Build a strategic approach to renewable electricity sourcing

Large companies should have an energy strategy, whether they are in an energy-intensive industry or not. The approach that views energy as a cost to be managed and overlooks the opportunities to create new value, reduce risk, and bolster resilience is quickly becoming outdated. The energy transition is gaining momentum, and renewable electricity (RE) is the clean engine driving it forward. 

While the goal of an ambitious carbon strategy is to achieve Net Zero, the various decarbonization technologies and methods competing for attention can be a source of confusion. The risk is that companies hesitate to act due to concerns about investing in the wrong technology or signing a long-term contract. Corporate consumers want secure, reliable, accessible, and affordable energy. They need to know how to build a strategic approach to RE sourcing emphasizing high-quality options: on-site generation and corporate Power Purchase Agreements (PPAs). 

When building their strategy, companies should consider four renewable electricity sourcing options:

1. Unbundled Energy Attribute Certificates (EACs) 

Known regionally as RECs (Renewable Energy Certificates, in USA and Canada) or GOs (Guarantees of Origin, in most of Europe), these certificates validate that one unit of RE (1 MWh) has been generated and injected into the power grid. Purchasing EACs enables the claim of RE usage. EACs are a quick solution that can be purchased separate from the underlying electricity and independent of existing electricity supply contracts. 

2. Green Retail 

These are bundled electricity contracts that allow customers to easily procure physical RE along with EACs by paying a premium through their power supply contract.  

3. Corporate Power Purchase Agreements (PPAs) 

Contracts for RE offtake, typically with a developer and a specific RE source. Long-term PPAs (10-20 years) often guarantee RE supply at favorable rates and enable the construction of new RE installations. Short-term PPAs (1-5 years) are used to purchase RE, often at a fixed rate, from existing or new installations. PPAs can significantly accelerate deployment of RE but may entail additional complexities 

4. Direct Investment 

Usually self-owned, small installations such as onsite solar PV that are placed on rooftops or carports and function ‘behind-the-meter' (i.e., direct use of energy generated without passing through an electricity meter). Companies increasingly have third parties manage RE installations at their facilities, from whom they then purchase the generated power through a PPA contract.

Here are three corporate examples of 100% renewable electricity sourcing strategies and the projected results: 

1. A multinational IT company with most of its electricity consumption in the APAC region initiated a roadmap to reach 100% RE sourcing by 2024 and is projected to achieve 20% savings (>$60M) on its energy bills from 2024-2030 using PPAs. 

2. An automotive multinational is currently implementing a multi-site (>20 sites) onsite solar program in Europe. The average expected annual energy savings have been calculated at 10% in France, 20% in the Netherlands and 12% in the UK. 

3. A multinational utility with facilities in ~60 countries and annual consumption of over 20 TWh of electricity has a goal to reach 100% RE sourcing by 2030. Target sites are in emerging markets, including sub-Saharan countries, where PPAs are not yet mature for corporates. In this case, the company has managed to develop PPAs in partnership with national governments and utilities where PPAs are a mature option.

Climate impact

Targeted emissions sources

This initiative targets Scope 1 (direct emissions from owned or controlled sources), Scope 2 (indirect emissions from the generation of purchased energy), and Scope 3 (all other indirect emissions that occur in a company’s value chain) emissions. It mainly targets Scope 2 emissions, which are becoming increasingly controllable by companies via the renewable energy procurement options mentioned above. 

Decarbonization impact  

Reduced Carbon Emissions: Fossil fuels, such as coal, oil and gas, are by far the largest contributor to global climate change, accounting for over 75% of global greenhouse gas emissions and nearly 90% of all carbon dioxide emissions. Science is clear: to avoid the worst impacts of climate change, emissions need to be reduced by almost half by 2030 and reach Net Zero by 2050. Energy efficiency coupled with a transition to RE is the way to achieve this.  

Public and private organizations need to join the movement to end the reliance on fossil fuels and invest in alternative sources of energy that are clean, accessible, affordable, sustainable, and reliable. Renewable energy meets these criteria. The fact that its production generates little to no GHGs means it is good for the climate, health, and for meeting decarbonization targets.

Business impact

Benefits

Managed energy costs: The cost of some renewable energy solutions may be lower than fossil fuels & is declining. It hedges against fuel price volatility, while long-term supply contracts can lock in a price advantage 

Enhanced brand value: Embracing renewable energy enhances brand reputation and value by showing a commitment to sustainability and meeting customer, employee, and investor expectations. Companies that prioritize sustainability are more likely to attract investments from ESG-focused funds and socially responsible investors 

Stability of supply: Renewables are unlimited and foster energy independence. Investments in grid infrastructure, supply and demand flexibility, and storage will gradually stabilize supply 

Costs

CAPEX investment: Installing a solar PV array or another type of self-generation technology involves high investment costs and only covers a small percentage of energy needs 

Complexity: PPAs in particular can be complicated financial and contractual instruments requiring substantial expertise  

Time commitment: Most PPAs involve a 10–20-year commitment, during which multiple factors may change, from energy prices to decarbonization technologies to carbon pricing. Contracts must be carefully constructed to manage unpredictability 

Risk: EACs and, to a lesser extent, green retail contracts are vulnerable to greenwashing claims – namely, that companies buy sustainable credentials while they continue to pollute. EACs can be a low-quality option, as the RE generated and certified may come from old installations that are not adding new RE capacity to the grid (no additionality) 

Typical Business Profile

RE procurement is recommended for all types of businesses and is almost a necessity for an organization with a strong sustainability commitment or a public emissions target. The option selected depends on the size of the company and the volume of its energy needs.  

There is little downside beyond paying a green premium for even a small business to contract RE through a green retail (or green tariff) program with a local utility provider. They pay a pre-determined rate to the utility for electricity generated by a local RE project and receive associated EACs without having to change their existing energy account. Due diligence is needed to ensure the utility is sourcing RE and (ideally) investing in new RE production. Organizations of any size may invest in onsite solutions or purchase EACs to claim use of RE, but the more energy the company uses, the more feasible it becomes. 

Companies that develop a robust RE strategy combining some or all available options are typically medium-size enterprises or large corporations with the resources and infrastructure to invest in RE projects directly or through PPAs. These companies typically have stated corporate sustainability goals on emissions/carbon neutrality, face consumer or stakeholder pressure – such as companies with a high environmental impact or those that are publicly traded – and need to meet regulatory requirements.  

Typical sectors in which companies would need a robust RE strategy would be tech and data centers (Google, Microsoft, Amazon, Oracle Cloud, Meta, etc.), manufacturing and heavy industry, retail and consumer goods, and financial services, among others. 

Approach

To successfully deliver outcomes on time and on budget, organizations should address RE sourcing centrally. The following three-step approach enables organizations to identify and prioritize sourcing opportunities, onboard key stakeholders, and drive decisions toward implementation—with tangible short-term results and long-term assurance of the decarbonization trajectory. Building a renewable electricity roadmap can accelerate RE implementation globally. 

1. Clarify Starting Point and Ambition: Identify the target to which the RE should contribute (e.g., energy costs, CO2 emissions, SBTi commitment, etc.) and clarify the link between the emissions reduction target (tons of CO2) and amount of electricity required (MWh). Calculate emissions and electricity supply baseline and prioritize geographies according to emissions and energy use to decide where an in-depth approach is needed  

2. Build an Actionable Roadmap and Align Stakeholders: Identify available solutions by geography and build preliminary roadmaps at the local level, based on feasibility, quality and economics. Onboard stakeholders, get buy-in for organizational change, identify potential additional costs, and engage with local entities. Then build the global roadmap by considering trade-offs between the different geographies based on the contribution to the global decarbonization trajectory, CO2 impact, required budget, short-term opportunities, long-term security, and long-term engagement. 

3. Implement an Action Plan: After establishing the global roadmap, use the momentum created by the management decision to implement the strategy immediately. At this point, the company usually enters a new paradigm in energy sourcing: from local execution to a centralized, global programmatic approach. The centralized approach ensures local actions facilitate achievement of an organization’s broader sustainability ambitions. As the first projects commence and their performance is monitored, new projects along the roadmap are implemented. The roadmap should be updated along with the realized actions and the changing energy landscape. 

Stakeholders involved

Stakeholder management is a key factor when building an RE sourcing strategy. The process involves coordinating various internal and external stakeholders and will be more intensive or less involved depending on the option(s) selected.  Depending on the sourcing option selected, developing an RE program will involve a combination of the following internal corporate teams: 

• Sustainability and Procurement: These teams are the main stakeholders for EACs and green tariffs. They evaluate options, negotiate agreements and ensure, for instance, that EAC purchases align with corporate renewable energy goals and reporting frameworks. When PPAs are involved, sustainability teams work closely with consultants to ensure the project aligns with sustainability goals 

• Finance: In all cases these teams assess the cost implications. For PPAs, they evaluate financial viability over time and may conduct risk assessments. For on-site solutions, they will weigh CAPEX against return on investment and (preferably) total cost of ownership 

• Legal: Review contracts with energy suppliers or utilities, ensuring compliance with renewable energy standards, regulations, and proper claims about RE use. This is straightforward for EACs and green tariffs. For PPAs, contract review is more intensive, compliance risks may be international, and they ensure agreements protect the company’s interests.  

• Operations and Facility Managers: For PPAs, these functions ensure the RE solution integrates smoothly into existing operations, and they provide input on energy requirements and technical feasibility. For on-site solutions, they play a more hands-on role, evaluating the feasibility of installing RE generation equipment on company-owned sites, ensuring roof or land space, structural integrity, and maintenance requirements 

• Executive leadership: give final approval for PPAs, so consultants must keep them informed about the project’s benefits, risks, and alignment with the company’s overall strategy 

For each RE sourcing solution, a different set of external stakeholders are involved: 

• Brokers/Marketplace/RE generators: Avenues to obtain EAC certificates 

• Utility Providers: Suppliers of green tariffs, and important for on-site generation, providing grid connection, metering agreements, potential grid impact studies, and negotiating interconnection agreements 

• Renewable Energy Suppliers: Setting up PPAs requires negotiations with RE developers or utilities on terms for pricing, delivery schedules and contract length 

• Regulators, Local Authorities, Permitting Agencies: To ensure PPAs comply with local regulations, RE policies, and incentives, and to ensure on-site installations comply with local building codes and zoning regulations 

• Local Communities: On-site solutions and larger RE project can impact local surroundings 

Key parameters to consider

1. Feasibility: This refers to the availability of renewable electricity sourcing options in a geographic region, implementation complexity, and lead time. The feasibility of EACs and green retail is typically high as they are easy to contract and available in most countries. PPAs and direct investments require more resources (capital and time) and are hindered in many geographies by regulatory boundaries. 

2. Quality: This refers to a solution's additionality – which means it contributes to new RE generation capacity – its temporality, describing the match between the production and consumption curve, and geographical distance between production and consumption. EACs and green retail usually certify RE from existing installations and so their additionality is low, though it is possible to build high-quality approaches with both solutions. PPAs and direct investment are high quality as they typically lead to new RE capacity. 

3. Economics: This refers to the comparative cost of the solution, whether a long-term engagement is required, and the exposure or hedging it can provide against future market developments. The opportunity for savings via RE typically comes at the cost of long-term engagement and a long-term position in the market. Still, buying electricity through long-term solutions could be considered a reasonable risk management strategy, particularly in a fluctuating market, though the business case needs confirmation on a case-by-case basis. 

4. Geography: Not all RE sourcing solutions are available in every region around the globe. Companies must be aware of what is available where. Regulations can change quickly in some regions, creating an obstacle to availability.  

5. Guidance and standards for accounting and reporting: Industry bodies – such as the GHG Protocol, SBTi, RE100, Emissions First Partnership, 24/7 Carbon-Free Energy Compact – use conflicting criteria. When designing a RE roadmap, companies must be aware of the parameters that matter to the industry body they will report to and align procurement accordingly.