technical standards. Savvy companies will collaborate early with policymakers and regulators to support the development of these rules.

Six Ways to Support a Sustainable Power System
In response to these developments, companies should continue to prioritize using more clean energy for their power requirements—but they also need to rethink their renewable power procurement strategies so that they contribute to a more sustainable global power system and create resilience in the face of changing markets.

Here are six leading power procurement approaches that players can learn from:

  • Procure renewable power when it is generated. Companies can use data-driven technologies to ensure that they procure—and consume—renewable power at the same time that it is generated. In this way, they can better match their hour-to-hour consumption to when the sun shines (solar power) or the wind blows (wind power), enabling greater renewable capacity to be integrated into the grid.
  • Support grid flexibility. Companies can reduce costs by using stored energy for their needs or by changing their operations so that they purchase renewable power from the grid when it is abundant and prices are cheap. These actions also contribute to the flexibility and stability of grids that have a lot of variable renewable capacity.
  • Maximize emissions abatement. Forward-thinking organizations are factoring avoided emissions into their strategies and procuring renewable power from projects that yield the largest greenhouse gas emissions reductions. Altering the location of projects and changing the time of day or year when companies procure power are two strategies that can improve emissions abatement.
  • Use resources sustainably. The manufacture and disposal of renewable plants, and the technologies they contain, have significant environmental and social impacts unless managed properly. Proactive corporate buyers are working with developers and their suppliers to curb emissions throughout the life of the project, ensure that materials are sourced sustainably and ethically, and improve recycling.
  • Avoid damaging nature. By including land use considerations in their decision making, corporate buyers can take steps that prevent renewable power projects from harming nature. For example, they can make sure that projects are located on a brownfield site where possible, that they are not sited in areas that are vital for farming, and that they do not endanger local wildlife.
  • Support a just energy transition. Companies can help ensure that projects support a just energy transition by working in tandem with developers to place people and communities at the center of key project decisions. For instance, corporate buyers can push for greater community engagement, identify ways that projects can share benefits with local populations, and help make sure that projects are located to maximize economic opportunities for marginalized communities.

By adopting the approaches outlined in this report, companies can help make the global power system more equitable, ensure that it is more positive for nature, and support worldwide climate goals. But businesses should also consider actions that go beyond power procurement. For example, they can use their influence with suppliers and customers to persuade them to decarbonize (and thus tackle their own scope 3 emissions), collaborate with a variety of stakeholders to help scale up new technologies, and use a more holistic approach to meeting all their energy needs, not just for power. In this way, they can have an even greater impact on the transition to a sustainable power system.

By Lars Holm and Rajat Walia

This research was a collaboration between BCG and the World Business Council for Sustainable Development. Click here to read the full report.

Source: bcg.com

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