Evaluate Procurement Methods for Your Context

There are certain advantages and disadvantages to consider with all procurement methods. In emerging markets, it often boils down to what the market allows and what capital or contract structure your organization is able to commit to.

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Main Points

• You can now consider the four primary procurement methods given your company’s specific context (location, access to capital, utility offerings, etc).
• Depending on your company’s business and electricity needs, it can be advantageous to join together with other corporate buyers to fulfill your procurement needs.
• To be able to advocate for and select one form of procurement over another, you must be well-versed in the drawbacks and benefits of all your options.

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First, Read About REC-based Procurement Programs

Purchasing unbundled RECs are the simplest procurement option, and utility green tariffs are the most flexible.

And See This

There are different versions of RECs globally. You’ll need to understand what options exist in your operating region. For example, Taiwan has a FIT +T-REC scheme, and Mexico has its own REC program (pg 11-12).

See: Figure 1 from Voluntary Renewable Energy Procurement Programs in Regulated Utility Markets by NREL.

Next, Read About Third-Party PPAs

Corporate buyers can procure energy from an independent power producer (IPP) through on- or off-site PPAs.

Where allowed by law, third-party PPAs allow customers to purchase their electricity directly from an RE project developer rather than the electric utility, through either on- or off-site agreements with end users. On-site contracts, which may take the form of leases, deliver RE and RECs directly to corporate loads. Utilities are typically uninvolved unless excess electricity is fed to the grid through a FIT mechanism, but Text Box 7 demonstrates the range of implementation options with a unique approach.

Under off-site PPAs, the third-party owned RE project effectively provides supply to the customer, while the utility continues to provide transmission, distribution, and balancing services. The IPP will likely pay a “wheeling charge” for use of the utility’s transmission infrastructure (Heeter et al. 2016). Because the electrons being delivered to the customer are not the exact ones being injected by the RE project, the utility needs to agree on a balancing arrangement with the customer. This agreement establishes the frequency that IPP generation and customer demand are equal (i.e., hourly, daily, weekly).

Where third-party RE sales are allowed, the utility may lose out on revenue from the sale of electricity generation; however, in markets with rapidly growing electricity consumption, reducing large corporate loads through on-site projects can meaningfully reduce a utility’s short-term capacity needs. Additionally, for off-site projects, wheeling charges ensure that the utility is able to recover costs for the services it continues to provide, namely transmission, distribution, and balancing. Table 7 highlights stakeholder perspectives on third-party PPAs and leases.

Read Excerpt: Section 3.1.4 from Voluntary Renewable Energy Procurement Programs in Regulated Utility Markets by NREL.

An off-site PPA can present creative procurement opportunities if a company, or its operating region, is land-constrained.

Read: Text Box 4 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally by NREL, IRENA, WRI and Center for Resource Solutions.

Now, Consider an Aggregated Approach

For companies with lower electricity demand, there is an innovative approach to consider. Several companies can join together to procure from a renewable asset. This would allow them to achieve economies of scale, opening up better financing options.

Joining forces to invest in rooftop solar in Vietnam, several apparel brands are able to see increased cost-savings and engage in a more efficient process with contractors.

Engaging in a multi-buyer PPA allowed a diverse group of companies to secure power from a 200 MW wind farm, enabling risk sharing for the participating corporate buyers.

Read: Case study from Corporate Renewable Power Purchase Agreements: Scaling Up Globally by WBCSD.

Next, Read About Turnkey Purchases

In regulated markets, turnkey purchases, or corporate ownership, primarily involve on-site systems. These present several advantages to corporate buyers.

Finally, See This

As of 2018, most countries offer at least one method of procurement.

Suggested Actions & Next Steps

1. Research: Obtain a list of locations where your company utilizes energy (offices, data centers, supplier operations, or manufacturing facilities). Talk to your utility and facility managers at these locations to evaluate grid access, grid capacity and siting availability options. This will help you weigh the options of on- or near-site versus off-site procurement.
2. Understand: Talk to colleagues in your finance and legal departments to determine your company’s appetite for a turnkey system, virtual PPA, or other options. It will be important to understand desired payback period on investments and securities implications.
3. Investigate: Talk to your colleagues about your company’s energy needs at a high level. Are they constant or variable, large or small? Will usage change during the day or between seasons? How far ahead can you project these needs? What facilities or activities comprise of the majority of electricity use? What is a typical electricity contract length for your company? Understanding general answers to these questions will help narrow down your procurement options.
4. Think it over: Compare every option with your company’s goals (economic value, installation/development/procurement timeline and others). What selection criteria are most important to your company (e.g. visibility, resource type, independent certification and verification, low cost and low involvement)?
5. Think it over: Recall from Section 3.2 whether your electricity supplier offers any green tariffs.
6. Write it down: Based on conclusions from the above exercises and the information in this Section and Section 2 on various procurement options, synthesize and summarize the most suitable procurement options for your organization.