How & why should businesses back renewables? Part one

14 November 2023

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. 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.

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.