How and why should businesses back renewables? Part 2

by Chris Hargreaves | Dec 10, 2023 | Energy, New Zealand Energy Certificates, News, Sustainable Business

Contributed by Paul Coster, Founder of EVA Marketplace

Given the need for businesses to slash fossil fuel consumption, part 1 asked the burning question, ‘can backing renewables be both a pragmatic commercial decision and contribute to climate action?’ I then explained that the climate-friendly way for most New Zealand businesses to back renewable energy is through electricity, by both demand response and supporting additional renewable generation.

Here in part 2, I will start by detailing the solutions available to businesses, explain the role played by energy certificates, and then discuss which solutions can have the most impact.

Solutions

Readily available solutions for supporting renewable electricity are shown below. Each of these solutions requires an electricity supply agreement, and some require a power purchase agreement (PPA). See this recent blog post by EVA to learn more about PPAs and how they differ from supply agreements.

Businesses can combine solutions for greater impact, such as having demand response, on-site generation, and a corporate PPA. In all cases, a relationship with an electricity retailer is retained.

1. Demand response

Technology is installed on the business’s site that allows electrical equipment (including battery storage) to respond to changes in the electricity market, such as high prices or plentiful renewable generation.

2. On-site generation

Renewable generation is installed on or near the business’s site. The project is owned by the business, or owned by a developer who agrees to sell the electricity onto the business via an on-site PPA.

3. Corporate PPA

Renewable generation is constructed remotely (‘off-site’). The project is owned by a developer who agrees to sell the electricity to the business via a corporate PPA, helping to financially support their project. The corporate PPA will typically be sleeved (bundled) into the business’s supply agreement.

4. Indirect utility PPA

Renewable generation is constructed off-site. The project is owned by a developer who agrees to sell the electricity onto a retailer via a utility PPA, helping to financially support their project. The retailer on-sells the electricity to the business under similar terms using PPA sleeving (bundling).

5. Project-linked supply

Renewable generation is constructed off-site. The generator agrees to sell the project’s renewable attributes onto a retailer via energy certificates. The retailer passes the certificates onto the business under their electricity supply agreement or another agreement.

Energy certificates

Energy certificates play an essential role for these solutions where renewable electricity is exported into a network. The certificates track renewable attributes for each unit of electricity, avoiding double counting (*1) and reducing the chance of mis-leading claims (*2).

Currently, energy certificates don’t consider the impact of a solution, such as its economic, environmental or social benefits. In New Zealand, issuers of energy certificates are Brave Trace. (NZ-ECs) and Energy Market Services (iRECs). Certified Energy recently announced future plans to add an impact attribute to their certificates.

Impact

In assessing the potential impact of each solution, we’re going to focus on their economic and environmental impact. The social impact of each solution will greatly depend on the approach taken by the project developer (e.g. community involvement and initiatives).

In order to assess potential impact, I considered various factors, including these three key solution characteristics by asking the following questions:

• Additionality: To what extent would the avoided system emissions have occurred in absence of the solution?
• Location: How does the physical location of the solution (on-site or off-site) affect energy cost savings and avoided costs or emissions?
• Timing: How does the timing of the demand response or electricity generation affect energy cost savings and avoided costs or emissions?

A broad brush assessment of each solution’s potential impact, based on NZ’s current market and the evidence I’ve seen, is shown below. In the complex real-world, the impact will vary for each individual solution (or combination of solutions) and, in the case of demand response, how it is operated day-to-day. Discussion of real-world impact is rich and requires its own series of blog posts.

Generally, demand response and on-site generation, particularly when combined, have the highest potential for commercial and climate impact. They’re followed by PPAs, an excellent solution for businesses where on-site solutions aren’t feasible or can’t meet their full electricity needs. Solutions that solely rely on energy certificates, like a project-linked supply, will typically have the lowest impact. Their impact depends on the revenue created by the certificates and how this money is used (businesses should request transparency).

Like part 1, this post is my current thinking, which I hope opens up more discussion about the impact businesses can have on Aotearoa’s clean energy transition.

* References

1. “The GHG emission reductions or removals from the mitigation activity shall not be double counted, i.e., they shall only be counted once towards achieving mitigation targets or goals”, Core Carbon Principles, The Integrity Council

2. Energy certificates can be used to claim lower scope 2 emissions, and are therefore a form of carbon credit or offset. To be high integrity offsets, they should align to The Integrity Council’s Core Carbon Principles.

How & why should businesses back renewables? Part one

by Chris Hargreaves | Nov 14, 2023 | Energy, New Zealand Energy Certificates, News, Sustainable Business

Contributed by Paul Coster, Founder of EVA Marketplace

As businesses navigate the need to slash fossil fuel usage, the burning question is: can backing renewables be both a pragmatic commercial decision and contribute to climate action?

Some businesses may be surprised that while Aotearoa’s electricity is ~85% renewable, our energy consumption is only ~30% renewable. This means around 70% of New Zealand’s energy consumption is met by burning gas, oil and coal, mainly for transport, heat and electricity production.

So, how do businesses burn less fossil fuel, and therefore meaningfully contribute to climate action? There are three main options:

1. 1. Eliminating or reducing fossil fuel use (e.g. reduce air travel, encourage active and public transport)
   2. Increasing energy efficiency (e.g. improve building insulation)
   3. Supporting renewable energy

In this article, I’m going to focus on ‘supporting renewable energy’, which is a more nuanced topic than you might think. Currently, there are two climate-friendly options for New Zealand businesses to support renewable energy:

• Demand response: consume more electricity when renewables are plentiful, and less when gas and coal-fired generation is running.

• Additional renewables: procure electricity in a way that helps to add more renewables to the electricity system.

At this juncture, I need to briefly discuss three other commonly discussed renewable energy options:

• Green hydrogen (hydrogen made from renewable electricity)
• Biogas and biomethane
• Woody biomass

Globally, green hydrogen is in its early stages and, in New Zealand, biogas and biomethane are in their infancy. Currently, woody biomass is primarily used in the wood, pulp, and paper sectors, where harvest residuals are readily available (*1).

Experts and scientists are cautious about the scope of these fuels in the clean energy transition due to issues such as: green hydrogen’s inefficiency compared to direct electrification of heat and most land transport (*2), the challenging economics of large-scale biogas/biomethane production in New Zealand (*2), and elevated CO2 emissions over decades created by burning woody biomass produced from whole trees (*3 & *4). In my view, woody biomass production should be limited to harvest residuals, and priority given to its use as energy storage to address electricity shortages.

Ok, returning to demand response and additional renewables:

Demand response
Demand response (also called ‘load shifting’) is the shifting of electricity consumption into periods of time when renewables are plentiful (and out of periods of time when it’s scarce), and was discussed last month by Andy Cooper from The Energy Collective.

Andy explained how businesses can use demand response to save money, reduce scope 2 carbon emissions, and help defer costly investment in the electricity network. He also discussed current limitations of Renewable Energy Certificates (RECs), also called Energy Attribute Certificates (EACs).

Additional renewables
It’s necessary to support additional renewables such as wind and solar, otherwise new electricity demand (e.g. EVs, heat pumps) will need to be met by gas or coal-fired generation. 

According to the Climate Change Commission, Aotearoa needs approximately an additional 1,000 GWh of renewable electricity every year between now and 2030 to meet our climate targets. That’s around 2.5% of New Zealand’s annual demand (~40,000 GWh), roughly equivalent to 300 MW of wind or 550 MW of solar, every year.

So, how can businesses help add renewables to New Zealand’s energy system? Impactful and readily available solutions for businesses are:

1. On-site renewable generation (e.g. rooftop solar)
2. Corporate Power Purchase Agreement (PPA) (*5) with a renewable generation project (i.e. a business buys electricity directly from a generation project)
3. Indirect PPA with a renewable generation project (i.e. a PPA entered into by an electricity retailer on behalf of a business)
4. Electricity supply agreement (*6) linked to a renewable generation project

Businesses can combine these solutions, such as having on-site generation, a corporate PPA and an electricity supply agreement. Combining a PPA with a supply agreement is called PPA ‘sleeving’. For all solutions, businesses retain a relationship with an electricity retailer.

In Part 2, I’ll look at each solution in detail, discuss their pros and cons, and explain why solutions 1 and 2 tend to be the most impactful. I’ll also discuss the important role played by RECs, or EACs, explaining why these certificates should be used in most cases.

These posts are my current thinking, which I hope opens up more discussion about the impact businesses can have on Aotearoa’s clean energy transition.

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About Paul Coster

Paul is the Founder of EVA Marketplace, Aotearoa’s marketplace for renewable PPAs. EVA assists businesses by matching them to renewables projects, facilitating PPA negotiations, supporting green products (including RECs/EACs) and enabling corporate PPA sleeving. EVA also publishes a quarterly report on the renewables market.

Total Utilities works with EVA to offer customers the option of a corporate PPA sleeved into their electricity supply agreement, helping to control electricity costs and ethically reduce carbon emissions, while retaining the convenience of an FPVV supply arrangement.

* References

1. Biomass energy in New Zealand, EECA
2. 2023 Draft advice to inform the strategic direction of the Government’s second emissions reduction plan, Climate Change Commission
3. Why burning trees for energy harms the climate, World Resources
4. 500+ scientists tell EU to end tree burning for energy, WWF
5. PPAs tend to be longer term contracts (5 – 15 years) where a buyer commits to buying electricity from a specific project, such as a solar farm, usually at a fixed price. 
6. Electricity supply agreements tend to be shorter-term contracts (1-5 years) where buyers purchase electricity from a retailer for their sites or buildings, typically at a fixed price.