Using ABI Research’s connections and informative interviews, this resource discusses the different ways enterprises can implement green/renewable energy sources cost-effectively.
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- The current increase in energy prices has led to energy being a major Operational Expenditure (OPEX) concern for industries and enterprises with a focus on how to minimize costs and usage. The fastest action that will have a significant impact concerns how enterprises buy energy and who is supplying it.
- While direct-to-supplier and consulting are two options, using Power Purchase Agreements (PPAs) has proven to be one of the most effective solutions for businesses aiming to reduce energy costs and adopt green energy sources (solar, wind, etc.).
- PPAs are becoming more flexible and varied for companies wishing to take advantage of them. Short-term PPAs are expected to be commonplace, offering 1 to 3-year deals. Virtual PPAs allow companies over multiple locations to meet their sustainability duties. The increase of PPAs offers a larger customer base for suppliers of renewable energy and new relationships will need to develop to best advertise and explain the available options.
- As the capacity for renewables increases every year, the amount of capacity under PPA contracts will increase as well, but still offer newcomers a large enough area for development. Net additions of renewable electricity capacity under PPAs can reach 106 Gigawatts (GW) by 2027 and could potentially take up 23% of the supplier market in terms of net additional capacity. This is a sizable increase compared to what the market looks like now, with only 36.7 GW installed in 2022 and a share of 12% of total net additions to renewable capacity.
- North America will continue supplying the greatest volume of PPAs, with larger companies jumping at the opportunity to cost-effectively introduce green energy to their operations. However, Asia-Pacific is expanding and will soon overtake Europe in volume, potentially offering a new area for the market to emerge.
“Not all businesses or plants have the space and or ability to invest in on-site generation, such as agriculture using wind turbines on their land to offset electricity. Businesses must analyze who supplies their energy and how it is generated. Energy procurement is now becoming a topic regularly brought up when discussing future targets of meeting green goals at affordable prices.” – Sam Torbet, Industry Analyst at ABI Research
Key Decision Items
Three of the primary ways businesses can purchase green energy include direct outreach to suppliers, energy consultants, and PPAs. The following sections describe the pros and cons of each solution.
Direct Outreach to the Energy Supplier
The first way businesses can purchase renewable energy is by seeking out a supplier themselves. Going this route means your organization must spend hours comparing quotes, analyzing tariff considerations, and assessing which energy supplier will be the best choice. While this method of adopting green energy might keep costs down, it also means workers will spend a great deal of time reviewing company websites and assessing how well the energy package fits your business needs. If you have multiple locations, the labor-intensity is compounded, as different regions have different suppliers, prices, and packages. Making matters worse, businesses are at a bargaining disadvantage with this solution if your energy needs are not particularly significant.
To summarize, the advantages and disadvantages of directly reaching out to renewable energy suppliers are provided below:
- No additional costs as comparisons are kept in-house
- Can be quick and simple to change suppliers, provided information is collected and presented to suppliers
- Man hours lost to comparing quotes personally
- Low bargaining power with suppliers
- Cannot affect the source and sustainability of the energy
Read More: Smart Energy Reality Check [Whitepaper]
Green Energy Consultants
Another solution to meeting your business’ green energy demands is to hire a middle man to do all the heavy lifting. Energy consultants, also known as energy brokers, will do all the research on potential utilities partners. When energy consultants go about the process of choosing a supplier, they will factor in your business’ specific goals and future vision. Another advantage of hiring an experienced energy consultant is that they can negotiate for more favorable rates because they have leveraging capabilities due to bringing in considerable business for the energy suppliers.
On the downside, energy consultants may not even evaluate some utilities, instead using a pre-approved list of suppliers. This is because consultants are incentivized to continue bringing in business to the same suppliers they have worked with before.
- One point of contact for multiple suppliers
- Consultants bring knowledge and expertise about quotes
- Tailored quote based on a client’s needs (e.g., a focus on sustainability goals, cheapest
- energy price, or best customer service)
- Can help with getting started with alternative energy procurement (e.g., PPAs)
- Consultant fees could offset any potential savings
- Consultants may only compare suppliers they have arrangements with and not explore th entire market
Power Purchase Agreements
Power Purchase Agreements (PPAs) are an increasingly popular choice for enterprises that aim to adopt renewable energy sources. In a PPA contract, the enterprise pays $X/Megawatt Hour (MWH) and green energy generation is always tied to a project. By having the agreements established for a specific project, businesses do not have to worry about the prices fluctuating. For the green energy supplier, PPAs ensure that they will have a new, consistent revenue stream for the foreseeable future. A notable trend is that PPAs are becoming more accessible to smaller businesses, as short-term and virtual contracts provide greater flexibility.
While PPAs are a preferred option for renewable energy generation for businesses, they do come with some disadvantages. Contract negotiations typically take longer to unfold than traditional energy procurement methods, enterprises must sustain operational viability in a location for the long term, and the enterprise is on its own to reach out to asset owners.
- Clean source of energy that can be linked to a specific project
- Stable but competitive cost of electricity
- Contracts are tailor-made to the enterprise and their needs
- Long-term relationships are established
- Contract negotiations will take longer to enter than usual procurement with suppliers.
- Enterprises must be robust enough to ensure they stay in that location with long-term
- An enterprise will still need to initiate contact with the asset owners.
Key Market Players to Watch
- Danfoss Inc.
- Enel X
- Fifth Third Bank’s Aulander Holloman Solar Facility
Dig Deeper for the Full Picture
If your organization has green energy targets, ABI Research’s Energy Purchasing Strategies for Enterprises report has you covered. This long-form research product forecasts renewable energy procurement worldwide, identifies the biggest energy challenges facing businesses today, and evaluates the drivers, benefits, and several case studies of using PPAs as an effective solution.
This content is part of our Energy Purchasing Strategies Research Spotlight, which covers many topics that bridge utility suppliers and businesses adopting sustainable energy sources.