The renewables roundtable: Unlocking the next phase of the clean energy revolution
How can businesses reap the rewards of renewable energy against an ever-changing backdrop? To answer this crucial question, a group of energy and sustainability managers recently convened for an exclusive roundtable discussion in London, hosted by edie and SmartestEnergy.
The plummeting cost of clean energy technologies and the rapid progress in energy storage and grid innovations mean the renewables revolution is now unstoppable, and the pace at which some of the world's most high-profile companies have set 100% renewable power targets has been truly remarkable.
But of course, the transition to 100% renewable electricity has not been without its challenges: gaining internal buy-in, organising funding for new projects, and ensuring returns on investment are just some of the initial hurdles which must be overcome if a business is planning to be fully powered by renewables – not to mention the potential intermittencies in supply and impacts on the grid that must be considered.
At this roundtable event, edie and energy company SmartestEnergy welcomed energy and sustainability leads from some of the UK’s largest corporates to explore how these challenges can be turned into opportunities to make 100% renewable power ambitions a reality.
Thanks to the falling cost of wind and solar projects, along with advances in battery storage technology, a subsidy-free future for clean energy is now firmly within sight. In the past 12 months alone, the UK has witnessed its first subsidy-free solar project, alongside a record-low offshore wind strike-price of £57.50/MWh in the latest Contract for Difference (CfD) auction. There is an enormous prize up for grabs, with experts anticipating that a subsidy-free renewables revolution could create up to 18GW of new capacity by 2030 and attract £20bn of investment in the UK.
But, while the renewables sector continues to grow, there are some causes for concern. The level of investment in renewable energy projects saw a significant drop last year, while 2017 also saw a substantial slowdown of solar growth, as the Renewables Obligation (RO) closed, and bioenergy power only grew by 4.2%. Many have left the blame at the Government’s door, as emphasised by the green community’s hostile reaction to the recent decision to close the Feed-in Tariff (FiT) scheme.
With this in mind, our roundtable participants were keen to kick off the discussion by putting forward their views on the next steps that should be taken to ensure that businesses can flourish in a subsidy-free era. They agreed that they would like to see much more certainty from a price-setting perspective, highlighting the complexity of a consumer contracting directly with a generator. Some members noted the different electricity units used by each party, while others bemoaned the fact that consumers have to pay a number of other charges related to transporting the electricity from the point of generation to supply, in addition to taxes and subsidies for renewables that have already been committed by the Government.
“The problem is the extra layers of complexity,” one participant claimed. “We just want a price that we pay for power.”
Variability in both renewable energy generation and non-commodity costs - which now accounts for around 55% of the delivered cost for projects – were described as a “nightmare” for finance teams seeking cost certainty for renewables purchases. One participant suggested that this dilemma could be offset by obtaining net-metering, an incentive mechanism that allows producers to offset their consumption with the electricity produced on their own site. Net-metering would allow a producer and consumer (prosumer) to reduce the exposure to non-commodity costs, it was claimed.
“Procurement teams only talk commodity price, but it is almost irrelevant because the cost impact is the landing price, which includes all these other elements,” they said. “So there needs to be a simplification of the whole thing. In an ideal world, we're using that net-metering piece to start levelising the cost impact of onsite generation.
“If we are getting net-metering for the variability against a set load and stabilise the price and generation impact, it becomes a lot more accessible.”
It was also felt that the purchasing process would be made much easier if an intermediary – such as SmartestEnergy – sat in the middle of agreements between generators and a whole host of offtakers (consumers), not just in a balancing and settlement agent capacity but also in a redistribution role.
“That is where a middle organisation could come in and take away all of that variability,” one delegate claimed. “They might take 2.5GW [from the generation site] and then redistribute that to people like us. They could take on the long-term commitment knowing that they can sell on the power.”
Building batteries, changing behaviours
It was suggested at this point in the roundtable discussion that a potential solution to the variability issue is that of battery storage, a technology which has plummeted in price. If recent estimates are to be believed, the global energy storage market is set to double up to six times by 2030. For energy-intensive businesses like major utility firms, effective onsite energy storage can help large sites become more self-sufficient by making the most of their generation capability in order to avoid using grid power.
This is certainly the case for South West Water, which has set a target to source 20% of its energy from renewables by 2020. The company’s energy and carbon manager David Rose explained to other roundtable participants that its sites with solar installations could particularly benefit as it would be possible to store energy from times of peak generation during the day and use it during times of higher demand in the evening. Rose admitted, however, that a major sticking point for storage deployment is the lack of buy-in from other areas of the business.
“The company is very focused on its core activities which is supplying customers with water - that is the number one priority which cannot be interfered with,” Rose said. “So, when we come along and say it would be better if you started pumping in the middle of the day because you would use more solar, that is a difficult conversation to have with operational people.
“Partly, it is a behavioural thing because they are conditioned into meeting demand. And to be fair, there are massive penalties if you fail to meet compliance. I would love energy management to be a priority at single sites, but I think that is still five to 10 years away.”
Behaviour change was a topic that cropped up several times during the roundtable discussion. It was cited by some participants as one of the major cons of corporate Power Purchase Agreements (PPA), a concept that has moved to the forefront of the renewable energy agenda in recent years. PPAs remove the exposure to price volatility and allow for accurate and predictable cost planning, but the route is not without its issues.
One area that most observers agreed needs addressing is the length of the contracts, which can be as long as 15-20 years in some cases. While energy procurement managers and those working in sustainability departments at leading corporations might be on board with the concept of entering into a corporate PPA, this long-term investment decision can prove difficult to sell to those holding the company purse strings, participants agreed.
“That long-term commitment means that not only do we have hundreds of millions of pounds in value that needs board sign-off, it is trying to forecast the electricity price markets ahead, which is tricky,” BT’s procurement general manager Robert Williams said.
Williams gave thanks for the support received from his own boardroom, which last year gave the go-ahead for BT to become one of the first companies to have their science-based target approved by the Science Based Targets initiative (SBTi). This move is particularly notable for a company that consumes around 2.5TWh of energy each year and, combined with its recently acquired company EE, uses around 1% of the UK’s power for its networks, data centres and offices.
As an RE100 member, BT has explored a number of options for increasing renewable power use within its operations and across its suppliers and partners. The firm has invested £440m via PPAs in three wind farm sites in Lancashire, Scotland and Wales. At the Fallago Rig wind farm in Scotland, BT now buys 50% of the electricity generated, matching the company’s needs in the country.
“That is how we lever power to create additionality,” Williams explained. “We look at PPAs from a sustainability perspective. It provides that additionality, rigour and strong link and we get all of our electricity to power our Scottish network generated by the two wind farms we have in Scotland. It provides a great customer relations piece too.”
The continued downward trajectory of project costs will certainly help drive this area, while some sterner legislating on carbon price floors could also help to get deals over the line. But as things stand, the financial cost of emitting carbon is widely seen as far too low across the globe to spur levels of low-carbon investment needed to meet the goals of the Paris Agreement. The UK’s carbon price currently stands at £18 per tonne, but participants agreed that price would need to be boosted to at least the £70-80 mark.
“It has to be set at the right price to send the right signals to the market to change behaviours, otherwise it is just going to be another 0.5p on the cost and companies will just soak it up,” one roundtable participant commented.
A particularly encouraging development in this area is the increasingly influential role played by the investor community in shifting away from coal and other fossil fuels due to concerns about climate risks. Approximately £15bn has been divested from coal by insurers in the past two years, while initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) are encouraging businesses to align climate-related risks with financial filings. Roundtable participants heralded January’s public letter from the world’s largest asset manager, Blackrock’s boss Larry Fink, which claimed that capitalism must change to avert climate change, as a “landmark” moment that could fundamentally shift the pace of the renewables agenda.
“It sets the tone and gets the whole asset management industry talking, which then gets all of the investors talking,” said Rishi Madlani, director sustainable energy at the Royal Bank of Scotland (RBS). “Boards read it – my chairman was aware of it. The rhetoric and the language on climate is just getting louder which is great to see at large asset managers.
“It makes it easier to have other conversations around carbon footprints. These are the sort of questions that we are asking our managers to come back to us on. Environmental and social governance (ESG) will increase the pressure and it is one that will fast-track straight to the board, so it will have a big role to play.”