Smart and efficient procurement of renewable energy

Growing ambitions within sustainable development programs, as well as the European Union’s taxonomy requirements, have created a new horizon for green energy purchases. Over the past 2 years, we have seen an incredible increase in installed renewable energy among many nations. The Department of Energy Security and Net Zero strategy in the UK reported a 7.6% increase in renewable energy – the highest increase since 2018.In Poland, renewable energy increased by more than 20% in the first quarter of 2023, with a particular focus on photovoltaic installations. [1] The growing number of renewable energy installations, among many European countries, leaves two fundamental questions to be answered:

  • How much “green energy” is included in typical power supply contracts?
  • What is the optimal energy purchasing strategy for companies to ensure the lowest carbon footprint?

To answer the first question, we need to understand how a typical energy contract works. A typical renewable energy contract, provided by trading companies, is contracted on the basis of own energy sources or contracted energy producers. Particularly in countries with a large share of fossil fuels in the energy mix, it is not possible to guarantee the delivery of energy that will consist solely of “green electrons.”

The trading company will try to contract the amount of renewable energy that matches the customer’s profile. On the other hand, as of today, it is not possible to match total renewable energy with the customer’s profile in real time. This leaves piecemeal quantities that must be purchased on the wholesale market to complete the consumption profile. This energy is purchased on the balancing market. Energy in the balancing market often comes from a mix of renewable energy and fossil fuels.

Often, in a contract supplied by a trading company, during periods of peak demand “peaks,” production shortfalls are made up by energy purchased on the wholesale market – which is a mix of fossil fuels and renewable sources indeed. To ensure 100% green energy, we should consider the concept of CFE PPA (Carbon Free Energy PPA). That is, in other words, carbon-free PPAs. This type of contract is also called 24/7 PPA, and means nothing more than matching consumption profile with production 24 hours, seven days a week. 24/7 PPA emphasizes that every kilowatt-hour consumed comes from a renewable source day and night.

This type of contracting is already in place and is now achievable. Google, for example, is committed to having CFE PPA-type contracts at all collection points by 2030. [2] The simplest way to achieve this is to have a renewable energy installation on the same industrial network as the point of consumption.

A solution that guarantees efficiency is certainly a direct line. Yet the expansion of a direct line involves substantial costs and availability of connections. An alternative solution is to use energy storage in conjunction with local generation. Energy storage in the form of batteries is a good way to have 100% renewable energy. In addition, such a solution minimizes the risk of price volatility, as well as having a positive impact on reducing balancing costs.

As the amount of, renewable energy in the system increases, so does the risk of cannibalization. The more energy on the grid comes from wind and solar, the more market prices are likely to fall. This is a result of the principle of “merit order,” or transmission priority according to production costs, which amplifies the cannibalization effect.

Corporations can benefit from the cannibalization effect by having energy storage facilities that are “recharged” during periods of low prices. While a PPA provides stability of energy supply, price stability and protection from volatile market prices, over the long term, batteries, can be a fundamental element in an effective power purchase strategy and take advantage of a situation when wholesale energy prices are generally discounting. Batteries, combined with photovoltaic panels, can be a great addition in a power purchase strategy. The above technologies create a positive effect, lowering the overall cost of purchasing energy by purchasing and storing a portion of the energy.

Finding the right solution and working out the details of energy procurement so as to achieve 100% green energy is a complex task. It’s important to do in-depth research and contact multiple suppliers directly, before making a final decision.

A well-designed power purchase strategy, will help support Net Zero ambitions, as well as generate savings. However, implementing such a strategy in conjunction with solar PV near the point of consumption and energy storage is not without its challenges.

Each photovoltaic installation AND energy storage differs marginally. In addition to the cost of installation, factors such as space on the roof or near the point of consumption construction and slope, consumption profile and potential contaminants that can form a layer of dust on the photovoltaic panel must also be considered. Also, legislative changes play an important role, as well as the production profile, pricing mechanism, price volatility and creditworthiness.

DNV experts are there to help you design your purchasing strategy so that you can take advantage of the plant’s life and potential and achieve the best contract value. A green energy purchasing strategy can lower the carbon footprint as well as have a good return on investment.

Jakub Pilc M.Sc
DNV Services UK Limited

[1] Highest ever share of energy from RES and disturbing developments in the energy market. Energy in March 2023 – analysis based on ENTSO-E data – OPINIONS (cire.pl)

[2] https://cloud.google.com/blog/topics/sustainability/a-new-clean-energy-purchasing-model-to-drive-decarbonization